30 May |
Sensible Catering Forecast |
The third and final May Bank Holiday has passed. No more now until the end of August. Hopefully all catering businesses have seen a boost in trade and are well into preparation for the early summer months.
For many these are the traditional boom months as customers have better weather and longer days to enjoy.
It’s also normally when people have more to spend as they are spending less on power and heat. But the cost-of-living crisis is rolling on and the catering forecast is not good.
Bright spots
Last week the government announced the new Ofgem electricity price caps. These knock £426 off consumers’ typical annual electricity bills. No announcements yet or probable on business electricity. The better news is there could be more variability in the business electricity market, as suppliers begin to respond to generation cost reductions.
Headline inflation is now below 10%. Consumers everywhere can now start to breathe a sigh of relief because that is seen as progress. And 8.7% annual inflation must be good?
Cloud 1: Inflation explained
Inflation measures the annual change in prices. Overall prices this April are 8.7% higher than last April. That is still a massive increase. Since 2004 the official target has been 2% with the Bank of England required to write to the Government explaining why it was above this figure- “Good news PM we’re only 4 times target in April rather than 5!”. 2% means reasonable growth. The plus is, 8% is less scary so may encourage consumers to spend.
Unfortunately, that is the headline rate. The core rate that bankers and economists look at is now 6.8%. This is worryingly high. It means that interest rates on loans will remain high for years rather than months. For businesses, reducing borrowings now will increase profitability and longer term cashflow.
Cloud 2: War
There is an even bigger inflation rate to worry about for catering companies. This is food inflation currently at an average of 19.1%. But some core products are even larger: milk 33%, potatoes 28%, butter 20%. Avian flu, grain prices and electricity costs have pushed chicken 23% higher. Ukraine was a major exporter of grains, oils and fertilisers. The war is a big cause of this inflation.
Cloud 3: Climate
The forecast on olive oil is perhaps the worst and currently 46% higher. Drought in Spain meant the harvest was halved last year. Italy’s harvest was 40% down and was overtaken in volume by Greece. Given production cycles, it’s predicted that by the last quarter of 2023 there will be a serious availability crisis. Already the cost of alternative oils is 26% higher, and where is the major oil sunflower crop- yes the Ukraine.
But climate also affects the UK. Extreme weather last winter hit sugar beet pushing sugar 47% higher. Want to use honey as an alternative? The week-long sub-zero temperatures in December took out many hives. British agriculture will be short of many pollinators and a less sweet autumn is projected. Agriculture also has the wettest March for 40 years to cope with after the driest February.
What can catering businesses do?
Let’s be aware of the clouds, but use the sun to prepare in order to improve your catering forecast. Consider:
- Food is a basic need and an easy treat. First, think inside, yes inside the box. What is the essence or core of your catering business? This is what most people come for.
- Without reducing that core what ingredients could you swap and change for others? Could you shorten supply chains by sourcing locally and more seasonally?
- What key messages do you need to consistently communicate over the coming months to your customers so as their cost-of-living crisis eases, they come back for more or for that first treat.
- How can you reduce other costs without increasing the risks. For example, cutting back on oven maintenance and cleaning is a short-term saving; but increases the risk of failure during service. That would be a much bigger loss of direct and future custom.
Above all make the most of this summer to increase cashflow and profit to make the end of 2023 easier; when the catering forecast might be sunnier.