Ongoing price hikes continue to impact hospitality profitability

Continuing supply chain issues leading to ongoing hikes in food and drinks prices are adding stress to hospitality operators’ profitability.

The difficulties have been revealed in a new report from Fourth, a workforce and inventory management tech firm for the hospitality and retail industries.

The report, The Impact of Supply Chain Fragility on Hospitality, reported how hospitality suppliers and operators continue to deal with the fallout from global events such as the pandemic and the war in Ukraine, which have led to double-digit food inflation, labour shortages and increasing energy prices.

It found the rise in price of daily essential items rose between May 2022 and 2023 where milk was up 36%, bread 22%, flour 19% and eggs 17%. Overall food inflation was 19.1% in the 12 months to March 2023, a 40-year high outstripping the average consumer price inflation of 10.1%. Meat prices have also risen sharply in the last year, with chicken at 15% and beef at 6%. Drinks prices have proved to be more robust, with lager and red wine up by 4% and white wine by 5%.

The result has had an inevitable impact on profitability with operators reporting that cost of goods sold (COGS) was 27.3% in February – an increase of more than five percentage points in less than two years.

The gap between what operators are anticipating they will spend on food and the actual price they pay is also growing. Theoretical COGS has risen sharply from 18.2% in May 2021 to 22% in February this year.

The report is based on data collected from more than 1,500 pubs, bars, restaurants and hotels with a combined spend of £750m with 200 suppliers.

Sebastian Sepierre, managing director of EMEA at Fourth, said the data reveals the extent of the challenges hospitality businesses continue to face. He said that food inflation is undoubtedly one of the most pressing issues the industry faces but that operators must look to how best optimise technology, such as inventory management tools, to navigate the difficulties.

While Sepierre added there is hope on the horizon with energy prices and inflation forecast to decrease this year, the report comes after the Bank of England announced last week that it had raised interest rates to 5%, the 13th consecutive rise. Industry leaders are calling such difficulties a “ticking time bomb” for the industry, with UKHospitality reporting that such a rise could contract the sector by £4b.