After 2011's Grocery Price Surge, Is Cooking at Home Still a Bargain?

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gracery store pricesEverybody knows the basic rules for saving money on food. Don't eat out. Ditch the steaks in favor of ground beef. Stick to the staples, like milk and potatoes. But a recent USDA report shows that, in 2011, some traditional money-saving guidelines proved useless as food prices went through the roof.

On average, increasing global demand and rising commodity and fuel costs drive grocery costs up by about 2.9% per year, but in 2011, they rose by an estimated 4.25% to 4.75%. And while prices went up across the board, the cost increase on staples was especially sharp. For example, prices for ground beef -- one of the classic economizing ingredients -- went up by a staggering 10.2%, as did the price of eggs. Meanwhile, turkey, another classic source of cheap protein, went up by 10.5%.

And those were hardly the only groceries whose costs went through the roof. Milk prices rose by almost 10%, and ice cream went up by 10.3%. Apples cost about 9.6% more, and potatoes rose by a shocking 12%. Prices on fats and oils also went crazy, with a huge 11.1% increase.

Some Good Deals

It wasn't all bad news: In terms of proteins, fish and pork are comparatively good options. Seafood, for example, rose a mere 5.9% in 2011, while the price of pork went up by 6.9%. Cereal is only 3.5% to 4% more expensive than it was at the end of 2010, and prices on nonalcoholic beverages -- including sodas -- have only risen by 4.4%.

One major reason that grocery items -- particularly staples -- went up so sharply in 2011 was because of increasing demand. As Richard Volpe, a research economist with the USDA's Economic Research Service, notes, that high unemployment, low wages, and other economic pressures have pushed many consumers to save money by eating at home. As families have tried to economize by buying cheap ingredients, they have increased demand. Ironically, prices of luxury foods like steaks and fresh fish -- which consumers have been eschewing in favor of cheaper fare -- went up by less.

Restaurants Becoming a Bargain?

For that matter, the cost of eating out -- a classic luxury expense -- rose much only half as much cost of eating in -- between 2% and 2.5%. Part of the reason, Volpe points out, is that restaurant managers "were reticent to pass on price increases to consumers."

This worry isn't surprising: While restaurants and grocery stores are both affected by rising food costs, it is still more expensive to eat out than to eat in, and price hikes can be a deal-breaker for many families. As Mike Lubansky, a senior financial analyst at Sageworks, a financial information company, puts it, "If restaurants pass along all their cost increases to consumers, it will make them less competitive." As a general rule, food costs are supposed to range between 25% and 38% of overall restaurant costs; the rest comes from labor, overhead and other expenses. Lubanski points out that restaurants can "save costs in other areas to make up for increased food costs."

The USDA estimates that the price gap between eating in and eating out will narrow even further in 2012: Grocery prices are predicted to rise by 3% to 4%, while menu prices will likely go up 2% to 3%. Eating at home will still be cheaper than going out, but it's worth asking how long the narrowing trend will continue -- and how many restaurants will survive the sluggish consumer economy.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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gmydogbud

The MULTIMILLIONAIRES - In - The - White House & Congress - Are - Doing - Well - While - American - Citizens - SUFFER - !! This is the result of Democrats & Republicans - What is need is a - MIDDLE - CLASS - PARTY - TO - LOOK - OUT - FOR - THE - AMERICAN - PEOPLE - !

January 10 2012 at 9:49 PM Report abuse rate up rate down Reply
billyjoeobama

AH the price of hope and change still kicking everyone's asses on a daily basis. Thanks Obanana !

January 10 2012 at 12:00 PM Report abuse +2 rate up rate down Reply
Gregg Wright

The real story here is that the grocery store chains have changed their markup structure on perishable items. They have gone from a 50-70% markup on produce to 350% on regular items & 150% on ad items. It is not all in the cost of the product. With the big chains buying more and more direct, taking the middle man out, will force these chains to have a higher % of shrink. What I am writing here is taboo. No one in the industry wants the consumer to know that they are effectively paying 1960's prices for cost of product but taking a higher percent on markup. Onions, potatoes,corn, strawberries all cost the same to their distribution centers as did in the 60's.

January 09 2012 at 12:15 PM Report abuse rate up rate down Reply
southrange

I go to CIci's Pizza all the time. Less than $5 for all you can eat Pizza, pasta, salad, soup buffet with beverage. Why cook?

