The Ritz Herald
© Mark Stosberg

U.S. Consumers Feel the Pinch of Soaring Food Prices as Inflation Takes Its Toll


Inflation has been running hot for a prolonged period and while some relief from the heat is evident, consumers are exhausted from historically high food prices and now exhibiting greater frugality

Published on June 28, 2024

U.S. consumers are gassed when it comes to their stamina for paying historically high food prices. Having borne the brunt of a protracted post-pandemic inflation runup with extraordinary resilience, Americans have finally hit the wall.

Over the past five years, a series of macro factors have catapulted prices higher, weighing on consumers’ wallets and testing their endurance. These hurdles included geopolitical crises, severe drought, higher restaurant overhead and wages, rising interest rates, and higher inflation throughout the supply chain.

As a result, food inflation jumped 25% from 2019 to the end of 2023. However, the additional inflation we have seen in the first half of 2024, albeit far more modest, has been the tipping point. Many consumers who continued to spend in the face of 40-year highs in food prices are now pulling back and reevaluating their budgets.

“The consumer is waving the white flag on food inflation,” said Tom Bailey, senior consumer foods analyst at Rabobank. “With an added 2% in price hikes in 2024 coupled with the cost disparity between dining out and cooking at home at its widest margin in history, we’re seeing heightened fatigue and frugality.”

Indeed, while the overall pace of inflation has moderated to more normal levels since last summer, prices are still moving higher. The 2024 Rabobank BBQ Index, which measures the cost of staple ingredients for a 10-person barbecue, shows that it will cost $99 to host a cookout on the Fourth of July this year, up from $97 last year and $73 in 2018 (see chart: Staying Hot). This year, beer, beef, soda and lettuce account for a hefty 64% of total barbecue cost (see chart: Barbecue Breakdown). That brings the inflation gain for a Fourth of July barbecue up to 32% since 2019.

Not surprisingly, fewer Americans are choosing to eat out as restaurants have passed along higher input costs, wholesale food prices, rent and employee wages to their customers. A reported 68% of people polled by Vericast say they are switching from restaurants—where the tab is up 4.4% annually—to grocery stores, which have seen only a 1.1% price hike. In 2022, U.S. consumers spent more than 11% of their disposable income on food—whether at home or at a restaurant—marking a 30-year high.

For most people, the sticker shock of going out to eat is difficult to stomach. In 2023, 81% of restaurant operators surveyed reported raising their prices in the prior six months. While that number is trending lower this year, prices continue to rise.

In many ways, the impact of the rising cost of food is emblematic of the broader economic trend in consumption. Retail sales, a vital sign of the health of the U.S. economy, were weaker than expected in May as higher borrowing rates and inflation discouraged purchase decisions. In the second half of the year, look for more of the same. “Retail sales will likely remain soft throughout 2024,” Bailey said.

Undoubtedly, the duration of inflation has taken a psychological toll. Consumer sentiment, as measured by the University of Michigan’s index, fell to 69.1 in May, marking its lowest level since November 2023. Personal balance sheets have gotten messier too as wages have not kept pace with inflation. Credit card debt, on average, sits at $10,479 per household—up from $8,763 in 2021—but still below its all-time high of $12,424. Some 41% of Americans polled by WalletHub say they have more credit card debt now than they did 12 months ago.

Further, excess savings, which soared to an all-time high during COVID, have now sunk to an all-time low as government aid, such as SNAP payments, the child tax credit, increased unemployment benefits and a suspension of student loan payments have ended. To be sure, people under the age of 35 have been hit the hardest. According to the Federal Reserve, credit card delinquencies in this demographic are at their highest level since 2011. And rent hikes have eroded the savings that some consumers squirreled away during Covid lockdowns.

“Fiscal fitness is now more of a focus,” Bailey said. “Saddled with mounting credit card debt, waning savings and lower real income, consumers are spending less.”

The bottom line: A consumer’s dollar is not going as far as it did just a few years ago. Consider that the average American has to work an hour to earn enough money for a six-pack of beer and a burger today, up from 51 minutes in 2019 (see chart: Beer Money). And they’ll have to work nine hours to pay for a barbecue this year, up 32% since 2019.

Against this backdrop, families preparing for the time-honored tradition of a backyard barbecue this Fourth of July are increasingly hunting for bargains. In the first half of 2024, many consumers have traded down, reducing the size of their purchases, taking advantage of promotions or delaying big-ticket purchases such as cars and appliances. This trend proved consistent across age groups but was more pronounced among Gen Z and millennials, according to a McKinsey & Company consumer insights survey. Fifty-six percent of Gen Z and millennial shoppers polled—compared with 45% of older generations—said their primary strategy was to reduce the quantity or package size of the items on their grocery list.

Still, millennials remain prone to giving in to their urge to splurge. Their well-documented willingness to travel and attend pricey concerts reflect this reality even as they have become more selective under the prevailing financial constraints. A reported 78% of Gen Y respondents polled said they would rather spend money on an experience than material goods. Perhaps the prospect of student loan forgiveness, the pending wealth transfer from the Baby Boomer generation and a “you only live once” mentality may be boosting their penchant for “experiences over things.”

Let’s Make a Deal

With many consumers forced to exercise more discipline, savvy shopping will come in handy before firing up the grill. “To find bargains in beef this grilling season, look for featured promotions at your local supermarket or club store,” said Lance Zimmerman, senior beef analyst at Rabobank. “Beef prices may be at historical highs but many store owners are willing to take a loss by putting various cuts of meat on sale knowing shoppers will fill their carts with other menu items—beer, burgers, hot dogs, sides and salads. They want to boost foot traffic and win loyal customers.”

