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People say they worry about inflation. Their restaurant spending might show otherwise

AYESHA RASCOE, HOST:

Restaurants are kind of like a weathervane for the American economy. They are huge employers, and some big names in fast-food and dining made surprising financial reports in recent days. So, which way is the wind blowing? For that, we're joined by NPR business correspondent Alina Selyukh, who tracks restaurants and retail, and NPR's Scott Horsley, who tracks the economy. Hello to you both.

ALINA SELYUKH, BYLINE: Hello, hello.

SCOTT HORSLEY, BYLINE: Good to be with you.

RASCOE: And Alina, let's start with those surprising reports. What are they?

SELYUKH: Yeah. Yes. So we have McDonald's, Olive Garden and Starbucks all saying that people are tightening their budgets. A similar warning came from a company called Yum Brands - that's your KFC, Pizza Hut, Taco Bell. And what's surprising is that most of these companies are seeing a decline or slowdown in sales for the first time in a long while, which they all attributed to people feeling the strain of inflation.

RASCOE: Wow, what - you know, I'm trying to get some Pizza Hut tonight. So this is surprising to me, Scott...

HORSLEY: (Laughter).

RASCOE: ...Is that an economic warning sign?

HORSLEY: Well, as your own experience suggests, you know, overall spending at restaurants continues to climb. So restaurant spending in March was up more than 6% from a year ago. Some of that does reflect higher prices. Restaurant price has gone up a lot faster than grocery prices over the last year. But it's not just inflation that has people spending more at restaurants. The numbers suggest people are eating out more, opting to go out to dinner or lunch rather than cooking at home. Now, obviously, every family is a little different. They have different budgets. Some may be ready to splurge on a fancy steakhouse, and others might be trading down to more casual restaurants or fast food.

SELYUKH: And just to jump in here, we actually did see that split in the earnings report of Olive Garden's parent company.

RASCOE: So what did that report say?

SELYUKH: The executives at the parent company talked about a split by income. Families earning less than $75,000 were spending less while families making more than $150,000 were spending more. And that's notable because the company, Darden Restaurants, has a lot of those mid-priced restaurants where people like to celebrate - like Olive Garden, Longhorn Steakhouse. And the company said spending dipped across all of its brands, all of its restaurants, from folks making less than $50,000.

RASCOE: Well, that kind of makes sense, though, if you got less money. But is this normal, though - this kind of split? The wealthy spending more, and then lower income families having to hold back, you know, even at these sorts of restaurants?

SELYUKH: It's been starting and splitting like that for a little while. We saw a recent report from Yelp that found that, although people say they're worried about inflation, fine dining has been seeing more and more demand. So people are still going for those four-dollar-sign type of restaurants for a really special experience, and people who can afford to splurge on food delivery are still boosting companies like DoorDash. Where you have this interesting shift is that, you know, mid-tier, nice sit-down restaurant-type place where some people are skipping those meals in favor of like a Chipotle or a Denny's, which are both saying they're seeing rising demand. And then on the fast-food level, on sort of the lowest price side, you've got McDonalds saying lower income shoppers in particular are tightening their budgets.

RASCOE: Scott, is there a broader message here about the economy?

HORSLEY: Well, you know, Ayesha, the shift we've seen from grocery spending to restaurant spending is symbolic of a broader change in people's habits. So far this year, people have been spending less money on stuff and more money on services. So demand for services like restaurant meals and car repair continues to go up, and the price of those services keeps going up as well. That's one reason inflation has remained stubbornly above the Federal Reserve's target of 2%. And it's why the Fed announced this past week that it expects to keep interest rates higher for longer in order to get those prices under control. Now, people might not think much about the interest rate when they're buying a Big Mac or a bowl of chicken alfredo at Olive Garden. But if customers do become less willing to shell out money for restaurant meals, that could make it harder for the restaurants to raise prices and it could make the Fed's job of curbing inflation a little bit easier.

RASCOE: So, Alina, are restaurants doing anything to kind of prop up their sagging sales?

SELYUKH: We did hear McDonald's and Yum Brands talk about discounts this year. McDonald's is planning a big push on the value menu this year, trying to, you know, win back those most price-sensitive customers. But I do want to bring up this real counterpoint here is that you've still got chains and a lot of food manufacturers raising prices. They're still blaming higher costs of ingredients and wages, and basically saying, as long as people are buying more, which they tend to be doing on those - in those places and on those products, there's little reason for them not to keep pricing prices.

HORSLEY: And by the way, Ayesha, we just got a survey from OpenTable, which found more than 60% of families plan to spend more on Mother's Day meals next Sunday than they did last year. It's expected to be the busiest eating-out day of the year, and obviously not a place to pinch your pennies.

RASCOE: Not at all. I mean, mothers deserve the best, and so hopefully - I mean, my kids are, you know, 10 and under, but they need to get their money together...

SELYUKH: Get that that reservation and plan in place.

RASCOE: ...And treat me - treat me. Yes (laughter). I'm expecting it. That's NPR's Scott Horsley and Alina Selyukh. Thank you to you both.

SELYUKH: Thank you.

HORSLEY: Good to be with you. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Ayesha Rascoe is a White House correspondent for NPR. She is currently covering her third presidential administration. Rascoe's White House coverage has included a number of high profile foreign trips, including President Trump's 2019 summit with North Korean leader Kim Jong Un in Hanoi, Vietnam, and President Obama's final NATO summit in Warsaw, Poland in 2016. As a part of the White House team, she's also a regular on the NPR Politics Podcast.
Alina Selyukh is a business correspondent at NPR, where she follows the path of the retail and tech industries, tracking how America's biggest companies are influencing the way we spend our time, money, and energy.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.