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If you ask someone why they choose to eat at a fast food chain, one of the first answers you normally hear is because of how affordable it is—but it seems that the budget-friendly appeal of fast food is fading just as fast, according to new data presented by Bloomberg.
Sales gimmicks like Burger King's pile of 10 chicken nuggets for $1 may still be getting customers in the door, but the reality is that non-discount menu items have become increasingly expensive over the years. Hamburgers have seen price hikes of upwards of 55 percent over the last decade, to an average of $6.95, Bloomberg reports—and the costs of chicken sandwiches have seen a similar trend, with prices escalating by 27 percent since 2008. These cost increases exceed overall U.S. price inflation recorded during the same period.
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Bloomberg notes that McDonald's, once infamous among consumers for their vast Dollar Menu, recently introduced $6 meals that include a small burger, fries, soda, and a fried pie—but if you choose regular menu entrées, like chicken tenders or a burger with bacon the total can end up being twice that, or more.
The price gap between value menu items and regular menu items (both often highly caloric and nutritionally poor) are becoming more and more noticeable at many chains—in Chicago, the metropolitan market where Bloomberg pulled its data from, Taco Bell's "Grilled Stuft Burrito" is $5 and change, whereas a cheese, bean and rice burrito is $1. Prices vary by market, but data shows this trend is well on its way to becoming a permanent change at all chains.
But the most poignant aspect of this trend is that average fast food prices are now closer to being on par with items available at fast-casual chains. In the case of Shake Shack, menus used to be nearly 30 percent pricier than those at Burger King or McDonald's. According to research from Datassential, a food industry marketing firm, the cost difference between a hamburger from Shake Shack and a traditional fast-food drive thru is now less than 8 percent.
Fast-casual restaurants and fast-food chains are very distinct; some, like Chipotle and Panera Bread, have proved that wholesome ingredients can be used in appealing meals at attractive prices, which are no longer far and away from those being charged at drive thru windows.
It's clear that menus at fast-casual restaurants aren't perfect by any means, but nutritionists have found redeeming, healthy options and orders at these restaurants. Cooking Light has published an in-depth guide to ordering the healthiest meals at national chain restaurants, and readers can easily discern the nutritional value between items at leading fast-food chains as well as the fast-casual restaurants on this list.
Since prices aren't noticeably cheaper at fast-food chains anymore, consumers could feasibly turn to fast-casual chains and their healthier on-the-go meals instead.
“It’s expensive to eat out—period,” Bob Goldin, partner at food-service consultant Pentallect Inc., told Bloomberg. “Restaurant pricing is starting to be an inhibitor to the industry for growth.”
Many factors are contributing to price hikes, including increased wage levels as well as operational expenses, says Omair Sharif, an economist at Societe Generale, but these markups are getting harder and harder to ignore.
All food prices, including those at independent grocery stores and restaurants, have increased at similar rates over the years—up until 2009, when growth patterns largely diverged for fast food chains, according to data from the United States Department of Agriculture. Prices at all restaurants, including drive thrus and those at other chains, are influenced by labor rates and overhead costs like rent and facility upkeep. But lower farm and commodity food costs have helped keep prices lower at grocery stores, whereas restaurants don't feel as much of that benefit.
As it becomes clearer that eating fast food is not as cheap as it once was—especially compared to prices at other establishments—one of the last reasons why consumers head to the drive thru is convenience. Purchasing a ready-made meal in mere minutes could be a part of why so many Americans eat fast food on a regular basis: up to one-third of U.S. adults each day, apparently.
It's true that home cooks will never be able to turn raw ingredients into a full meal in the two minutes that it takes for someone to place an order at the drive thru—but many have discovered ways to turn total meal prep and cooking time into less than half an hour. In fact, Cooking Light has an entire section of recipes on our site dedicated to meals that can be made in 20 minutes flat.
Illustration: Malte Mueller / Getty
And since time is of the essence to every home cook, we've launched a new section where we highlight the best ready-to-eat items available to shoppers in the market. Even just assembling meals at home could not only be healthier for you, but also save you money in the process.
In any case, it's clear that fast food chains are losing ground with customers who can't justify their habits anymore—visits to fast-food restaurants have been declining overall, according to Bloomberg. Deals like Wendy's "4 for $4" are a way for these restaurants get customers in the door, where they'll end up spending money elsewhere on other menu items.
