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Food prices in hospitality surge again as supermarket prices ease

This was in sharp contrast to supermarkets, where prices increased by just 0.4% in June. 

According to CGA, the large difference is caused by a combination of factors. Retail food markets are more consolidated than hospitality, with the top 10 supermarkets owning 75% of the market, which allows them to exploit scale with contracting and controlled distribution. 

• Read more: Professional development and well-being number one priorities for drinks industry
  

In addition, the government has threatened supermarkets with price caps if inflation does not fall.

The Competition and Markets Authority (CMA), recently found that food price inflation was not driven by supermarket profiteering and operating profits for UK supermarkets have, in fact, fallen in the last 12 months.

Average operating margins fell from 3.2% to 1.8% in 2022/23 compared to the previous year. The CMA noted retailers’ costs have increased faster than revenues, indicating rising costs have not been passed on in full to consumers.

Conversely, hospitality buys primarily through multiple wholesalers, which dissipates scale, creates diverse ranging and has less contractual price protection. Upstream cost improvements can also take longer to feed through and are subject to continued volatility such as the recent failure of the UK grain corridor arrangements. Also, suppliers, squeezed by rising costs and smaller margins will be seeking some respite as their inbound costs ease.

Meanwhile, costs of global food commodities continued their downward trend in June, averaging 23.4% below the peak reached in March 2022. However, conditions for producers in the UK continue to be less benign, with farming input costs such as energy, feed and fertiliser remaining high and near-full employment levels tightening the labour market. Climate vulnerability on imported foods, rising interest rates and additional costs of post-Brexit trade all continue to feed through into prices.

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. We strongly advise operators to ensure that buying skills, levels of resource and quality market data feature heavily in their operational plans for the foreseeable future.”

James Ashurst, client director at CGA by NIQ, added: “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.”

• CGA
• Inflation
• Supermarket