UK Inflation continues to threaten hospitality businesses despite improved CPI figures

Imagine waking up to find that your cherished pub or restaurant will have to close because of continued inflation and mounting costs. That is the risk that many business owners in the hospitality industry face given the current economic climate. After the end of COVID-19 lockdown restrictions, business owners and employees in the hospitality industry might have thought they were in the clear.

However, with the macroeconomic financial fallout from the Ukraine war, recent trends are bleak. Over the first three months of 2023, sky-high food and energy costs, combined with the decrease in consumer demand, have led to the closure of over 150 pubs across England and Wales, according to an analysis of official government data by the commercial real estate intelligence firm Altus Group. As well as being economic assets, these pubs are places where individuals can build a sense of community in villages, towns, and local neighbourhoods.

Moreover, the persistence of the current period of high inflation is a strong cause for concern for businesses in the wider hospitality industry.

If you own a pub or restaurant, increasing prices combined with energy costs and staff shortages constitute a "triple threat" to business survival, according to Sam Martin, CEO of Peckwater Brands, Europe's largest virtual food brands operator. Consequently, he claims that "a third of UK hospitality businesses are at risk of closure in the next 12 months."

It is not just business owners that suffer. Many who are employed in the hospitality sector will also be concerned about the fate of their jobs. Sam Martin explains how the hospitality industry is a driving force behind the economy, constituting a key source of employment. For example, in March 2022, 7 per cent of the UK workforce was employed in food and accommodation.

Foodservice price inflation

Sam Martin also points to the significance of food price inflation, which constitutes a key source of risk to businesses in hospitality. Crucially, the CGA Foodservice Price Index shows that it remains above 20 per cent year-on-year this February. The figure reached a record high of 22.9 per cent in December 2022. Therefore, whilst it has decreased, it is still worryingly high for businesses facing a challenging year ahead.

Of some reassurance to businesses threatened by price increases is the expectation of a continued decline in inflation throughout the rest of 2023. However, according to Shaun Allen, Prestige Purchasing CEO, "supplier food prices will continue to increase during the year," whilst simultaneously, "consumer demand will be tightening and scope for increased menu pricing will be limited." Therefore, there is no room for complacency among business owners.

UK CPI figures

These worries persist despite the recent 2023 Consumer Price Index (CPI) figures, which show an easing of UK inflation. Released on the 19th of April, CPI figures show that inflation across the 12 months prior to March 2023 was 10.1 per cent, a decrease from the 10.4 per cent in February. Moreover, the ease in inflation has facilitated optimism in the broader UK economy.

However, the CPI figures show that inflation for food and non-alcoholic beverages was 19.1 per cent in the 12 months up to March 2023, 1.1 per cent higher than the same figure the month before. Indeed, the Office for National Statistics (ONS) notes that food prices have offset reductions in motor fuels, and housing and household services. Furthermore, 12-month CPI rates for restaurants and hotels were at 12.1 per cent in February and 11.3 per cent in March.

How does this compare with the US? Food prices have increased 8.5 per cent over the 12 months prior to March 2023 according to the US Bureau of Labour Statistics. That is notably higher than the 5 per cent inflation rate across all prices.

How can we help businesses?

Sam Martin hopes that despite pressures on consumers, communities will come out to support their local pubs, restaurants, and cafes so that businesses can survive this period "unscathed". Moreover, in his words "something needs to be done," to assist businesses as they face high energy and food costs. This naturally begs the question of government action.

Emma McClarkin, Chief Executive of the British Beer and Pub Association, argues that the government should intervene "to ensure energy suppliers are offering the option of renegotiation to pubs locked into unmanageably high energy contracts." She contends that if something is not done to help out struggling businesses, many more will be forced to close.