And fast-food chains will continue to create and promote these value packages, too—but in an era where it costs just about the same to eat at any restaurant, chain or not, where's the value in visiting the drive thru any longer?
What Drives Consumers to Purchase Convenience Foods?
Many Americans lead busy lives and don’t have a lot of time to prepare food for their families. Faced with greater time constraints from work, childcare, and commuting, they often turn to convenience foods. Convenience foods are defined as types of foods that save time in food acquisition, preparation, and cleanup. Convenience foods are restaurant meals and ready-to-eat food from grocery stores. The ready-to-eat food encompasses many types of food ranging from bananas to frozen pizza that require little or no preparation. Although these convenience foods save time, they tend to have lower nutritional values and can be more expensive than food that takes more time to prepare. In our recent report, Consumers Balance Time and Money in Purchasing Convenience Foods, we use USDA’s 2012-13 National Household Food Acquisition and Purchase Survey (FoodAPS) to explore why Americans purchase convenience foods, what types of convenience foods they purchase, and the factors affecting their decisions such as time constraints, prices, the food environment, and financial resources. More specifically, we examine how each factor affects foods with varying degree of convenience that consumers purchase: fast-food, full-service restaurant meals, ready-to-eat foods from grocery stores, or non-ready-to-eat foods from grocery stores.
Employment creates time constraints from both the time spent working and the time spent commuting. These time constraints shift consumer demand from grocery store foods to restaurant meals. The shift to full-service restaurants is most notable when all adults in the household are employed. Households where all the adults are employed purchase 12 percent less ready-to-eat food from grocery stores and 72 percent more food from full-service restaurants than households where not all adults are employed.
Having children in the household also affects convenience food choices, both because parents select foods they believe their children will eat, and because parents spend time taking care of children and therefore have less time to prepare food. Households with children purchase 19 percent more fast-food meals and 38 percent less full-service restaurant meals than households without children. However, as the number of children in the household increases, they purchase more foods from grocery stores and less from restaurants. In addition, single parents, who do not have a partner to help out with child care, purchase 14 percent more ready-to-eat foods than all other households.
Financial resources also play an important role in convenience food choices. Convenience foods from fast-food or full-service restaurants tend to be more expensive than those bought from grocery stores. Not surprisingly, as household incomes rise, households shift from ready-to-eat food from grocery stores to fast-food and full-service restaurant meals. On the other hand, the Supplemental Nutrition Assistance Program (SNAP) provides program participants with funds to purchase food from grocery stores, and as a result, SNAP participants tend to buy more food from grocery stores and less from restaurants than non-participants who are eligible for SNAP.
Consumers’ decisions on how much of different types of convenience foods they purchase is influenced by time constraints, prices, the food environment, and financial resources. Understanding what motivates these consumers to purchase convenience foods has important implications for public health, given that convenience foods are often associated with lower nutritional value.
In the United States, inflation is measured by the Consumer Price Index (CPI) and tends to be around 2% annually. This type of inflation is a good thing because it is a sign of a healthy, growing economy.
However, on Wednesday, May 12, the Labor Department reported consumer prices are up 4.2%. This is the sharpest increase since 2008.
Food costs have now surpassed the standard 2% inflation. In fact, data from NielsenIQ shows that in a 13-week period that ended April 24, 2021, seafood prices are up 18.7% on average over the same time last year. Baked goods are up about 7.5% for the same period.
Of the 52 categories tracked by NielsenIQ, 50 categories are more expensive than this time last year. Butter and milk are the only two categories not seeing increases yet.
While there are numerous factors at play, rising commodity prices are partially contributing to the increase in food costs. The Bloomberg Commodity Spot Index (BCOM), which tracks 23 commodity futures in 6 sectors, is at its highest level in almost a decade.
Even the White House has issued statements stating that they believe inflation will continue to rise modestly over the coming months.
In other words, this isn’t just a fluke. It’s a real problem, yet there’s no need to panic. Inflated food costs are something you can prepare for right now. It’s as simple as purchasing items today you can store for the long term.
Food Price Increases, A Disoriented Customer, And Unreconciled Supply And Demand: The Post-Covid Reality
As the world begins to migrate away from the horrendous effects of the Covid-19 pandemic, the surging costs to procure food around the globe are taking center-stage. From rising raw material inputs to soaring supply-chain expenditures, to penalties being imposed on food manufacturers by retailers the rush to meet pent up consumer demand is leaving store shelves as bare as they were at the beginning of the Covid pandemic. It appears that a disoriented consumer with new shopping habits is about to carry a heavier economic burden that anyone expected, despite possessing government stimulus pocket-change.
