Inflation takes its toll on foodservice

29th July 2008, 9:18am

Hospitality analysts have found the price of food supplies rose by nearly 10% in June forcing foodservice operators to put more pressure on their operating margins.

The latest figures from Horizons, which tracks price changes in the foodservice and eating out sectors, shows the cost of food is continuing to rise.

Restaurants were particularly hard hit last month with prices rising 11%, largely due to their dependence on fresh food.

This represents a 2% increase on the previous month, when food costs rose 7.2%.

Foods showing the biggest price rise include eggs (up 37% over the past year), butter (32%), and oils and fats (24%).

Horizons' market analyst Peter Backman explained more about the results: "Because consumers are also feeling the pinch in the current climate, food operators are having to take a hit on their margins rather than raising prices to mitigate costs. For many this potentially wipes out profits altogether.

"Already we have seen operators, particularly pub companies, announcing a slowdown in like-for-like sales. Consumers are reining in their spending, often opting for a takeaway rather than a meal out, or choosing a cheaper restaurant than they otherwise would. We are unlikely to see any uplift in trading for the rest of 2008.

"The rise in the cost of labour, fuel and other expenses is squeezing margins," says Backman. "While it is possible to bear this for a short period, the extent of the large rise in costs over the past three months indicates that rather than a temporary blip, this represents a wholesale drop in profitability.

"Food commodity prices have grown by 40% over the past year. This takes several months to be reflected in the prices paid by foodservice operators, so there are still months of prices rises in the pipeline. The good news is that food commodity prices have stabilised over the last few months, so some relief is in sight for operators in the longer term."

Weblink: www.horizonsforsuccess.com

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