Spiralling food costs highlight hospitality’s continuing profitability challenge

Ongoing hikes in food and drinks prices are piling the pressure on hospitality operators as supply chain fragility continues to hit the industry hard.

A perfect storm of factors, including double-digit food inflation, labour shortages and high end-user energy prices are making profitability a constant challenge for operators.

A new report from Fourth, the leader in workforce and inventory management technology for the hospitality and retail industries, reveals how hospitality continues to deal with the fallout from global events such as the pandemic and the war in Ukraine.

The report is based on data collected from pubs, bars, restaurants and hotels with more than 1,500 sites collectively and a combined spend of £750m with 200 suppliers. It reveals that:

• The price of daily essential items rose at historic levels between May 2022 and 2023. Milk was up 36%, bread +22%, flour +19% and eggs +17%.
• This compares to overall food inflation of 19.1% in the 12 months to March 2023 – a 40 year high outstripping Consumer Price Inflation of 10.1%.
• Meat prices have also risen sharply in the last year: chicken +15% and beef +6%.
• Drinks prices have proved to be more robust with lager and red wine up by 4% and white wine by 5%.

The result has had an inevitable impact on profitability with operators reporting that Cost of Goods Sold (COGS) was 27.3% in February – an increase of more than five percentage points in less than two years.

The gap between what operators are anticipating they will spend on food and the actual price they pay is also growing. Theoretical COGS has risen sharply from 18.2% in May 2021 to 22% in February this year.

The consequences of supply chain fragility and rising costs are massive, inevitably impacting the profitability of hospitality businesses. It is therefore imperative for operators to identify where profitability is most impacted and make smart, timely decisions to control costs and adapt to changing circumstances.

Sebastian Sepierre, Managing Director – EMEA, Fourth, said: “The data in Fourth’s latest report reveals the extent of the challenges hospitality businesses continue to endure. However, there is hope on the horizon with energy prices and inflation both forecast to head south this year.

“Hospitality executives must also continue to examine every aspect of their business to futureproof their operations. This is where embracing technology in the form of data-driven inventory management plays a significant role. It provides the most efficient way of comparing and changing suppliers, checking product availability and knowing exactly when stock needs to be replenished”.

“Food price inflation is undoubtedly one of the most pressing issues the industry faces, and it is essential to have the right tools at hand to tackle it head on. Technology can play a vital supporting role in helping businesses navigate the various challenges that continue to plight the hospitality landscape”.

Fourth’s solutions include a range of smart and powerful inventory management technology that gives operators complete visibility of the stock management chain and the ability to track everything from supplier pricing and deliveries, to waste management across multiple sites in order to boost margins and customer satisfaction.