The economics of the back-half of 2021 are about to get seriously turbulent for everyone in the food business, especially small businesses, and entrepreneurial start-ups and scale-ups, despite all the celebratory “re-opening” fanfare going on these days.
No doubt you have noticed that a bag of your favorite groceries is much more expensive today than it was only a couple of months ago, even after satisfying your hoarding of goods that you now have stockpiled in every cabinet of your remodeled kitchen.
In March, the U.S. Bureau of Labor Statistic’s reported that the Consumer Price Index (CPI) for food during 2020, increased by 3.3% on-average for food prepared at home and 3.9% for food purchased away from home. The report indicated that food continues its escalating trend and for at least the food purchased away from home segment, especially in limited-service restaurants (think fast-food) increased significantly by 6.5% - the largest increase in 10 years!
The most recent April report indicates that consumer-prices have risen to 4.2% for the year up from 2.6% in March – the largest increase since 2008. The rising trend for food prices continued, at 2.4% from the same month a year ago. Meals away from home (restaurants and other outlets) continue to increase, up 3.8% in April.
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The 2021 food analyst outlook for food-at-home prices are expected to increase between 1.0 and 2.0 percent, and food-away-from-home prices are now expected to increase between 2.5 and 3.5 percent. Despite these predicted increases, inflation for most food categories is expected to be at or below their 20-year historical averages—exceptions include nonalcoholic beverages, other foods, and fresh fruit.
“This is a very volatile environment right now, very low visibility, lots of surprise,” Nestle Chief Executive Mark Schneider said last week on a call with analysts. “We will take pricing action.”
The price increases are not a complete surprise given that demand overwhelmed supply during the early Covid-19 consumer pantry loading phase of the pandemic and food manufacturers around the world are still scrambling to fill grocery store orders. With production facilities working at full capacity and every available worker at their station pumping out finished products, the inventory glut of commodity ingredients like corn, wheat, and soybeans have begun to subside given their use in food formulation. The increased production efforts come with costs as do transportation and freight which require surcharges that move supply-chains in order to get product to its final destination – so you may store it into your pantry.
There is reasonableness in how the economics of food work up until there are unforeseen circumstances that completely unravel the synchronization of agriculture and its supply-chains. Beyond unpredictable demand forecasts, weather events have traditionally caused the most disruption in farming across the country. DTN - a data, analytics and technology provider to American and Canadian farmers and ranchers and agribusiness - is reporting significant dryness and drought conditions across the country and the further west you go the worst it gets. This spring many in the group are united in their wish for moisture, fewer surprises and more stable input costs for fuel, seeds, fertilizer, and other chemical costs. "I think all of us have a heightened awareness of any black swan event that might swoop in," said Kenny Reinke, who farms in northeastern Nebraska.
Of course, getting food from the farm to the fork requires specialized labor, starting on the farm and ending up in grocery-store aisles and in restaurants, both front and the back-of-the-house. The current labor shortages and issues in hiring for the retail service industry are well documented and they do not appear to be subsiding anytime soon. However, with more than 3 million new job postings in April specifically for remote work, the challenge is now even greater for employers to lure workers to the much need vacancies in the service sector. We have heard plenty on the government stimulus package and the policy effects of unemployment benefits, yet we are now realizing that the workforce of the future has plenty of high wage options. So, who is going to stock grocery-shelves, clean dishes and serve you your favorite beverage and meal you ask? It is yet one more complication that is going to take some time to solve during this time of “re-opening”.
Add up the rise in food ingredients, incremental supply-chain costs, not enough qualified labor and the lack of supply to meet demand, and the economic pressure that your favorite restaurateur and grocer have faced during the pandemic has not truly subsided. The current forecast shifts from zero to erratic demand, to overwhelming instant demand is causing just as much havoc now for many businesses as the struggle to survive the Covid-19 shutdown. With this much daily uncertainty the only solution is for a more cohesive and collaborative supply-chain. The recent in-fighting among supply-chain players demonstrates the tensions in balancing purchasing power to profitably service the overwhelming demand in all product categories, across all channels of the food industry. Short-term gains in market share and profits for food, grocery and restaurant companies are not sustainable as all the cost increases are forced onto consumers who are slowing down their hoarding and shopping more frequent promotional discounts while continuing to eat at home – in their newly remodeled expense kitchens.
