Hospitality food costs soar as labour shortage and chain fragility exposed.

Hospitality food costs soar as labour shortage and supply chain fragility exposed

Spiralling costs and major disruption to the supply chain are having a drastic impact on hospitality operators’ food and drinks bills – and profits – according to some of the latest data.

A new report from Fourth, a global software provider for the hospitality and leisure industries, shines a light on how global events, including the fallout from the pandemic and the war in Ukraine, has created unprecedented supply chain issues. Their data, collected from a sample size of more than 1,000 pubs, bars and restaurants, reveals that the hardest hit commodities are dairy (costs up by 40%), grains (+35%), meat (+35%), fish (+25%) and fruit and veg (+20%).

Average overall costs are up by 10% compared to 2019, they found. Food costs are up by approximately 13%, while drink costs are up by 8% over the same period. In the 12 months to May 2022, average gross profit has fallen by four percentage points, from 78% to 74%.

Factors behind the unparalleled supply chain crisis include the surge in utility and fuel prices, say Fourth, UK inflation at its highest since the 1980s, labour shortages and the consequential wage increases across the supply chain, import cost increases and the lack of availability of products due to a shortage of shipping and flights, the war in Ukraine, and suppliers being unable to source goods or even trade at all.

This has led to operators deeply analysing supply chains models, with many combatting the issues by turning to technology, streamlining their supplier base, and adapting recipes on their menus.

Kate Nicholls, chief executive of UKHospitality, commented: “These stark figures highlight the extent of the damage that rising costs are having on the hospitality and leisure market, engulfing and suffocating businesses and consumers alike.

“After more than two years of unprecedented challenges due to Covid, cost inflation now poses a massive threat to our industry and the wider economy. The impacts of rising costs are being felt across every facet of running a hospitality business, including on jobs and recruitment, economic stability, business viability, consumer confidence and willingness to spend. It’s absolutely crucial that the sector receives as much support it can get – without it, more and more businesses and jobs will fall away.”

Sebastien Sepierre, managing director – EMEA, Fourth, said: “After enduring the shock of enforced closures, followed by the stop-start nature of trading during the pandemic, the hospitality industry now has another major challenge to confront in the form of supply chain disruption. The complexities are such that most operators have never seen anything like this before.

“Technology has a huge role to play in helping operators contend with the instability within the supply chain. It is the most efficient way of comparing suppliers, checking the availability of products, analysing price fluctuations, and knowing exactly what you need and when you need it in your venues.

“The supply chain crisis is one of the most pressing concerns within the sector and it is imperative that operators have the tools at hand to understand and address the challenge of overcoming the disruption.”

Fourth’s solutions include inventory management technology that enables operators to track supplier pricing and deliveries, analyse and produce reports on business performance across multiple sites and monitor stock levels and availability.

On the ONS’s recent inflation figures announcement, chief executive of the Food and Drink Federation, Karen Betts, said: “It’s very concerning to see food price inflation hit 9.8%... Food and drink companies are doing everything they can to contain inflation and to limit price rises for hard-pressed households, but the situation is undoubtedly very challenging, with the cost of ingredients and energy still rising and labour shortages biting.

“While the inflation the UK is experiencing is being driven by disruption in the global economy, there are things our government can do to help ease the cost of living crisis for households and to help food and drink businesses thrive through a difficult period. Our industry wants to see bold new policies from a new prime minister that create the conditions for investment to boost productivity and competitiveness. These include incentivising business investment through rapid reforms to capital allowances, incentivising skills training, reforming burdensome regulation and red tape, and promoting growth in new markets through exports.”