Hospitality sector facing double threat from inflation and supply crunch

The hospitality industry is facing another squeeze on two fronts this autumn and winter and it’s tough to know which one is the biggest threat to them.


Inflation and supply shortages spell trouble for Hospitality

restaurant

 

The new CGA Prestige Foodservice Price Index report highlights the unique threat of increasing food service prices that threaten to stall the recovery of the hospitality industry, along with acute labour shortages across the sector which has a knock on effect on stock levels and supply. 

 

The report shows that price rises in some categories were significantly higher than others – soft drinks prices had risen 8% for example. 

 

Andy Hodgson, client manager at CGA who conducted the research warned that Inflation was likely to continue well into 2022 but the increase in short term for hospitality was likely to be far sharper.

 

He acknowledged that while the hospitality industry as a whole was making a robust recovery from the pandemic, the sector specific inflation threatened to “stall any momentum that businesses have achieved”. 

 

He said: “The likelihood of steeper inflation puts already vulnerable businesses under renewed pressure and reinforces the case for sustained support from government on tax, labour, supply chain and more issues.”

 

He highlighted the run up to Christmas as being of particular concern noting it would be “a bumpy period for both cost and availability of products.”

 

Can hospitality businesses close down even with a bounce back loan?  Yes – find out how here

 

Ian Wright, outgoing head of the Food and Drink Federation, reiterated these concerns when he addressed the Commons Business Committee this week stating that the price inflation the industry was seeing was unprecedented in his experience. 

 

While the official inflation CPI rate is at 3.1% – its highest level in a decade – it still surprisingly fell slightly from 3.2% in August. Meanwhile hospitality was seeing a huge rise in the cost of food and drink and was struggling not to pass this directly onto consumers.

 

Mr Wright said: “The hospitality industry is a precursor to retail and for us the inflation rate is running between 14% and 18%. This is terrifying.

 

“Six months ago, almost all our businesses thought it was transitory. Now every business I know is expecting this to last until 2023 and into 2024, every single one.”

 

Restaurants are also being squeezed through a contest between themselves, retail and delivery fulfilment businesses to hire available staff leading to wage inflation while the hospitality businesses themselves are facing a “real construction of choice”. 

 

Ian Wright said: “Anyone who has been to a restaurant, particularly in tourist areas, in the last three or four months will have noticed that the amount of choice has been restricted. You have five items on most menus rather than 10.”

 

Many venues have incurred debts that have accrued during the pandemic and are also preparing to see an industry specific VAT increase to 12.5% at the very moment that the Covid-19 support measures are being wound down. 

 

The CPIH inflation index for hotels, motels and inns has risen from 109.2 in September in 2020 to a high of 126.2 in August 2021 although it too has fallen back slightly to 121.9.

 

The index for restaurants and cafes rose from 112.9 in September 2020 to 117.3 in August 2021 and has now risen slightly to 117.5 this month.

 

Kate Nicholls, CEO of UKHospitality, said that it would be inevitable that hospitality businesses would be forced to pass on some of the pressure to customers through paying higher pressures. 

 

“Hospitality is seeing material cost inflation, with many companies reporting a heady cocktail of substantial increases in the cost of essential goods and services they depend on to run their businesses”. 

 

When it comes to pubs, eight in ten establishments have already raised or plan to raise prices because of rising costs.  A survey from The Morning Advertiser has found that most had or are about to raise the price of a pint by about 30p even before any official alcohol duty increases are announced in the budget. 

 

Emma McClarkin, chief executive of the British Beer & Pub Association, said that a variety of rising prices came at a “critical time” in the Covid recovery. 

 

“It’s one of the reasons we’re urging the Chancellor to support our sector by cutting beer duty, VAT and business rates in the Budget next week to ensure our pubs and brewers can remain at the heart of communities up and down the country.”

  

 

The second threat comes from the supply chain as industry experts are warning that food and drink supplies could be negatively affected for over a year and the current lorry driver shortage in the UK would take months to recover. 

 

Duncan Buchanan of the Road Haulage Association told the committee: “Things are very challenged at the moment. There are widespread shortages of lorry drivers, which are leading to delays and frustrated trips. 

 

“We are still getting reports that this hasn’t eased at all. Things are not visibly getting better at this stage.”

 

While Buchanan welcomed attempts to tackle the estimated 100,000 shortage of lorry drivers, he acknowledged that it could take up to a year to get back to a similar level of service seen before the pandemic. 

 

The Office for National Statistics found that in the past four years there was a reduction of 53,000 HGV drivers which will take time to replace. 

 

Most pubs and cafes should be looking forward to the Christmas and New Year period more this year than they have for several. 

 

This is when the pandemic and its restrictions to our collective way of life would be firmly in the rear view mirror and hundreds of customers would be coming out to catch up on the lost last Christmas and make up for it now. 

 

Sadly, with Covid-19 cases remaining stubbornly high, government advisors and ministers talking about potential future restrictions returning and the immediate inflation and supply chain issues bars and restaurants are facing, this period might unbelievably be even harder for them than the last one. 

 

For businesses in the hospitality trade, this could well be the final straw in their attempt to return to normality and profitability – again through no fault of their own. 

 

If the circumstances are proving insurmountable or will be if things get worse in the short term then this is the perfect time to get some friendly, professional advice on what to do next. 

 

We offer business owners and directors a free initial consultation with an experienced advisor to outline the situation their company is facing. 

 

Once we get a clearer picture then we can let you know what options you can take right now to improve your prospects or if there is no viable way to continue the business, then to begin the closure process quickly and efficiently to let you move onto your next venture even quicker. 

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