Consumer household finances will surely feel the strain of home improvement loans, waning government stimulus support and uncertain wage stability. Imagine adding the impact of potential tax increases that are being debated in Washington into the mix!
There has never been a more critically important time to build a sustainable ecosystem that satisfies consumer demand in an economical and socially responsible manner. It is not too much to ask of the players in the supply-chain to join together in building an interdependent business model for a new consumer. We can all do our part and start with stopping the hoarding. I hope the “re-opening” celebration does not last too long and we lose sight of the impending business challenges ahead.
Why fast-track grocery delivery apps could soon leave supermarkets on the shelf
O ver the past year, you may have noticed the rapid growth in all kinds of app-based delivery services. For a while, supermarkets weren’t involved: traditionally, the industry does not grow very much. The margins are small, but predictable.
But something strange has happened: interest and investment in app-based delivery has exploded, with various fast-track services – such as Uber Eats and Deliveroo - offering to have groceries at your door within a specified number of minutes. Grocery is a multibillion-pound industry that appears to be in the midst of a massive disruption.
One of the most famous business cases here is the story of Webvan. It was one of the first grocery delivery apps, started in the late 1990s in the US, but it also offers a cautionary tale. It was fuelled by massive investment, all too common for the dotcom era. It built massive warehouses, and bought trucks, delivery vehicles and machinery in a bid to become a digitally enabled grocery delivery chain. It raised US$800m, and ended up bankrupt three years later.
So why is this rash of apps any different? Onlookers could be forgiven for seeing the massive losses posted by some of the companies, and thinking they could be heading in the same direction. Simultaneously, you may also wonder at the even larger investments that continue to pour into them. If you are confused about why this is possible, you’re not alone.
To understand why this is happening, you have to understand that grocery delivery apps are not in the grocery business. They are in the data and logistics business. Grocery delivery apps today are “four-sided marketplaces”. Most people are only familiar with two of these “sides”: the customer and the grocer. If you have had a really bad, or really good, delivery experience, then you are probably also familiar with the third, courier “side” of the market – while food producers/manufacturers make up the fourth.
Delivery apps make money from all of these market participants. Customers pay the delivery cost, service fees and usually a mark-up on the groceries they purchase. The grocery chains pay a commission for each item sold. The couriers, typically classified as contractors, “pay” by forgoing the usual benefits of an employee, thus subsidising the cost of delivery, and the food producers/manufacturers pay for customer data and advertising within the apps.
You might think chains such as Tesco, Walmart and Aldi are better positioned than grocery delivery apps, because they’re so much bigger and have correspondingly large scale. However, it’s important to note the scale grocery chains have is largely a response to their low margins, and so doesn’t necessarily provide a competitive advantage. They have large operations, supply chains and shopfronts because competition has reduced their profits to a meagre 2% to 3%. They have to have tremendous scale not because they are thriving, but because it keeps them alive.
Which gets to the crux of why these delivery apps are different to Webvan – and why grocery chains might have a hard time competing with delivery apps. The two businesses have completely different economics: while supermarket chains sell groceries, these delivery apps sell access to supermarkets (and also to supermarket customers and their data). So, even though grocery delivery apps are still offering groceries on their platforms, they don’t have any of the infrastructure cost associated with the grocery business: employees, warehouses, trucks and costly shops. They only have the cost of moving electrons to power their website and coordinate armies of contractors.
To understand the explosion in grocery delivery apps, understand that growth-driven investors are betting not on the growth of the grocery business. Instead, investors are betting that grocery delivery apps represent an entirely new type of business, with fundamentally different margins and economics than the supermarket business.
Supermarket chains, trying to spin up their own grocery delivery services, are a lot like Webvan a low-margin grocery store whose business model is only complicated by expensive logistics and delivery. Like Webvan, grocery chains trying to move into this space are equally likely to fail. Grocery chains will have to find their own unique ways to offer customer convenience, without compromising their own experience, supply chains, shopfronts and infrastructure.
This article was amended on 14 June 2021 to remove references introduced during the editing process to food delivery apps which do not fit within the models being discussed in the article.
