by George Taniwaki
A Dec 2011 article in The Fiscal Times purports to show that eating at restaurants is cheaper than cooking at home. It’s an intriguing idea that has appeared in many articles in the past. However, the analysis presented in The Fiscal Times article is flawed and the conclusions are not supportable.
Before going into the specifics of the errors in The Fiscal Times article, let’s consider how one could compare whether cooking at home is more expensive than eating at restaurants. The typical cost-benefit analysis for eating in versus dining out goes something like as follows. Cooking a meal at home isn’t free. From a classical economic point of view one should include the opportunity cost of the time needed to buy groceries , drive it home, store it, prepare a meal, and clean up afterwards. Further, one should include the implicit rental value of the automobile used to transport the groceries and the kitchen and dining room used to prepare and serve the meal.
However, shopping, cooking, and cleaning are not just chores that one is required to do. They are a form of entertainment, social interaction, and a way to share your skills with others as Nathan Myhrvold insightfully states in this Dec 2011 Slate interview. The cook receives utility from hosting a meal, even if it is a regular daily event. Naturally, if one hates to shop, cook, or clean, then there can be disutility as well. When deciding whether to eat at home or dine out, a person will want to maximize the expected utility from the decision.
Examining the wrong factors
The Fiscal Times article briefly mentions some of the above factors, but then totally ignores them when doing the price comparisons. Instead, it mentions differing inflation rates between in-home meals and restaurant meals. Relative inflation rates should be irrelevant to the decision to eat at home or dine out. The author also throws in a few additional factors that also seem to be irrelevant in comparing costs,
“We also didn’t factor in whether one meal or another would be healthier, or friendlier to the environment. But that’s part of the point: Eating right and finding the extra savings that could be had by comparison shopping comes with a time trade-off that many families can’t afford to make these days.”
Hard to interpret charts
The Fiscal Times article has two time series charts which I will reproduce below. Some of the problems I found in the first chart:
- For some reason the first chart is labeled Chart 2 and the second is labeled Chart 1.
- Chart 2 (the first chart) has two different scales (left scale has a range of 1.4% while the right scale has a range of 0.4%) even though both display values from the same dataset (percent share of consumption). This means the data using the right scale will appear to be more variable
- The black arrows both point toward the right scale, though “Grocers” (what’s with the quotation marks?) says it is set to the left hand scale (LHS)
- Neither scale shows the 0% origin point or the 100% end point (Note that if the scale did go from 0 to 100%, then there would be no need for two different scales.
- Assuming the left scale applies to “Grocers” and the right scale to “Restaurants”, then “Grocers share is always above “Restaurants”. It does not cross as the chart shows
- There is no source attribution for the data so no way to judge how valid it is or to review the original data
The second chart (entitled Chart 1) also has several flaws.
- The color code has been reversed. Dining out share was shown in the blue line in the first chart, while inflation is shown in gold. Similarly, eat at home share was shown in gold in the first chart, while inflation is in blue
- The label for each line has changed. “Restaurants” in the first chart is now called Food away from home while “Grocers” is now Food at home
- The use of different labels makes one wonder if the same assumptions, data sets, and cost allocations are used in the two charts and whether the same analysts produced both charts. My guess is no, which means the two charts cannot be used together
- As mentioned above, relative inflation rate should not directly impact the consumer’s choice to eat at home or at a restaurant, so this chart isn’t very useful
Nonequivalent price comparisons
The Fiscal Times article includes a slideshow that compares the cost of selected meals at restaurants with the cost of preparing the meal at home. In five out of six cases, the restaurant meal is cheaper.
If you only consider the price of store-bought food to the price of a cooked meal at a restaurant, there is probably no way the prices of food ingredients in a competitively priced retail store could exceed the price in a non-subsidized restaurant. Certain restaurants can serve meals at lower than expected prices because of subsidized food (school lunch programs), volunteer labor (homeless shelters or church meal programs), or subsidized rent (canteen stores or cafeterias in office buildings).
So how did The Fiscal Times get these unlikely results? I think the following errors were made:
- The restaurant meal prices are for a single serving while the grocery store prices are for full cans, boxes, or other package. This will provide much more food than the restaurant meal
- The grocery store prices are for FreshDirect, a grocery delivery service in New York. Delivery groceries are more expensive than self-serve and NYC is the most expensive city in the U.S.
- The restaurant meal prices exclude the tip
- The grocery store prices include some prepared deli foods. Grocery store deli food can be more expensive than restaurant food since it is an impulse buy
*An orangery is a British term for a greenhouse. They were mostly used to grow citrus fruit (hence the term orangery). Now most citrus fruit in Great Britain is imported. One of the most famous orangeries is located in the Royal Botanic Gardens in London. It is now used as a restaurant where people dine out, not a greenhouse used to grow oranges that people eat at home.
[Update: Expanded the footnote to make clear the irony of an orangery being used as a restaurant.
For a clearer explanation why differing inflation rates should not affect the choice between eating in and going to a restaurant, see this Sep 2013 blog post.]