Food Spending

A colleague sent me a couple articles highlighting recent trends in spending on food at home and away from home.  Here's Ashley Lutz at Business Insider from back in July:  

Restaurant sales growth has stalled in America.

McDonald’s, which had previously executed a huge turnaround, saw a slowdown in the most recent quarter. Other chains ranging from Chipotle to Buffalo Wild Wings also reported sales declines.

And, here's a story from a couple days ago by Bob Bryan also at Business Insider:

Fast-food chains have watched their sales growth drop off a cliff.

Executives advance plenty of reasons for the slowdown — or, in the case of some brands, the outright decline in sales. Some blame politics, others blame the oil crash, and so on.

The real reason may be a bit simpler: It’s getting cheaper for Americans to eat at home.

The price of food at grocery stores has actually been on the decline since the end of 2015, based on the Consumer Price Index for food at home. In fact, in July (the most recent data available), the cost of food at home declined 1.55% from the same month a year ago.

On the other hand, the cost of food away from home — what you pay at restaurants — is still on the rise. In July, prices for food away from home rose 2.79% from same month last year.

I thought I'd track down the numbers myself and see what's going on.  Here is the CPI data from the BLS, confirming the decline in prices of food at home and the increase in prices of food away from home.

The difference in trends looks even more dramatic if plotted in relative terms.  Here is the CPI for food at home divided by the CPI for food away from home.  Clearly, food at home has become relatively cheaper (compared to food away from home) over the past year.  

If the price of food at home is falling compared to the price of food away from home, does that that mean consumers are spending less on food at home or away from home?  Not necessarily.  Lower prices for food at home will induce consumers to buy more food at home.  Whether they ultimately spend more or less on food at home depends on the magnitude of the own-price elasticity of demand for food at home, and the cross-price elasticities of demand for food at home and away from home (I've previously estimated these parameters as discussed here).  

My data suggests these relative price changes have had a more complicated impact on food spending than suggested by the Business Insider articles.  Here is data from my monthly Food Demand Survey (FooDS) on estimated weekly food spending.  Interestingly, it appears there is a bit of an upward trend in spending on food away from home (spending on food away from home has increased 22% since January 2016), but by contrast spending on food at home has remained relatively more stable (spending is only 0.8% higher than in January, although it is about 5% higher than it was in June).  Thus, the increase in the relative price of food away from home hasn't led to a big drop off in spending on food away from home.  

As a consequence of the above trends, the share of food spending directed toward food away from home has risen from about 0.34 at the first of the year to about 0.38 today, as shown in the graph below.

All this might seem a bit counter-intuitive.  Prices on food at home fall, and yet people spend a smaller share of their food dollar on food at home.  Why?  The answer is because: spending = price paid * quantity purchased, and the two variables on the right hand side of the equation tend to work in opposite directions of each other.  When prices are lower, people tend to buy more quantity.  Whether the effect of changing prices has a bigger effect on spending than the effect of changing quantities, again, depends on the underlying demand elasticities.