In the recent Food Inflation Report from Prestige Purchasing, the supply chain consultants for the food service and hospitality industries, food inflation is predicted to be 3.8% in 2014 and may even reach a rate of 6%. The annual report revealed that this rise in food prices will exceed that of the consumer price index (CPI) rate of inflation, which is expected to be 2.3% for the forthcoming year.
Although the minimum expected rate of 3.8% for 2014 is less than the 4.2% inflation experienced during 2013, the rate exceeding the CPI rate of inflation is a cause for concern as food items become relatively more expensive. Furthermore, with this trend expecting to continue throughout 2015 and until 2018, and food prices being at risk of trebling over the next 20 years, the rising cost of food is a vital issue that needs to be addressed for the long term.
David Reed, Chief Executive of Prestige Purchasing, commented “unpredictable weather patterns caused by climate change, an ever-increasing global population, rising production costs, commodity futures trading and water scarcity is putting a lot of pressure on food prices around the world.”
So what does this mean for the hospitality and food service sectors? The financial impact on these businesses is twofold, with the first being an increase in supply costs. With meat, fish and vegetable prices all increasing by 5.2%, 4.9% and 5.4% respectively during 2013, and the price of fruit experiencing a substantial increase of 10.2%, the cost to produce even a basic menu is impacted. Furthermore, with poor weather conditions affecting the harvest of grain and grape, alcoholic beverages are also subject to inflationary pressures.
The second impact is a squeezing of gross profit margins. With today’s consumers demanding value for money, food and beverage establishments have the additional pressure of keeping menu prices competitive. Due to this, increasing the price of an existing menu risks a fall in demand. Therefore, instead of passing the rise in food costs on to the consumer in the form of higher prices, such food inflation may have to be absorbed by gross profit.
Addressing this important and difficult issue of food inflation, arean4finance's 'Cost Control for Food and Beverage Operations' course is designed for all food and beverage establishments and assists with the effective management of food costs. Covering key topic areas including purchasing, stock control, pricing and menu planning, the one day course supports businesses in the management of inflationary pressures and ultimately gross profit.
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