Subscriber login Close [x]
remember me
You are not logged in.

Pressure on energy and foodservice providers to tackle ‘greedflation’

Published:  14 April, 2023

Industry leaders are calling on Ofgem to force energy suppliers to renegotiate contracts signed with hospitality businesses at the height of the supply crisis, as price inflation continues to rise – and attract criticism – at the biggest FMCG firms, including Tesco.

Mounting calls are being blasted at the door of energy suppliers and the UK’s biggest supermarkets today, as food service price inflation remains above 20% (CGA Prestige Foodservice Price Index).

Speaking of the triple whammy of rising energy costs, food price inflation and staffing shortages, Kate Nicholls, chief executive of UKHospitality, said: “Something has to be done or hospitality will look like a shell of itself in a year’s time.”

Supermarket chain Tesco has also come under fire from an industry watchdog for not going far enough to tackle “soaring grocery price inflation”.

Tesco’s annual results, released yesterday, show that operating profits slipped 6.9% to £2.63 billion in the 12 months to the end of February, down from £2.82 billion the year before.

However, Tesco has also attracted scrutiny from consumer group Which?, which said Tesco is “doing very well” despite the cost of living crisis, while “millions of its customers struggle to put food on the table”.

As reported by the Times, chief executive Ken Murphy warned of “unprecedented levels of inflation in the prices we have paid for our suppliers for their products and the cost of running our own business”, in response to the chain’s profit slip.

Despite this, he vowed to “prioritise investment in our customer offer while doing everything to offset the impact of elevated cost inflation”.

As part of this pledge, yesterday, Tesco announced it would cut the price of milk in stores for the first time since 2020, as its dairy supplier saw production costs fall.

Still, the debate around where the line sits between profit and profiteering rumbles on.

Addressing the ‘scourge of greedflation’, supply chain consultants Inverto, part of Boston Consulting group, says companies should be working much more closely with their suppliers to help push costs back down as inflation begins to recede.

The group advises businesses to strategically negotiate prices back down as suppliers see some of their costs fall. Some suppliers and service providers are asking for price increases of between 10% and 30%, while their costs have only risen by between 5% and 15%.

“There are some suppliers who appear to be using inflation to grow their profit margins,” MD Sushank Agarwal said.

“Too many businesses lack the cost breakdown insights to help them recognise when that happens.”

Sustained inflation and prices rising across the board are a major concern for hospitality, too.

UKHospitality is now urging energy regulator Ofgem to force suppliers to engage in automatic renegotiations for those businesses paying the highest costs.

“It’s becoming ever more clear that this level of inflation is simply not going to budge for a significant period of time and, while there have been extremely marginal reductions, there appears to be no end in sight for businesses.

“We have already seen 150 pubs lost for good so far this year and that really will be the tip of the iceberg if nothing is done.

“The simplest action on offer is to get energy suppliers in line. It’s Ofgem’s job to do that and we need to see action urgently. Automatic renegotiation of the highest cost energy contracts, signed during the peak of the crisis, needs to be enforced and suppliers need to show flexibility in their payment rates,” Nicholls concluded.