January 09 2012 at 11:57 AM Report abuse rate up rate down Reply
pr12235

We all must ask Why?? The media is owned by the same corporations and poltical groups that caused this, so don't expect any honest, in depth reporting exposing the truth. Many economists predicted all this but you'll never hear about them. Google Richard Maybury, Porter Stansbury, Peter Schiff and others. They say this is just the beginning. Our "government" has destroyed our economy with corporate corruption, the federal reserve bank, borrowing beyond our means, entitlements, etc. There's an even bigger collapse coming and probably a huge war in the middle east. They'll use it as a way to distract us from their crimes and how they've destroyed our country. Good luck to everyone.

January 09 2012 at 11:31 AM Report abuse +1 rate up rate down Reply
Jules

We buy day old meat and day old bread. It's an all day affair, but we make multiple stops once a month! Meat at one store. Produce and dairy at Aldi (cheapest by far), Day old bread store, dollar items at another (Local Dollar Tree). Produce goes on clearance too, at least at my store - we slice and freeze. We own a seal a meal and vacuum seal all our frozen food. I'm considering investing in a freezer, we have a couple friends who all split a hog and a cow. Paper products - always shop Dollar General, very consistent on their prices. We feed 3 adults on about $200 a month.

January 09 2012 at 11:26 AM Report abuse rate up rate down Reply
bdzdean

Buy items in bulk or on sale and freeze em.
Spend one day cooking and preparing meals (dinner) for the entire week.

I buy 4 whole chickens and cook them all at the same time. However, I make different meals out of each chicken.

one roasted, one BBQ, one orange glazed etc. Cut em up and freeze em. Reheat in microwave.

I do the same with ground beef. I'll make and cook let's say 4 meat loafs at one time. Freeze em and reheat in microwave.

Buy, cook and freeze in bulk.

January 09 2012 at 9:51 AM Report abuse rate up rate down Reply
bdzdean

Depending on what food items and the amount of food your cooking has a great deal to do with the cost.

One needs to take into consideration the overall meal prep time, gas, electric and water usage. Most people don't even think about all the time and effort it takes to just to prepare one meal. Planning the meal, fuel costs to get to the grocery store, the time it takes shopping for the food items needed, unpacking the groceries you just bought when you get home, the time it takes to prepare the meal, serving the meal, cleaning up time after the meal.

So, is it less expensive these days to eat out, order in, or just prepare a meal at home? Its really does come down to a personal preference. However, no matter what ones choice may be, one way or another ya gotta eat.

January 09 2012 at 9:08 AM Report abuse rate up rate down Reply
HE-MAN

Food has gotten too expensive. It'll only climb too. The thing that made this recession worse and different from any other is that prices actually increased. Recessions were always deflationary eras. But not this one. This is a monster of a recession, because the prices went through the roof. Plus the dollar is so weak. When I buy milk it's $4 for a gallon, $5 for a box of cereal. The dollar today doesn't buy you much these days. Remember when times were good? The dollar could buy you a lot more. Bread was like a dollar, a gallon of milk was like $2, cereal was like $2. It's craziness what happend to our dollar, and food prices.

January 09 2012 at 6:50 AM Report abuse +2 rate up rate down Reply
hobbsnation

How can anyone support either party with stuff like this happening? How can anyone honestly support what's going on with the government as a whole? The reality of it is, and the scariest, is that everyone, well not the rich folk, but everyone else better get use to things the way they are and maybe just maybe getting a whole lot worse. I know some of you out there want to believe the President is doing a good job and that some of you out there think someone else could do better.....Bull do do on both of those. These people are nothing more than opportunist who for the most part got in with good intentions but when the graft started coming in it was party time in old D.C.. Can you imagine what these elitist a-holes are discussing at their private parties at their mansions in the countryside? To be a fly on the wall indeed. The United States of America has a bad case of the Ebola virus. We're dissolving on the inside soon the bleed out if something isn't done in the next few years. Time is running out on this once proud democracy. The answer I believe lies within not just the people in charge but everyone of 300 million people that make up this country. It's not too late, but it's getting close to the point of no return. We all need to make the change that brings the hope that brings the togetherness that brings back the pride and the glory of this great country.

January 08 2012 at 11:21 PM Report abuse rate up rate down Reply