BUSINESS SQUEEZED by the expense of raw materials are facing tough decisions about changing menus or passing costs on to customers.
In the past few years, food prices seem to have changed more times than I’ve had hot dinners. But the trend has been up. In fact, research this year by the consumer group Which? found that one in five UK households borrowed money or used savings to cover food costs. Unsurprisingly, 82% of those that had done so were worried about food prices.
Food businesses are also worried – and have been for some time. The TV show “Dispatches: The Truth About Food Prices” highlighted the issue in 2008. Michel Roux Jr of the restaurant Roux at the Landau suggested: “A fillet of beef that in January  was costing me £19 a kilo is now [June 2008] costing me £26 a kilo. That is a huge increase and as yet I haven’t put my prices up for customers so I’ve swallowed that increase – and it is painful ... It is something that as restaurateurs we are worried about and we have to pass this on.”
Fast forward five years, the rises have continued and some brands are starting to pass costs on to customers. Pret A Manger proved that the margin squeeze is becoming unsustainable in some products: in March, the high-street chain became one of the first big food chains to increase the price of its coffee (by 11p to £2.10, still below its main rivals). And, as Footprint went to press, new research of 115 foodservice and hotel chains by Horizons revealed that consumers are getting less meat in their meals than they did previously. Beef burgers, for instance, are at their lowest average weight since 2010, declining 17% from 7.69oz to 6.35oz.
The findings follow Horizons’ May Menurama report, which found that the average dish price across food outlets in the UK has risen 6.4% in a year, significantly above RPI inflation. Poor harvests, extreme weather, the expansion of biofuels on agricultural land and an increasing demand for food from countries such as India and China have all taken their toll. Fingers have also been pointed in the direction of hedge funds and banks, which are speculating billions on future food prices.
Simple greed could also be playing a part. “Why should a bag of shallots cost £45? There’s no grain, no feed to give onions. People are stitching you up because they read about prices going up and they’re taking advantage of that,” said one chef interviewed for “Dispatches”.
Whatever the reason, foodservice businesses are struggling to come to terms with the rising costs of raw materials. So what can they do? Should prices change and, if not, should menus? In either case, how should this be communicated to customers?
“At the moment, we’re reacting to food prices every single week. If we didn’t, we wouldn’t be here,” says Shaun Alpine-Crabtree, the co-owner of the Table Café in Southwark, London. “It means having policies in place about sourcing more locally, procuring only seasonal food, using lesser-known fish and different cuts of meat. We’ve also built much closer relationships with suppliers, who help us keep an eye on seasonal food and best prices.”
His comments came on the back of the European Dining Index 2013, which showed that 90% of restaurants have reported a rise in their food bill – up from 17% a year ago. Three quarters (74%) of the 200 UK restaurants surveyed for the index cite food costs as the factor that has most impacted menu prices in the six months to January 2013. Moreover, food costs rank higher than any other expenditure for 24% of restaurateurs, and come second only to staff costs, which remain the principal outlay for 34% of restaurants. There is a similar trend occurring across Europe, according to the index.
With rising food prices expected to be a long-term trend, rather than a phase, it’s clear there are big challenges ahead in reducing costs without harming the dining experience. “The cost of food is unlikely to stop rising,” explains John Dyson, a food adviser at the British Hospitality Association. “The hospitality industry is widely aware of the need to constantly scrutinise their menus to find ways to cut out waste and reduce the costs of the raw materials. Businesses will also need to understand better the expectations of their customers about quality and quantity so that they can deliver a great guest experience at the right price point.”
According to Livebookings, which compiled the index, businesses need to continually reassess prices, menu choices and suppliers. “Three-quarters of restaurants now cite rising food prices as the factor most impacting menu charges,” it says. “This will inevitably have a knock- on-effect on customers. Whether it’s paying more for their dinner or missing their favourite cut of beef, there’s a risk that customers could get disgruntled with your morphing menu.”
The research just published by Horizons shows that menus are already changing on the back of escalating food prices. Nicola Knight, director of services at the consultancy firm, explains: “Against a backdrop of rising food costs and squeezed consumer spend, the reduction in weight of key meat dishes demonstrates that operators are having to become more savvy with regard to menu and price engineering. This could explain the huge growth in hot dogs on menus – they are relatively cheap to produce and operators can easily add value to them enabling them to charge more,” she adds.
Alpine-Crabtree says he has found that by offering “great value” and keeping customers informed about what is being done and why, the impact of price rises can be controlled. “We’ve actually reduced the number of fish options on our menu, but have yet to find diners complaining. Communication has been key, as has the fact that consumers recognise the problem of food costs as something that is outside of our control – they face the same issue when they do the weekly shop in the supermarket.”
How to manage food price rises:
- Can local suppliers offer lower costs?
- Use different cuts of meat/less meat
- Work more closely with suppliers to take advantage of seasonal food
- Offer different portion sizes: are portions too large?
- Reduce the range on offer
- Communicate all of the above to customers