Food inflation up 10% in June

Food inflation rose almost 10% in June heaping further pressure on operating margins, according to one hospitality analyst - and further rises are on the way.

The latest figures from Horizon show that food costs rose 9.3% in June with restaurants hit the hardest suffering an 11% increase due to their dependence on fresh food.

The rise represents a 2% increase on last month with foods showing the largest increase being eggs (37%) and oils and fats (24%).

"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," said Horizon market analyst Peter Backman.

"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."

Backman added: "The rise in the cost of labour, fuel and other expenses is squeezing margins.

"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."