The blanket Brexit effect is gaining traction and all produce prices have been hiked, according to the latest Lynx Market Forecast
Troubles rarely travel alone, and when it comes to rising food and drink prices, a number of factors are combining to cause significant challenges for the foodservice industry in the months ahead, warns buying specialist Lynx Purchasing.
The newly-published Spring 2017 issue of the Market Forecast highlights the pricing issues expected to have an impact on key product categories over the next few months. Using exclusive information gathered from the industry suppliers Lynx works with, the Market Forecast has been revamped for 2017 and spotlights opportunities for caterers planning profitable menus, as well as the challenges.
The fall in the value of sterling against both the dollar and the euro since the Brexit vote last summer remains the key issue, with the Bank of England forecasting that inflation will reach 2.7% during 2017, and some commentators suggesting it will peak higher than that.
At the same time, other factors are compounding the problem when it comes to some specific product categories. "Food supply has definitely moved higher up the news agenda over the past few months," says Lynx Purchasing managing director Rachel Dobson. "In fact, Lynx Purchasing was quoted in The Financial Times in January on the impact on our customers of global problems with salmon supply.
"The national media has also reported supermarkets rationing produce, such as iceberg lettuce and broccoli, due to the extreme weather in Southern Europe; the effect on cod and haddock supplies of industrial action by the Icelandic trawler fleet - which has fortunately now been resolved; and the sharp increase in wine prices as a result of the exchange rate.
"The reality for operators is that when the media move on, they still have a business to run. Alongside the issues that have made the news, there are other factors, such as rising global dairy prices and the fact that commodities such as orange juice, tea, coffee and cooking oil are traded in dollars, that make the market challenging.
"However, we're moving into spring, and for caterers able to work in partnership with suppliers to offer produce when availability, price and quality are at their best, there will be opportunities as well."
In general, caterers will need to budget for continued increases in the price of British meat, which is in greater demand as the cost of imported meat rises. However, there will be opportunities where the popularity of different cuts varies. For example, demand for beef fillets and ribeye, as well as roasting joints, is currently strong, while rump and sirloin are slightly better value.
Global demand for pork is very high, and prices are significantly higher year-on-year. In a volatile market for meat, caterers should talk to their suppliers regularly to get the best prices and quality.
The impact of wet weather and freezing temperatures across Spain and much of southern Europe has been widely reported, and supplies of lettuce and broccoli will remain challenging until UK crops are harvested from May. Tomatoes, peppers and cucumbers will also be challenging until the Dutch and UK seasons start, also in May.
In contrast, there is good quality and availability for UK-grown brassicas, including Savoy cabbage, white and red cabbage, cauliflowers, spring greens and curly kale, as well as carrots, parsnip, swede, turnips and beetroot.
The challenges of both higher prices and smaller fish are expected to continue until at least August or September, with the market very volatile from week to week. This has a knock-on impact on frozen and smoked salmon, where prices follow the fresh market.
Other fish and seafood
Although the Icelandic dispute is over, operators will be well advised to plan their menus around the availability of a range of species, by using specials boards and 'catch-of-the-day' menus. British-caught flatfish including brill, dab, Dover sole and megrim, along with imports such as tuna, swordfish, red snapper and red mullet are all expected to offer good value and quality. Native lobsters and crabs will also be in good supply as spring progresses.
Global demand for dairy produce is high, and with many UK farmers having exited the market in recent years, our reliance on imports is higher. Caterers have already seen price hikes for butter and cream, and costs are expected to remain high.
The UK is one of the world's biggest wine importers, and many suppliers have already raised their prices or are planning increases when supply agreements come up for renewal. The lower pound means operators will need to factor in an increase of around 10% in wine prices, although regular wine list updates will also help. For example, Australia had a good grape harvest in 2016, so will have plenty of good quality wine to sell.
Dobson sums up: "Of course, food and drink prices are part of the overall costs that operators have to plan for, with issues such as the Living Wage and the business rates increase also in the mix. However, with the eating out market continuing to do well, there are also opportunities for operators able to keep their approach to menu planning flexible."
The first revaluation of business rates for seven years will come into effect on 1 April 2017. Hospitality businesses are assessed on both turnover and rateable value, so many are facing significant increases.
Ratepayers have a right to appeal, but it is important that appeals are carried out by experienced chartered surveyors, familiar with both the rating process and the nuances affecting leisure businesses. Lynx now offers its customers access to a specialist business rates consultancy.
The headline UK inflation rate reported by the Office for National Statistics (ONS) for the year to January 2017 was 1.8%, up from 1.6% in December.
While fuel was said to be the main factor in the increase, the ONS reported that food prices are also having an upward influence on inflation, with the cost of imports hit by the fall in the pound.
Food and drink price increases recorded by the more detailed Retail Price Index showed sharp rises in commodities traded in dollars, including tea and sugar. Alcoholic drinks also recorded significant price increases in the on-trade.
About Lynx Purchasing
Lynx Purchasing works with more than 2,200 customers in the hospitality and catering sector, on a no-membership and no-contract basis, that offers like-for-like products at lower prices and often better quality than operators could obtain by negotiating alone.
As purchasing professionals, Lynx works with leading suppliers in the hospitality and catering industry. These include wholesalers, specialist fresh food suppliers, catering equipment providers, utilities, and specialist service providers, such as telecoms, business rates consultancies and waste management.
To download the free Lynx Purchasing GP Calculator App, endorsed by the Craft Guild of Chefs, search for GP Calculator in the iTunes store or on Google Play.