Hospitality businesses face 'existential threat' as foodservice price inflation hits double digits

The double-digit increase was fuelled by challenges including a surge in demand, the lingering impacts of Covid, additional costs of trade after Brexit and increases in energy and packing prices. Adding to the industry's woes, even higher inflation is forecast to come as Russia’s invasion of Ukraine adds to challenges.

“Inflation now constitutes an existential threat to many businesses in the hospitality sector,” says Shaun Allen, Prestige Purchasing CEO.

“The Ukraine war has the potential to drive an extended period of increasing food and drink costs, which if coupled with recent changes to VAT, rising labour costs and potentially falling volumes could well generate conditions worse than during the pandemic. Best in class procurement skills will be an essential part of the operator toolkit in the years ahead.”

Inflation in the Foodservice Price Index is now running at exactly twice the level of the comparable Consumer Price Index number, underlining the structural differences between the retail and foodservice sectors, with security of volumes and tighter ranging, forward contracting and hedging used to protect pricing over a more extended period in the retail sector.

The report from CGA and Prestige also highlights the volatility of pricing, with a wide range of highs and lows across its 10 categories. The sugar category recorded a drop of 10.9%, while oils & fats was up by 56% year-on-year. Five of the 10 categories have inflation of more than 20%, with fish, fruit, dairy and soft drinks also affected.

Inflation will become even more acute following Russia’s invasion of Ukraine in late February, the report predicts. The war will add to the stress on energy markets and generate new challenges in key commodities like wheat, oils & fats, fish and fertilisers. This is likely to drive up prices for months to come, and further increases in inflation are inevitable.

“Two years of Covid turmoil have weakened many businesses across the foodservice sector, so the huge upward pressure on prices comes at the worst possible time,” says James Ashurst, client director at CGA.

“The surge in energy and commodity costs shows no sign of easing, and with consumers’ disposable incomes heavily impacted as well, there will be pressure on sales as well as margins. The long-term future of the foodservice sector remains good, but there are undoubtedly some turbulent times ahead.”