The bigger picture purchasing and supply under pressure.

The bigger picture

Rising costs and supply chain issues, as well as increased energy and labour costs, look set to threaten the food and hospitality sector for some time to come with operators needing to think carefully about the ingredients they use, plan ahead and maintain good communication with their suppliers.

While ‘don’t sweat the small stuff’ is usually sound advice, in the current market a focus on making relatively small changes to purchasing habits can make a real difference, says Lynx Purchasing’s Rachel Dobson.

UNDER PRESSURE

Popular location, The Magic Bean, closed in Solihull recently, just eighteen months after opening. The café owner, Katie Washbourne, told the Birmingham Mail, that their energy bills were now “ridiculous” after rising from £280 to a massive £1200 per month. “With the price hikes, it got to the point where we couldn’t keep passing on the price to the consumer. Our electricity bills were ridiculous, we were told we weren’t entitled to government help for them, because we were in a contract,” she said.

Steve Magnall, director, and co-owner of Two Magpies Bakery also sounded the alarm, telling business rescue and insolvency services firm, CompanyDebt: “Costs are soaring in all areas – energy, ingredients, packaging, everything, and we’re quite nervous as these increased costs are obviously eating into our profits. We’ve seen our energy bills rise from anywhere between 127% in one location to 400% in another.”

“ONS data flags the strong increase in food prices. Some of the price rises are due to tighter agri-commodity markets and energy costs as a result of the Ukraine war while some of the cost pressures are due to higher labour costs,” confirms Mark Lynch, partner at corporate finance house to the consumer industries, Oghma Partners, when commenting on recent ONS data that revealed strong increases in food prices which is impacting energy intensive production models.

“The food industry is going through a challenging period and without these price increases, many companies would not survive. Highly energy intensive production models, as in bakery and biscuits, are particularly challenged by both input cost and energy cost pressures. On the plus side, any positive resolution to the Ukrainian war and more accessible harvests could see a reversal in cost trends in 2023.”

Rachel Dobson of buying specialists, Lynx Purchasing, further outlines the specific challenges now being faced by food businesses. “The most recent official inflation figures show the scale of the challenge facing the sandwich and food to go sector as their costs continue to rise. While the cost to consumers of out of home meals increased by 10.4% year on year, the cost of takeaway meals was up even more, at 11%,” she reports.

“With many takeaway businesses already operating on tight margins, as inflation pushes up the purchasing costs of food and drink, operators are less able to absorb these costs than some other sectors of the eating out market. This means having to pass on price rises to customers who are already feeling the pinch economically, which in turn makes them more likely to cut back on a morning coffee and pastry, lunchtime sandwich or takeaway meal.

“The impact of high inflation, along with increased labour, energy and transport costs, and lower consumer confidence, are all part of the ‘big picture’ that operators have no choice but to endure until well into 2023 at least.

“Operators have welcomed news of government support for businesses with energy costs across the winter, but will be concerned that there is no guarantee that support will extend beyond a few months, while the Bank Of England is forecasting that high level of inflation will continue throughout next year at least.

“So, while ‘don’t sweat the small stuff’ is usually sound advice, in the current market a focus on making relatively small changes to purchasing habits can make a real difference to margin and profits for businesses.”

Tips to improve buying discipline

● Buy the most cost-effective pack size, whether a box, case, or tin.

● Check orders carefully, report incorrect or damaged goods to the supplier, and ensure that your account is credited.

● Avoid delivery charges by meeting minimum order amounts.

● Be organised, plan ahead and order in good time.

● Avoid last-minute purchasing, so you order from the correct supplier at the agreed price.

The latest edition of the regular Lynx Purchasing Market Forecast - which combines official inflation data with exclusive insight from the range of specialist catering and hospitality suppliers Lynx Purchasing works with - provides detailed information on pricing trends over the crucial coming months

Staple products such as wheat, dairy, meat, fish and fresh produce are all affected by rising prices and supply disruption, as are most nonfood supplies, it reports, so operators should budget as best they can for continued price increases. Product areas highlighted for particular mention in the latest edition include the following.

Poultry

The continuing impact of avian flu means that all poultry suppliers face additional challenges to meet demand, over and above the impact of generally increased costs. Turkey, which sees an annual spike in demand, is likely to be particularly impacted in terms of price.

