Rising costs hit margins and menu prices as hospitality’s supply issues continue

Survey from CGA and Fourth highlights business leaders’ efforts to cut carbon footprints as well as costs in the supply chain

Hospitality businesses face a damaging combination of mounting costs and supply problems, CGA and Fourth’s new Business Confidence Survey reveals.

The exclusive survey of industry leaders shows more than two in three (71%) have seen significant increases in energy costs, while six in ten (60%) have experienced significant food and drink price inflation.

Businesses are also dealing with shortages of key food and drink items, the survey shows. Eight in ten (81%) have experienced reduced product lines, while more than half have seen products not turning up (62%) or delayed (51%).

With costs of labour and other inputs also squeezing margins, hospitality businesses are being forced to pass on some rises to consumers. Leaders say they have raised menu prices by an average of 9% in the last year, and they plan to raise them by a further 6% in the next 12 months.

Despite the rising costs, hospitality leaders remain focused on making their businesses more sustainable. Half (49%) plan to introduce measures to reduce their carbon footprints, with priorities including reducing energy use or switching to renewable sources, consolidating deliveries, working with greener suppliers, reducing waste and adding more plant-based food to menus.

Karl Chessell, CGA’s business unit director – hospitality operators and food, EMEA, said: “The double whammy of cost and availability issues is piling huge pressure on operators’ margins. Combined with the growing cost-of-living crisis for consumers, it means trading conditions will be very tough over the remainder of 2022. Hospitality’s long-term future is bright, but for now leaders will have to find the right balance between absorbing soaring costs and passing them on to guests. The huge supply challenges also highlight the need for urgent and sustained government support for the sector.”

Sebastien Sepierre, managing director – EMEA, Fourth, said: “The hospitality industry has had a horrid time over the last two and a half years, and the ongoing supply chain disruption is the latest challenge that businesses have had to contend with. Recent data published by Fourth indicates that average overall costs are up 10% on 2019, and that the average gross profit margin has fallen from 78% to 74% in the last 12 months.

“Leaning on the support of technology and smart solutions is one of the primary ways sector businesses can manage this ongoing crisis. Whether it’s directly comparing suppliers and costs, replenishing inventories, adjusting ingredients in menu items, or simply uncovering what you need and when – smart tech can ease what is continuing to be an extremely tough time for our industry.”