Amidst escalating prices, Americans are witnessing a significant shift in their breakfast choices. Recent data reflects an alarming increase in the cost of essential breakfast items, most notably eggs and coffee, leading consumers to adapt their morning routines.
The Financial Burden of Breakfast Staples
Alicia Love, owner of Coffee Labs Roasters in Tarrytown, New York, usually locks in year-long deals for her coffee imports. However, high prices at the end of last year prompted her to wait, a decision she now regrets. New orders reflect an increase, with costs per bag rising from roughly $4 to $5.
Egg prices have also soared, marking a staggering 53% increase year-over-year, as per the Bureau of Labor Statistics. These price hikes are not just a gradual trend; they are accelerating rapidly. For example, between December and January, the average cost of a dozen eggs jumped 15%. Furthermore, just last week, egg prices surged 7% week-over-week, exceeding $8 per dozen.
Market Pressures and Consumer Reactions
The rising costs stem from a combination of factors. Currently, the avian flu outbreak has led to mass culling of hens, exacerbating production issues. Industry consolidation may also play a role, as highlighted in a recent Wall Street Journal report detailing a U.S. Department of Justice investigation into potential antitrust practices affecting egg prices.
Coffee prices are similarly spiraling due to adverse weather conditions in Brazil, which have hurt crop yields. Over the last year, coffee futures prices on the Intercontinental Exchange have doubled, even surpassing the historic threshold of $4 per pound last month.
The impact of these price increases is felt broadly across the market. A recent survey conducted by Morgan Stanley indicates a shift in consumer sentiment, as inflation fears have contributed to the first negative reading since June 2024. This trend corresponds with a February survey from the University of Michigan, which noted that consumers are bracing for worsening inflation.
Changing Consumer Behavior
According to Robert Byrne, senior director of consumer research at Technomic, breakfast affordability has been under increasing strain. Family-style restaurants like IHOP and Denny’s are experiencing more pressure compared to other dining segments. Consumers are now opting to prepare breakfast at home or forego it altogether, reflecting a significant behavioral shift.
“Many diners are reconsidering their breakfast habits,” Byrne remarked, noting a decrease in usage of food services for breakfast, which now averages just 1.2 times per week. With inflation affecting even affluent consumers, many are saving for bigger splurges at dinner instead.
Moreover, the repercussions are apparent across the restaurant industry. Dine Brands, which owns IHOP, reported a stock decline of over 13% this year, reaching a 52-week low after presenting a less-than-optimistic outlook for 2025. Analysts attribute this downtrend largely to rising egg prices. IHOP’s same-store sales projections for 2025 are expected to fluctuate between a 1% decrease and a 2% increase.
The Industry’s Strategic Adjustments
To adapt to these rising costs, restaurants such as Waffle House and Denny’s have imposed surcharges on menu items featuring eggs. This approach might be perceived as more palatable to consumers compared to broad price hikes, as these surcharges suggest temporary measures. Conversely, McDonald’s has opted to maintain pricing without any additional charges.
Despite concerns, some experts believe that these surcharges may be seen as more acceptable to consumers, implying possible price return once conditions stabilize. However, menu adjustments come with costs and delays in implementation.
The financial outlook for restaurant stocks remains bleak, with only McDonald’s seeing a slight uptick of 10% in the last year. In contrast, both Denny’s and Cracker Barrel have experienced significant declines of over 55% and 38%, respectively.
Future Implications for Consumers
Looking ahead, coffee consumers could face additional cost pressures due to potential tariffs affecting decaffeinated coffee. Some processing methods that involve cross-border trade with Canada and Mexico could bring about higher prices, compounding the current volatility.
Love warns that impending trade policies may further inflate coffee prices, adding to the current challenges consumers are facing. The uncertain landscape necessitates keen awareness from all stakeholders, underscoring the evolving landscape of breakfast affordability in America.
As rising costs reshape consumption patterns, stakeholders in the food and beverage sector must navigate these challenges with agility to maintain market stability.