New Study Finds Eating Out is Cheaper than Cooking at Home
Really! Great, I can get rid of that stove in my kitchen, knock out the wall and have a much larger sun room! Thank you bostonglobe.com. After 50 years, I am so ready to let someone else do the cooking!
Okay, wait a minute. For people who do like to cook (not me), that’s like saying “New Study Says Earth is Flat.” Cooking at home has to be cheaper than eating out, always, and by a wide margin. But if the article says it is cheaper than cooking at home, we all need to know about it.
The study came via the finance website Gobankingrates.com. It contends that the cost of a meal at a mid-scale chain restaurant is less than that of a comparable meal cooked at home. Only by a $2 or $3 margin, but still cheaper. The study involved a 10-ounce ribeye dinner at Outback Steakhouse with soup, salad and asparagus. Whoa, who did this study (they didn’t ask me). Check out MSN Money for this study. Reporter Nick Bhardwaj says the cost of several restaurant meals versus cooking at home was around $17.99 at the restaurant and $20.52 at home.
Not possible said Stacey Bumpus at Gobankingrates.com. She said the high cost of groceries and the surge in value menu items (such as $1 fast food burgers) support the notion that dining-out and cooking-in prices are converging. You certainly can’t make a burger at home for $1!
The final test was to eat the restaurant meal and then re-create it at home, making it as similar as possible. Bumpus says she would compare costs and factor in time and convenience and see which meal really is more expensive.
First stop, Outback Steakhouse. The meal included both soup and salad, but the ribeye steak dinner ($18.29) comes with soup or salad. To replicate the meal, she ordered a cup of chicken tortilla soup, which added $2.99. The study meal also included asparagus, an extra $1 upcharge. The bill was adding up, so was the likelihood of beating the price at home. Total bill for two, not including the tip was $47.68 ($23.84 per person.)
A few days later, she went to the local supermarket and bought groceries needed to make the same meal. The bill came to $45.86 ($22.93 per person) surprisingly close to Outback’s tab. Here’s the catch! The cost per meal at home wasn’t $22.93, not even close. It only took a small quantity of soup for one meal, leaving enough volume for about four more servings. Cost of homemade soup was only $ .70. At Outback she paid $2.99 for one serving. And so it was for the rest of the meal. She had to buy a whole head of romaine and iceberg for the salad, but had enough left for a week’s worth of salad, not just one meal. Cost per serving of salad: $1.66.
All told, the at-home meal prepared came to $11.84 per person. The meal at Outback was $23.84. Eating at home: THE WINNER.
You will have to concede that cooking and shopping is a bit more time consuming than getting in your car, going to your favorite restaurant and allowing someone else to cook your meal and serve you. (And clean up after you leave). It takes about 1 ½ hours to shop and cook, compared to an hour to travel round trip to the nearest Outback. Preparing the meal at home required some cooking skill, though not much. After all, you’re just throwing a steak on the barbeque!!
No question, groceries are expensive and getting more so every day. The gap might be narrowing, but is eating out cheaper than cooking at home? Well, if you believe that, you probably want to be careful about traveling too close to the horizon, lest you fall off the edge of the earth.
McDonald's Bites on Big Data With $300 Million Acquisition
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Mention McDonald’s to someone today, and they're more likely to think about Big Mac than Big Data. But that could soon change: The fast-food giant has embraced machine learning, in a fittingly super-sized way.
McDonald’s is set to announce that it has reached an agreement to acquire Dynamic Yield, a startup based in Tel Aviv that provides retailers with algorithmically driven "decision logic" technology. When you add an item to an online shopping cart, it’s the tech that nudges you about what other customers bought as well. Dynamic Yield reportedly had been recently valued in the hundreds of millions of dollars people familiar with the details of the McDonald’s offer put it at over $300 million. That would make it the company's largest purchase since it acquired Boston Market in 1999.
The burger giant can certainly afford it in 2018 alone it tallied nearly $6 billion of net income, and ended the year with a free cash flow of $4.2 billion. But that still doesn’t address the bigger question of why. For that, you have to head to the drive-thru.
McDonald’s serves around 68 million customers every single day. The majority of those people never get out of their car, opting instead to place and pick up their orders at the drive-thru window. And that’s where McDonald’s will deploy Dynamic Yield first.
