My grocery expenses are similar to yours for two people, and we do most of our cooking at home as well. I have the same problem with meat that you do. It's hard to buy good meat cheaply.
Vegetarian meals don't have to be sad. Indian cuisine is often veggie and exceptionally good. Meera Sodha's book Fresh India [0] is a goldmine for cheap veggie recipies that you wouldn't miss meat from (I say this as someone who likes meat!)