Looking to save a few bucks on proteins? Prefer chicken as your barbecue centerpiece? You can trim your budget by trading breast meat for parts, such as drumsticks, wings and thighs. “In tough times, chicken maintains its value,” said Christine McCracken, senior poultry analyst at Rabobank. “Right now, dark meat is gaining popularity. Consumers are finding that thigh meat can be just as tasty as breast meat—and it’s less challenging to grill.”

Fortunately for consumers, despite suffering from fatigue from the inflation marathon, they can find attractive deals on quality meats and drinks this summer. Recreating a restaurant experience at home is now more palpable as the food industry has made strides in enhancing taste, efficiency and safety.

“The quality of beef available to the consumer has never been better,” Zimmerman says. “In the past 20 years, we’ve seen the availability of USDA prime and choice meat increase 60% as improved cattle management has created more marbling. Those fatty flecks pack a lot of tenderness and flavor while making it easier to grill. Even if you overcook quality meats a little, they won’t turn into shoe leather.”

Where’s the Beef?

The expectation of tighter U.S. beef supplies is leading the market higher as severe drought and challenging business conditions forced U.S. cow-calf producers to liquidate cows over the last five years. Consumer prices should continue to ratchet higher, hitting new record highs throughout the summer grilling season. Higher U.S. prices have caused beef exports to shrink but domestic beef demand has held up well. Trading down to different cuts and grades of beef—like switching from steaks to burgers—can offset the pinch consumers are feeling from inflation and economic hardship.

In poultry, demand for chicken has improved as consumers seek lower-cost, high-value proteins. Rising beef prices have led many restaurants to offer more chicken options on their menus. Retail stores are also putting more chicken on sale. Breast meat has found its way back to the top of the circular, while lower-cost thigh meat and legs are getting good traction as budget-friendly protein alternatives.

Bloated Inventory

The beer industry is coping with a series of issues, including a glut of inventory, an inability to raise prices after 14 years of hikes, and a continuing long-term trend of losing market share to spirits and ready-to-drink cocktails. Nearly every beer category, except imports, saw negative growth in 2023. However, for the diehards, no barbecue would be complete without a cold beer as evidenced by its 27% share of the total barbecue cost. Non-alcoholic beer has been a surprising new revenue stream for brewers, pacing the 31% rise in sales across non-alcoholic adult beverages in 2023. Look for this newbie to find a place at this year’s barbecue table.

Americans Love Their Cheese

U.S. consumers can’t get enough cheese, especially in the summer. Consumption continues to grow as a whole and across nearly every cheese variety. U.S. dairy processors are investing in new capacity, with new cheese plants opening this year to meet growing demand—both at home and abroad. Adding cheese to your burger this Fourth of July will be cheaper than the nachos served during a December football game but it is still marginally more expensive than it was a year ago.

Demand for butter remains robust, pulling cream away from ice cream in recent months. Ice cream prices are up from year-ago levels, contributing to the increase in the total index. Consumption is not as high as it once was as competition among desserts continues to intensify, with some consumers shying away from ice cream in pursuit of a healthier diet. Still, a recent International Dairy Foods Association survey showed that more than 97% of Americans enjoy ice cream, with vanilla as the most popular flavor.

Flat Is the New Up

Soda prices have held up well with increases still sitting above inflation. Sales volumes are flat, which is fairly solid performance given above-inflation pricing and tough economic conditions. Soda has benefitted from flavor innovation, tailored sizes and package types and a focus on gut health—a notable source of growth. Meanwhile, energy drinks and sports drinks have been the standouts among non-alcoholic beverages, powered by strong innovation and newer entrants taking market share.

A Mixed Bag

Last year, we saw elevated inflation across the board and fresh produce was no exception. California’s drought sent lettuce prices to more than $100 a carton, well above the average range of $15 to $20 per carton. Prices have since come down significantly, which is good news for consumers stocking up on the popular burger topping. We expect leafy greens to have steady supplies, good quality and decent prices. Potatoes, also hit hard by drought, bounced back due to an aggressive planting season and increased water availability in 2023. This year, grocery shoppers have seen potato prices drop to about half of what they were a year ago. Yet, we’re still seeing sticky inflation in potato chips with prices rising more than 25% in the past two and a half years.

Separately, tomato prices have moved higher in 2024 as dry weather in Mexico has curtailed production and overall availability. There has been a lot of change within the category as snacking tomatoes have become a larger portion of overall production. Their chief characteristics—smaller, sweeter and multi-colored—make them more appealing to families with kids who can bring them to school as a snack or grab a handful at this year’s barbecue.

Premium Buns for the Win

Bakery goods have felt the impact of price increases in 2023, resulting in lower sales volumes. It’s not that Americans are eating fewer burgers—they eat more than 50 billion every year—but they became more aware of waste and opted for smaller packages. Hamburger and hot dog bun prices have been stable, in line with overall grocery inflation. Recent price hikes have been a boon for private-label bread and premium baked goods, as consumers trading down from eating at restaurants opt for differentiated products at home. Don’t be surprised if you see a pretzel bun at this year’s Fourth of July barbecue.

Rationale and Methodology

The Rabobank Barbecue Index assumes an average American BBQ situation—a mix of family and friends—on Fourth of July weekend. That includes 10 adults with each consuming the same amount of food and beverages. We assume each person will consume one cheeseburger with lettuce and tomato, one chicken sandwich with lettuce, tomato and a slice of cheese, two handfuls of chips, two beers, a soda and a few scoops of ice cream. As a means of comparison, the BBQ Index parallels the Bureau of Labor Statistics as a data source. We selected the monthly data series “average price index, U.S. city average.”

Executive Editor