Rising food prices into foodservice outlets will pose a major challenge for the out of home market in 2017—and fruit and vegetables are going to be a key battleground, writes Graeme Loudon.
That’s one of the messages in the new Foodservice Price Index from Prestige Purchasing and CGA Strategy, which shows that prices across the sector were up nearly 2% year on year in December, outpacing the Consumer Price Index. The falling pound, uncertainty over Brexit, general political upheaval and bad weather—these and other findings are all combining in something of a perfect storm for wholesale prices into foodservice outlets. .
Drill down from this headline figure and we can see how some categories of food are more affected by price changes than others. Bread and cereal prices have dipped lately, for instance, thanks to good wheat harvests. Dairy pricing is 3.3% down compared to this time last year. But it is a very different story in fruit and vegetables. After a fluctuating 2016, fruit prices ended December 2016 at 4.3%, while vegetables rose even faster, by 6.6%.
What’s behind this? Besides exchange rates, Brexit and rising oil and transport costs, the weather is the key factor. Unusually cold weather in Europe has pushed up prices in fruit and salad items brought over from countries including Spain and Italy, and the El Niño phenomenon has had an impact further afield. These climate problems have led to shortages in some items, and already this year we have had a flurry of stories about things like the so-called ‘courgette crisis’.
Rising fruit and vegetable costs clearly affect all restaurants and foodservice operators. But this latest trend could be particularly burdensome for those in the healthy eating space. Competition here has increased dramatically over the last few years, and the number of brands serving health-conscious, clean-living consumers, especially in the on the go daytime market, and most obviously in London, has soared. Margins are already tight, and the soaring costs of property and labour are squeezing them even further.
This spike in pricing is partly a seasonal thing. Fruit is particularly more dependent on imports—only 14% of fruit consumed here is grown domestically—so the pricing for imported fruit is more affected by the exchange rate.
And all the Foodservice Price Index data points towards more volatility as 2017 wears on. That makes it more crucial than ever for the foodservice sector to stay on top of pricing trends. All businesses will have to decide whether they can absorb these price rises or can pass them on to customers. Smart operators will be analysing their sourcing arrangements and reengineering their menus to prioritise ingredients that are less affected by the turmoil. In such a competitive landscape in 2017, sharp pricing strategies could well make all the difference in the battle for market share.
Graeme Loudon is commercial director of CGA focusing on the foodservice sector. To read more about the key findings from the Foodservice Price Index and download an exclusive summary, click here. To receive the full volumetric data, detailed category and subcategory performance and a more in-depth analysis, please contact hello@cgastrategy.co.uk.