Potatoes

This summer’s drought across much of Europe raised serious concerns about the size and quality of the 2022 potato harvest, and growers are reporting that the weather has had a significant impact on both the quantity and quality of the new season’s crop. As well as fresh potatoes, this will see price increases for frozen and chilled products, such as chips and roast potatoes.

Canned tomatoes

Widely used in catering, there are material shortages of canned tomatoes, and suppliers are seeing some previously agreed contracts cancelled. Availability will be a key issue, and where there are supplies, operators should expect significant price increases.

Dairy

Dairy producers have struggled to fully pass on the significant increase in costs, and as a result many have cut back on production. This has seen prices for milk, butter and cheese, as well as cream used for food manufacture, rise sharply this year, although the situation is now more stable. Egg supply is also impacted by avian flu.

“We’d advise building some flexibility to menu planning where possible, and to be aware that whether it’s turkey for a Christmas-themed sandwich, or fresh veg for a healthy, warming takeaway soup in January, the most popular products are likely to be the same products every operator is ordering,” Rachel Dobson adds.

“While there’s no escaping price increases, keep talking to suppliers and keep menu descriptions flexible wherever possible. Keeping suppliers in the picture and letting them know in good time about order levels, is a better strategy than placing last minute orders for stock that may not be available.

AGILITY, CREATIVITY AND SUPPORT

How catering teams demonstrated agility and creativity when it came to food service delivery during the pandemic was truly commendable, acknowledge food procurement and supply chain management company, allmanhall. However, the ongoing staffing crisis being felt so acutely across the industry is leaving many teams struggling to find enough chefs and expertise able to make such lowcost, flexible innovative adaptations to menus, they also observe. This is a real problem as now more than ever before, the ability to adapt both processes and menus is essential, they point out. Only when the producer input and output prices soften and become lower than CPI (consumer price inflation) will food inflation start to reduce, feel the company.

They were recently asked if there is a particular food group that is becoming so cost ineffective that many catering teams are deciding not to put it on menus anymore. Their response was that it is evident that price surges are meaning that even staple meat products such as minced beef are rising significantly. Some caterers are completely removing beef from their menus as a result, as well as a rising awareness of beef’s carbon impact, it is claimed. And whilst cuts of meat like chicken and pork remain on the menu, they are being served less often. Switches are being made to plant-based recipes, with the benefits being cost, health and environmental. Indeed, plant-based alternatives are often a cheaper option than meat and can have a longer shelf life too (the latter helping with food waste reduction; vital to ensuring food spend is efficient).

Product availability may also be causing concerns for catering teams needing to manage allergens and special diets, and there is a concern that chefs will be forced to reduce or change fresh quality ingredients, impacting variety and choice in menus, note allmanhall.

Thus, it is vital that caterers have information about which products are stable and which are volatile when it comes to price movement, they advise. Having a greater proportion of stable products making up menus will make it easier to manage and predict the impact of rising prices, the company propose.

Typically, stable products are negotiated annually (solid pack apples, for instance), whereas volatile products fluctuate more frequently (butter, bacon etc). However, even for stable products, now may be the time to ensure you have them in stock, before further price rises or product shortages, and especially if your menu is to become even more dependent on them, add allmanhall.

At the same time, there will also be products and categories where price decreases can be, or have been, negotiated by procurement companies such as allmanhall (even during these times of high food inflation and fluctuations). For example, the firm report that they have not long successfully completed negotiations with their fish and seafood supplier for lower prices. This, in turn, is being communicated to their clients so as to help guide their menu planning at a point when other prices are on the rise. Therefore, whilst caterers continue to face cascading challenges, expert support has never been so important, feel allmanhall.

“We aim to help our clients in these testing times, be it by negotiating down proposed price increases, advising on product alternatives and range management, or mitigating risks,” says Hayden Hibbert, their client relationship director.

There is a harsh spotlight on caterers who don’t have good procurement practices in place as without these practices, the impact of chefs working tirelessly to cost recipes, source the most cost-effective ingredients, manage portion and waste control, is diluted. In order to cope, the three key areas caterers need to be focusing on right now are their supply chain and procurement practices, operational practices and their recipes and menus, the company advise.