Supermarket prices ease as hospitality food prices surge
The large difference is caused by a complex mix of factors. Retail food markets are more consolidated than hospitality, with the top 10 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.
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.
James Ashurst, client director at CGA by NIQ, 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.”
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