Food inflation heaps pressure on sector as supermarket prices ease
![Greater control: supermarkets have an advantage of being more of a monopoly than the on-trade (credit: Getty/dima_sidelnikov)](https://www.morningadvertiser.co.uk/var/wrbm_gb_hospitality/storage/images/_aliases/wrbm_large/publications/hospitality/morningadvertiser.co.uk/pub-food/news/food-inflation-surges-but-prices-at-supermarkets-ease/6102264-1-eng-GB/Food-inflation-surges-but-prices-at-supermarkets-ease.jpg)
Inflation as measured by the CGA Prestige Foodservice Price Index hit 22.6% year-on-year last month, which was not far off the highest the UK has seen, which was 22.9% in December 2022.
Although prices at supermarkets rose by 0.4% during June, month-on-month inflation in the Index was more than five times higher at 2.2%.
The authors of the research said the large difference is caused by a complex mix of factors. Retail food markets are more consolidated than hospitality, with the top ten supermarkets owning 75% of the market, and they are able to exploit their scale with sophisticated contracting and controlled distribution.
In addition, the Government has threatened supermarkets with price caps if inflation does not fall.
Difference for on-trade
Conversely, hospitality buys primarily through multiple wholesalers, which dissipates scale, creates diverse ranging and has less contractual price protection.
Upstream cost improvements can also take longer to feed through and are subject to continued volatility such as the recent failure of the UK grain corridor arrangements. Finally, suppliers, squeezed by rising costs and smaller margins will be seeking some respite as their inbound costs ease.
Costs of global food commodities continued their downward trend in June, averaging 23.4% below the peak reached in March 2022. However, conditions for producers in the UK continue to be less benign, with farming input costs such as energy, feed and fertiliser remaining high and near-full employment levels tightening the labour market. Climate vulnerability on imported foods, rising interest rates and additional costs of post-Brexit trade all continue to feed through into prices.
Hospitality besieged
CGA by NIQ client director James Ashurst said: “Hospitality has been besieged by food and drink price inflation for many months now and it’s frustrating to see another jump at a time when retail price rises are slowing.
“Alongside relentless pressure on energy bills, labour costs and consumers’ discretionary spending, it leaves some businesses extremely vulnerable through no fault of their own. Sales remain solid and people remain eager to eat and drink out when they can, but trading conditions are going to be tough for some time to come.”
Prestige Purchasing CEO Shaun Allen added: “Food prices in the UK hospitality sector continue to increase at around 2% per month. This rate of increase is likely to be close to a tipping point, where deflationary factors should start to compensate for the currently dominant inflationary pressures.
“The exact timing of this tipping point though remains uncertain while the factors described above remain volatile. We strongly advise operators to ensure that buying skills, levels of resource and quality market data feature heavily in their operational plans for the foreseeable future.”