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Interesting piece in the Chicago Tribune reports that while deflation is resulting in lowered prices in the nation's supermarkets, "restaurants are raising prices after years of stagnant growth, citing swelling labor costs that are offsetting the benefits of lower food prices."

Over the last year, the Tribune writes, "a government index measuring grocery prices has fallen by 2.2 percent, the largest decline since December 2009, near the recession's peak. In contrast, the index measuring the cost of food eaten away from home, or restaurant prices, has risen 2.4 percent. The difference in prices between eating out and eating at home is now the widest in 30 years."

The Tribune goes on: "These issues are only accelerating a shift that's been happening for years: Americans are grabbing more rotisserie chickens and other hot meals from supermarkets for the convenience and the cheap prices relative to dining out. In major cities where rents are steep, the difference in cost between lunch at a quick-service restaurant chain and a comparable supermarket meal could be as wide as 10 to 12 percent ... Restaurants are stuck between a rock and a hard place, observers say, because competition is stiffer than ever, but the line between profit and loss is thinning. Rising minimum wages around the country, including here in Chicago, overtime regulations, health care costs, shifting parental leave policies and other mandates are squeezing restaurants at a time when many expected to be recovering — finally — from the recession."
KC's View:
I think that in many ways, this trend opens the door for supermarkets to really get aggressive in terms of competing for share of stomach. (Which is always they ought to view competition, IMHO.)

But it can't just be price. Restaurants are going to be looking to create more compelling experiences and offer more differentiated food as a way of compensating for higher prices. Supermarkets have to do the same - better experiences, better food ... because "compete" is a verb.