Over the last several years, you may have noticed that the displays as you approach the McDonald’s drive-through—and inside the restaurant, for that matter—have gone digital. That’s just one of several significant, data-focused investments that both McDonald’s and its franchisees have made since CEO Steve Easterbrook took the helm in 2015. The company also launched an app and partnered with Uber Eats in that time, in addition to making a number of infrastructure improvements. It even relocated its headquarters less than a year ago from the suburbs to Chicago’s vibrant West Town neighborhood, in a bid to attract young talent.
Look at the Dynamic Yield acquisition, then, not as the start of a digital transformation, but as the catalyst that evolves it.
“What we hadn’t done is begun to connect the technology together, and get the various pieces talking to each other,” says Easterbrook, in an exclusive interview with WIRED. “How do you transition from mass marketing to mass personalization? To do that, you’ve really got to unlock the data within that ecosystem in a way that’s useful to a customer.”
Here’s what that looks like in practice: When you drive up to place your order at a McDonald’s today, a digital display greets you with a handful of banner items or promotions. As you inch up toward the ordering area, you eventually get to the full menu. Both of these, as currently implemented, are largely static, aside from the obvious changes like rotating in new offers, or switching over from breakfast to lunch.
But in a pilot program at a McDonald’s restaurant in Miami, powered by Dynamic Yield, those displays have taken on new dexterity. Algorithms crunch data as diverse as the weather, time of day, local traffic, nearby events, and of course historical sales data, both at that specific franchise and around the world. In the new McDonald’s machine-learning paradigm, significant display real estate goes toward showing customers what other items have been popular at that location, and prompting them with potential upsells. Thanks for your Happy Meal order maybe you’d like a Sprite to go with it.
“We’ve never had an issue in this business with a lack of data,” says Easterbrook. “It’s drawing the insight and the intelligence out of it.”
McDonald’s was reticent to share any specific insights gleaned so far, or numbers around the personalization engine’s effect on sales. But it’s not hard to imagine some of the possible scenarios. If someone orders two Happy Meals at 5 o’clock, for instance, that’s probably a parent ordering for their kids highlight a coffee or snack for them, and they might decide to treat themselves to a pick-me-up. And as with any machine-learning system, the real benefits will likely come from the unexpected.
“When you look at the answers that this decision engine provides, it may not seem so obvious to begin with, but for customers it makes sense. It’s not just about the individual, it’s also taking training information from other customers,” says Daniel Henry, McDonald’s executive vice president and global chief information officer. “It’s only going to get smarter and smarter, the more customers interact with it.”
McDonald’s defines those customer benefits broadly. Multiple executives noted that if the drive-thru is moving slowly, the menu can dynamically switch to show items that are simpler to prepare, to help speed things up. Likewise, the display could highlight more complex sandwiches during a slower period. And as with any online checkout experience, it’s unlikely that the drive-thru window will tell you that you’ve actually ordered too much. While customer satisfaction may be the goal, the avenues McDonald’s takes to get there will increase revenues along the way.
Think also beyond the store itself. A company that amasses as much data as McDonald’s will find no shortage of algorithmic avenues. “Ultimately you can see we’ll be able to use predictive analytics—we’re going to have real-time information, as we start to connect the kitchen together—further back through our supply chain. I’m sure that will happen,” says Easterbrook. “That isn’t part of this particular technology, but as you start to link the predictive nature of customer demand all the way through your stock levels in the restaurant and the kitchen, you can almost flex it back down through the supply chain." He notes that McDonald’s is a high-volume, low-margin business anything that helps cut down on waste makes a big difference.
And given the scale at which it operates, any supply chain shifts at McDonald's tend to ripple throughout the entire food industry. Which gives you a sense of just how transformative this acquisition could be.
As you might have guessed, McDonald’s didn’t spend over $300 million on a machine-learning company just to juice its drive-thru.
Henry says he expects to see the technology in 1,000 locations within the next three months, eventually rolling out to the company’s 14,000 US restaurants and beyond. You can also expect McDonald’s to integrate its new machine-learning smarts not just broadly but deeply, albeit at a measured pace.
Food is Getting More Expensive. This chart shows how
After the wholesale price of food initially slumped during the coronavirus pandemic, the global FAO Food Price Index has shown a steep increase since the fall. Most recently, food around the world was more than 27 percent pricier than the 2014-2016 average, on which the index baseline of 100 points is calculated. The May figure is the highest of any month in almost ten years.
