Food inflation continues to take its toll on foodservice margins
The price foodservice operators are having to pay for food supplies rose by nearly 10% in June with further price hikes still to come. The pressure on operating margins has never been greater.
According to our most recent figures which track price changes in the foodservice and eating out sectors, the cost of food is continuing to rise.
This latest research show that food costs rose by 9.3% in June with increases experienced across all sectors. Restaurants were particularly hard hit last month with prices rising 11%, largely due to their dependence on fresh food.
This represents a 2% increase on the previous month, when food costs rose 7.2%. Foods showing the biggest price rises include eggs (37% over the past year), butter (32%), 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. For many this potentially wipes out profits altogether.
Already we have seen operators, particularly pub companies, announcing that like-for-like sales have slowed. Consumers are now 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.
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 fall over the past three months indicates that rather than a temporary blip, this is a wholesale drop in profitability that many operators are choosing to ignore.
Food commodity prices have grown by 40% over the past year. This takes several months to be reflected in 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 long term.