‘Food inflation constitutes existential threat to many firms’

By Nikkie Thatcher

- Last updated on GMT

Food prices: the sugar category recorded a fall of 10.9% in inflation (image: Getty/anilakkus)
Food prices: the sugar category recorded a fall of 10.9% in inflation (image: Getty/anilakkus)

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Foodservice inflation hit 10.2% in February fuelled by a myriad of challenges, according to recent data.

The latest edition of the Foodservice Price Index from CGA and Prestige Purchasing revealed a surge in demand, lingering impacts of Covid, additional costs of trade after Brexit and increases in energy packing prices were driving the hike.

It also found inflation has been further heightened by the comparisons with February 2021, when Britain’s lockdown temporarily eased the pressure on prices.

Inflation in the index is now running at exactly double the level of the comparable consumer price index (CPI) number and underlines the structural differences between retail and foodservice sectors, with security of volumes and tighter ranging, forward contracting and hedging used to protect pricing over a more extended period in the retail sector.

The report also highlighted the volatility of pricing with a wide range of figures reported across the 10 categories.

Food categories

Sugar recorded a fall of 10.9% but the oils and fats category was up by more than half (56%) year on year.

Half (five) of the 10 categories have inflation of more than a fifth (20%) with fish, fruit, dairy and soft drinks also impacted.

The report also predicted inflation will become even more acute following Russia’s invasion of Ukraine in late February.

The war will add to the stress on energy markets and generate new challenges in key commodities like wheat, oils and fats, fish and fertilisers.

In addition, this is likely to drive prices upwards for months to come and further hikes in inflation are inevitable.

No signs of easing

Prestige Purchasing CEO Shaun Allen said: “Inflation now constitutes an existential threat to many businesses in the hospitality sector.

“The Ukraine war has the potential to drive an extended period of increasing food and drink costs, which if coupled with recent changes to VAT, rising labour costs and potentially falling volumes could well generate conditions worse than during the pandemic.

“Best in class procurement skills will be an essential part of the operator toolkit in the years ahead.”

Two years of Covid turmoil have weakened many businesses across the foodservice sector, so the huge upward pressure on prices comes at the worst possible time, according to CGA client director James Ashurst.

He added: “The surge in energy and commodity costs show no sign of easing, and with consumers’ disposable incomes heavily impacted as well, there will be pressure on sales as well as margins.

“The long-term future of the foodservice sector remains good, but there are undoubtedly some turbulent times ahead.”

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