Cost pressures intensify after foodservice price in ation hit double digits in February.

Cost pressures intensify after foodservice price inflation hit double digits in February

Year on year inflation in the foodservice sector hit 10.2% in February 2022, the latest edition of the Foodservice Price Index from CGA and Prestige Purchasing has revealed.

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. Inflation has been further heightened by the comparisons with February 2021, when Britain’s lockdown temporarily eased the pressure on prices.

Inflation in the Foodservice Price Index is now running at exactly twice the level of the comparable Consumer Price Index number. It underlines 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. For example, 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, adding to the stress on energy markets and generating 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.

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

James Ashurst, client director at CGA, said: “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. 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.”

Like many other suppliers across food to go, disposables manufacturer and supplier, Herald, is preparing its customers for the rising costs, while seeking to reassure by securing its product range and ensuring there are always alternative choices available. With many major cities in China being forced back into some form of lockdown, and the supply chain under threat, there’s a shortage of materials, they report, which is causing a sharp, pre-emptive rise in prices across the market. If you add to this the increasing fuel costs, and a general lack of stability for all businesses, the immediate future holds quite a bleak outlook, say the company.

“There’s a current air of unease which is spreading its way about all those who stay on top of the world situation. In terms of disposables, we’re seeing a potential 25% increase in the cost of materials - and it’s hard not to be concerned when this is paired with transport problems and gas and electricity rising costs,” said Herald’s MD, Yogesh Patel.

“However, the message here is simple – please don’t panic buy. Panic buying kills the market. It turns a bad situation into a critical problem and forces prices even higher, making many businesses unsustainable and bringing them to their knees.

“For our part, we will continue to be transparent about what we can deliver and any extra costs we have to impose. Good communication is vital in trying times. By continuing to adopt an open and honest approach, we can ride out the situation together. Our position has always been to secure extra product so that the customer gets access to the products they need without too much delay. We have taken these steps in recent months and we have the storage space necessary to hold these products.

“If products do run out, we can advise and steer our customers towards suitable alternatives. And if price rises mean that certain products are not viable in the shortterm, we will make sure that we continue to offer as great a selection as possible so that you can make the best choices. We’re in this together and we’ll do all that we can to keep providing our customers with a service that is second to none and quality products that are affordable.”