October 20, 2015 Reading Time: 2 minutes

As consumers gradually show a willingness to spend, the cost of one indulgence – eating out at a restaurant – has been getting more expensive over the last year.

Prices of food-away-from-home increased 0.5 percent in September, according to the new edition of the Everyday Price Index by the American Institute for Economic Research. Over the past year, prices at full-service food-away-from-home establishments have increased by 2.6 percent, and prices at limited-service food-away-from-home establishments increased by 3 percent.

A full-service restaurant has amenities beyond food, drink, and seating such as waitstaff and entertainment. For example, Panera Bread is a limited-service restaurant, while Outback Steakhouse is a full-service restaurant.

Restaurants have been able to raise prices in the face of strong demand. The latest retail sales report from the Commerce Department shows that sales at food service and drinking places have increased 7.9 percent over the past year. Companies like Chipotle have benefited, with earnings growing 27.1 percent over recent quarters.

However, looking ahead, restaurants might be facing an uphill battle from competition. Consumers now have a wide selection of restaurants to choose from as new franchisees open up across the country (see chart below).

According to the International Franchise Association, that selection will only increase, as limited-service restaurant franchises are forecasted to grow 1.6 percent in 2015, while full-service restaurant franchises are forecasted to grow 1.2 percent in 2015.

The National Restaurant Association Restaurant Performance Index, which tracks the health and outlook of the U.S. restaurant industry, has declined in recent months. The latest index showed that despite generally positive business conditions, restaurants reported lower same-store sales and customer traffic. The index also showed that restaurants do not expect same-store sales and customer traffic to increase. Some establishments have already started to feel the pain. Buffalo Wild Wings reported that earnings dropped in the second quarter, while stalwart McDonald’s earnings also declined.

AIER’s advice to consumers? Use the competitive dining landscape to your advantage. Shop around before you decide where to eat out by using apps like UrbanSpoon and Groupon to dig through restaurants and find a deal.

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Theodore Cangero

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