As global food prices escalate, restaurants and other small businesses are being force to swallow the costs
Rising food prices are hurting small businesses, due in part to wavering consumer spending making it difficult to pass the increases on.
New figures from the Agriculture and Horticulture Development Board show that UK food-price inflation accelerated in the 12 months to February to 4.4 per cent, compared with 2.8 per cent the previous year.
Price rises for milk, cheese and eggs have increased seven-fold, from 1.1 per cent to 8.1 per cent, while bread and cereals price inflation has more than doubled from 1.9 per cent to 4.7 per cent.
“There’s no question that higher food prices are affecting an increasing number of our members,” says Martin Couchman, deputy chief executive of the British Hospitality Association, which represents 39,000 hotels, restaurants and caterers. “Ethnic restaurants that use rice, for example, are paying an awful lot more and having some supply problems. The price of beef has also gone up sharply—perhaps because of the price of grain feed.”
The effect on costs has been particularly noticeable since January, according to Couchman. He says that restaurants and caterers can exercise a certain amount of portion control or simply take more expensive foods, such as steak, off the menu if they think customers won’t pay higher prices.
But increasing selling prices is more difficult, he believes. “There is a squeeze on consumer spending,” says Couchman. “And people who eat out a lot tend to be young. They have to be more careful—their rents are going up. So it’s harder to raise prices.”
Couchman points out that the UK industry is increasingly at the mercy of global markets. “There is more demand from the public to use UK food,” he says, “but it’s not so easy. The percentage of our food that is produced here has fallen in the last 10 years to under 60 per cent. So if there’s a drought in Australia, it has an impact on us because it’s a world market.”
Australian drought is indeed having a negative effect on supply. So is a shift in land use from food to biofuels, notably in the US, where it is encouraged by subsidies. The high price of oil increases the cost of nearly all agricultural inputs, from diesel to fertiliser. Increased consumption of animal products in increasingly affluent societies such as China and India is boosting demand for grain feeds.
“There’ll be no end to rising food prices any time soon,” predicts Dr Diogo Souza Monteiro, a food economist at Kent Business School. “The US won’t back off from its policy of subsidy. There’ll be no early decrease in oil prices, and the trend to meat products is more likely to increase than decrease.”
Simon Briault of the Federation of Small Businesses admits that small food-related businesses are being squeezed on two sides, but he says he doesn’t yet sense any panic among them. “That may be because the effects have yet to filter through, and we’ll see the real problems at the end of the year,” he says. “It may also be because small businesses are able to take the hit. They are more savvy about their business models, particularly if they have been around a long time, and today, overall, they have more deposits with banks than borrowings.”
But hospitality research consultancy Horizons for Success thinks UK catering will see a higher number of business casualties this year, as food prices add to the effects of overcapacity and a consumer downturn.
“Operators’ food costs are rising at over 5 per cent at the moment, and I’d expect it to go significantly higher,” says Horizons managing director Peter Backman. “This, coupled with increasing energy and labour costs, and the fact that selling prices are rising more slowly, means margins, typically around 5 per cent, are being squeezed hard.”
Posted 29 April 2008 : Director.co.uk