What the spiralling food costs mean for the leisure and hospitality industry

29 June, 2023

Ongoing food and drink price hikes and supply chain fragility continues to put pressure on operators.

In this blog post, Regency's Head of Commercial Operations, Nick Pursey, delves into some of the recent price movements and sheds light on why the industry continues to be hit with these challenges...

Food and drink price increases, rising payroll costs, ongoing labour shortages, soaring energy bills and higher tax rates have all been piled on top of the previous (but very much still existent) challenges caused by Brexit, Covid and the war in Ukraine. Add to this the cost-of-living crisis and the affect that this is having on consumer spending, and the hospitality industry is under continual and serious pressure.

"The price of key food and drink products rose at staggering rates..."

According to a recent report by Fourth, the price of key food and drink products rose at staggering rates between May 2022 and May 2023; milk prices are up 36%, bread 22%, flour 19% and eggs 17%. %.

Overall food inflation is reported at 19.1% in the 12 months to March 2023. The Regency team has been able to offset on average 50% of food cost increases for our members, protecting operators from some of these huge price hikes, but this is continuing to present a huge challenge for our industry.

Meat prices have also risen sharply with chicken up 15% and beef 6%. Drinks prices have been less affected, with lager and red wine increases of 4% and white wine 5%. However, the incoming alcohol duty changes will undoubtedly have a significant affect on this category.

Overall food inflation is reported at 19.1% in the 12 months to March 2023, which is a 40-year high.  

While inflation is forecast to ease towards the end of this year into the start of 2024, the price rises that operators have experienced over the past 12 months have now become the norm. In fact, there's evidence to suggest that we may experience further price hikes before costs begin to stabilise - so we need to be prepared to continue to weather the storm.

"We're starting to see some price reductions on the products and categories that increased by the highest percentages..."

The good news is that we're starting to see some price reductions on the products and categories that increased by the highest percentages, in particular oil and dairy, but what is clear is these higher prices are here to stay.

Rapeseed oil prices are dropping as this year’s crop becomes available, making this a more cost effective ingredient than sunflower and olive oil.

Prices for milk, butter and cheese have started to drop due to the increase in global milk production – the effect of these reductions should also be seen in the price of products that contain dairy products. However, dairy producers are facing an extended period of loss-making after milk processors announced price cuts for June and July. Consequently, milk supply is currently falling following the spring peak.

"Poor harvests have resulted in lower quality and increased prices..."

The yields of large potatoes are very low, influenced by rising production costs, labour shortages and a poor harvest caused by last summer’s hot weather (a loss of approximately 35% of UK planted potatoes and 5% of stored supply). This has resulted in lower quality and increased prices of frozen chips and potato products. These prices are subject to change on a weekly basis due to fluctuating supply levels and availability. Initial reports from growers indicate that there might be a delay in the availability of certain products due to colder temperatures experienced during the spring season.

Avian flu continues to cause concerns with many countries introducing restrictions on poultry. This is a volatile category with ongoing supply issues resulting in increased prices. Eggs have also seen a price rise for this reason.

Pork costs continue to be at higher levels due to supply and demand challenges linked to the increased demand from China and overseas, and beef prices continue to rise as the costs of rearing cattle increase.

"A careful balance between quality and pricing..."

Consumers may be going out less, but many are looking for better quality and enhanced experiences when they do. Every business needs to plan their own strategy to navigate these increasing costs and maintain profitability, however it needs to be a careful balance between quality and pricing.

While buying cheap may feel like the best option at the time, lower prices almost always mean lower quality produce, which can increase food waste through loss of yield during preparation and cooking or simply because the taste-quality isn’t good enough and customers either return or do not finish their meal.

It's so important that operators futureproof their business and ensure they maintain commercial viability by examining each and every part of their operations; from staffing costs, operating hours, energy consumption and consumer trends. High on the agenda should also be menu engineering, involving careful evaluation of food and drink costs, ingredient usage, menu prices, GPs and portion sizes.


How Regency can help:

The Regency team is made up of hospitality experts with experience across all areas of the industry, plus we own and operate our own portfolio of leisure and hospitality businesses – so we really do understand the pressure that operators are under (we’re experiencing them first-hand!)

For operational advice, cost saving reviews across all buying categories (not just food and drink!) or to explore our cost-saving technology and menu management systems, including MenuIQ, RegencyIQ and AccountancyIQ, please get in touch.

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