Palm oil prices have been driving the increase in the index since the fourth quarter of 2020, but global cereal prices also showed a significant bump in the past months, together creating a level of food prices not seen in a decade.
Dry weather and production disruptions due to COVID-19 coupled with high global demand led to the depletion of palm oil inventories, in turn driving up prices. As transportation picked up again, biodiesel demand led to an increased need for soyoil. Both developments caused prices for vegetable oils to exceed the 2014-2016 average by almost 75 percent in May.
Monthly Grocery Budget
Ever wonder how much you should spend on groceries? The average cost of food per month for one person ranges from $150 to $300, depending on age. However, these national averages vary based on where you live and the quality of your food purchases.
Here’s a monthly grocery budget for the average family. This is based on the national average and likely varies by location and shop. For instance, New York City grocers are going to be far more expensive than Kansas City shops. Additionally, organic grocery stores like Whole Foods are pricier than places like Walmart or Aldi.
You’ll also want to consider dietary choices, like gluten-free or vegan diets. These can significantly affect your budget, so consider planning your grocery list online to compare prices and find your preferred alternatives.
|FAMILY SIZE||SUGGESTED |
Finding a reasonable monthly grocery budget ensures you and your family have what you need, while not overspending. Look back at previous months using a budgeting app or credit card statements to see what you’ve spent at the grocery store. Decide if you want to maintain your current budget or cut back.
Why the Coronavirus Outbreak Has Sent Food Prices Soaring
En español | According to the U.S. Bureau of Labor Statistics (BLS), inflation is low. Prices, however, have been climbing in at least one sector: food.
The Consumer Price Index (CPI), which measures the cost that Americans pay for a broad array of goods and services, has risen just 0.6 percent over the past 12 months, primarily because energy prices have tumbled 12.6 percent. The food component of that index, though, has jumped 4.5 percent during the same period, and prices for food consumed at home have increased 5.6 percent.
Among the items that have seen the biggest price hikes in grocery stores are:
- Beef and veal, up 25.1 percent
- Eggs, up 12.1 percent
- Pork, up 11.8 percent
- Poultry, up 8.7 percent
The rising prices of meat and eggs have been offset, somewhat, by relatively tame inflation for fruits and vegetables, the cost of which has ticked up 2.3 percent, according to the BLS. Even so, some vegetable prices have jumped, too. Potatoes have soared 13.3 percent in the past 12 months, and tomatoes have risen 8.4 percent.
There are three main causes of the rise in food prices, and all are tied to the COVID-19 pandemic. The first is demand. People are stocking up on food because they want to limit their trips to the store. Demand has been so high that companies that handle food processing and distribution are among the few that are hiring right now, says Mark Zandi, chief economist at Moody's Analytics.
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The second reason is the shift from eating in restaurants and schools to eating at home. “We have a very delicate national food supply chain that assumes that we all adhere to our normal seasonal dining patterns, and that was shaken up by these big changes,” Kim Rupert, managing director of Action Economics, observes. For example, distributors have to switch from packaging milk in half-pint cartons for schools to the gallon and half-gallon containers that people prefer at home. That takes time, drives down supply and increases prices.
Finally, there's the disease itself, which forced the closure of several meat processing plants earlier this year. Many of those have reopened, but they have to provide greater protections for their workers. In Michigan, for instance, Gov. Gretchen Whitmer directed companies to modify their processing lines to minimize the number of employees inside a facility during a shift.
The U.S. Department of Agriculture expects food prices to decline next year, as production could return to relatively normal levels. The USDA forecasts a 1.5 to 2.5 percent decrease in the cost of beef and virtually flat egg prices.
Easing the price pain
Food is a big part of household budgets, so high prices can upset household finances. To some extent, declines in the cost of other necessities may offset rising food prices. The national average price of a gallon of unleaded gasoline, for example, is $2.187, according to AAA, down from $2.750 a year ago, and most people aren't driving much during the COVID-19 pandemic. Other prices are down, too. “Airline fares are down 27.2 percent year over year, and car insurance is down 10.1 percent,” Rupert says.
When prices rise for a particular product, people usually switch to a more affordable option. So when beef is expensive, chicken is what shows up on the grill. When egg prices soar, cereal is what's for breakfast.
Still, you can grill many vegetables, but not everyone is willing to go vegetarian until meat prices decline. With that in mind, here are some suggestions for trimming your food budget.