McDonald's, Starbucks hurt as inflation keeps more people home

KD Deshmukh says he recently celebrated his spouse's birthday with a salmon dinner at home. He also buys in bulk, clips coupons and has switched to more store brands to save money at the grocery store. Steven Pruitt hide caption

Higher prices have Americans reconsidering their dinner and coffee.

For the first time in years, people's grocery hauls are getting bigger. And many are choosing to splurge a bit at the supermarket over going out to eat, prompting fast-food and other chains to step up deals and meal combos.

This week, McDonald's reported its first decline in sales since the COVID-19 pandemic shutdowns of 2020. Sales at Denny's dipped 0.6%, and profit at Wendy's declined in the latest quarter. Starbucks sales fell 2% in the U.S. as people came in less often.

"When [restaurant inflation is] still ahead of where grocery inflation is," Denny's CEO Kelli Valade told investors this week, "we definitely feel like people are probably still saying, 'I should just cook at home a little bit more often.'"

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In the past year, grocery prices increased 1.1%, federal data shows, while the cost of restaurant meals grew 4.1%.

Those price increases are much lower than in recent years. Yet they are layered on top of many past price hikes, which companies tend to blame on higher costs from wages, ingredients, packaging and transportation. Since mid-2020, the cost of groceries has grown 19%, while restaurant prices have jumped almost 24%.

This has more shoppers recalibrating where they are willing to put extra dollars.

Take KD Deshmukh, an engineer in Tulsa, Okla., who has tightened his budget by buying more in bulk or with coupons and often switching from brand names to store brands. When deciding how to celebrate his spouse's birthday recently, the couple chose a trip to a higher-end seafood market for a homemade dinner over an outing.

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"Instead of going to a restaurant," he says, "we were like, 'We are pretty good cooks — let's go splurge on a better piece of salmon that we know came in fresh.' And it's a bit of premium but definitely worth it."

Market research firm Circana has tracked this shift for months: While many shoppers are reaching for cheaper store labels, a growing number of them are also upgrading to premium brands.