The Beaver: Inflation, closures and stomachs

The Beaver: Inflation, closures and stomachs

Well, didn’t the last month go quickly! A few more days and we’re well into the end of Q3; the festive season, Black Friday and Cyber Monday are all but a distant memory, with plans for Easter in full swing. Food and drink is, of course, central to all of this (and all other holiday periods) but one essential part of the Easter holidays is the eggs.

By this, The Beaver is referring to chocolate eggs, which have recently been available in all most known supermarkets for half price, aimed at targeting customers before the rush of the proper Easter ‘eggers’. However, The Beaver wonders how the supermarkets can afford to sell these products at low prices, especially given that towards the end of 2017 most other food products were going up in price, largely due to the amount of produce being imported from overseas.

Food inflation was a common and recurring theme throughout last year, and we have highlighted before the increased pressure on the hospitality industry to strike the right balance between absorbing increased ingredient costs and passing on these increases in the form of higher menu prices. There is a real reluctance from restaurant operators to choose the latter for fear of being seen as less value than their competitive set. Most restaurateurs, even the national chains, do not have the same bargaining and purchasing power as food retailers, while supermarkets are also more pliable in switching margins through an extensive stock line.

For the restaurant market, the combined factors of weak sterling, increased labour rates and rising ingredients costs must surely point to a tipping point when margins are squeezed to the point of breakeven, or even worse, a loss-making position. Inevitably, the cost of eating out in 2018 is already looking likely to increase, and The Beaver expects there to be even more restaurant casualties, on top of those we have already seen.

The Beaver believes that the large majority of these closures are an indirect result of consumers voting with their stomachs to find ‘value’ from an increasingly competitive marketplace. This is why many believe that street food, food halls and markets alike are becoming increasingly popular both in terms of consumer appeal and investor attraction.

On the other hand, the closure of these restaurants could be seen as a positive. Much like how fashion and music styles go around in cycles, foodservice is following a similar theme with more back to basics cooking, individual operators on the street and a less is more approach now being preferred to an elaborate, over the top design serving all you can eat offers.

It will be interesting to come back to this topic after another few years have passed, to see where the industry is and whether The Beaver was right about consumers. After all, it is our stomachs that do the choosing of our food choices… right?