Inflation in the foodservice industry remains a concern as the CGA Prestige Foodservice Price Index reported a year-on-year increase of 22.6% in June. This surge is only slightly below the record high of 22.9% recorded in December 2022.
In contrast, supermarket prices saw a much milder increase of just 0.4% during June, highlighting a significant disparity between the two sectors. The Foodservice Price Index experienced a month-on-month inflation rate of 2.2%, which is over five times higher than the supermarket rate.
Several factors contribute to this difference in inflation rates. Supermarkets benefit from a more consolidated retail market, with the top ten supermarkets holding 75% of the market share. Their ability to leverage scale through sophisticated contracting and controlled distribution enables them to keep prices relatively stable. Additionally, the government’s threat of price caps on supermarkets if inflation remains high may have influenced their pricing strategies.
On the other hand, the hospitality industry relies on multiple wholesalers for their food supply, leading to a dilution of scale, a wider range of products, and less contractual price protection. Moreover, improvements in upstream costs may take longer to impact the hospitality sector and are often subject to volatility, as seen with the recent failure of the UK grain corridor arrangements. Suppliers in the hospitality industry, dealing with rising costs and tighter margins, are likely to seek relief as inbound costs start to ease.
While global food commodity costs experienced a decline in June, averaging 23.4% below the peak reached in March 2022, UK producers continue to face challenges. Farming input costs, such as energy, feed, and fertilisers, remain high, and a tight labor market due to near-full employment levels adds to the pressure. Additionally, the impact of climate vulnerabilities on imported foods, rising interest rates, and the added costs of post-Brexit trade all contribute to the persistent upward pressure on food prices.
The report says that the overall economic landscape remains uncertain, and both hospitlaity and supermarkets sectors are bracing for further developments that could impact food prices in the months to come.
James Ashurst, client director at CGA by NIQ, said, “Hospitality has been besieged by food and drink price inflation for many months now, and it’s frustrating to see another jump at a time when retail price rises are slowing. Alongside relentless pressure on energy bills, labour costs and consumers’ discretionary spending, it leaves some businesses extremely vulnerable through no fault of their own. Sales remain solid and people remain eager to eat and drink out when they can, but trading conditions are going to be tough for some time to come.”
Shaun Allen, CEO of Prestige Purchasing, said, “Food prices in the UK hospitality sector continue to increase at around 2% per month. This rate of increase is likely to be close to a tipping point, where deflationary factors should start to compensate for the currently dominant inflationary pressures. The exact timing of this tipping point though remains uncertain whilst the factors described above remain volatile.”