David Read, Founder and Chairman of Prestige Purchasing suggests that it’s not just the government that’s squeezing the life out of hospitality
One evening a couple of weeks ago I drank an unseemly amount wine with a small group of hospitality operators whilst reflecting on 2025 so far. When at their best these evenings inspire all that is best about our sector – positivity, optimism, creativity, a relentless focus on people, food and drink, and a passion for excellence that makes one proud to be a part of it. Our sector is like no other. It attracts amazing leaders, mavericks, and inventors with a seemingly insatiable desire for innovation and improvement. When amongst them one can begin to believe that there is no obstacle, no hardship, no intractable issue that cannot be overcome by good critical thinking and great teamwork.
But this event was different. The positivity was replaced by an almost grim determination, in some cases simply to survive. The irony that a government that claims to have a ‘number one priority’ of growth could then choose to grab almost all operators profits through taxation has been a bitter pill to swallow. Historically many operators would pass increases in cost on to customers through pricing, but there was a unanimous view at this event that there is no more price elasticity available without losing damaging amounts of demand.
The following day I was looking at inflation numbers in food and drink, and on instinct decided to look at the comparability of Retail and Hospitality. My company, Prestige Purchasing (in partnership with CGA), runs the Foodservice Price Index (FPI), which uses 12m lines of data each month to measure inflation in hospitality food costs over 11 categories. Since June 2020 the cost of food in our sector has risen by about a half (49.3%), with the index moving from 100.2 to 149.3. There is no index publicly available that measures inbound cost of food to the main retailers, but the government’s CPI does measure their selling prices. In the same period the CPI index rose from 103.7 to 140.9, inflation of 35.9%.
So, the cost of food to shoppers has risen about one third less than the cost of food at the kitchen door in hospitality. Had a restaurant business with £10m spend in 2020 been able to buy with the same impact as retailers selling prices, then their profit would be over £1m greater in 2025.
My purpose in sharing this data is two-fold. The first is to stress the very obvious reality that retailers buy better than hospitality does. The classic operator response when I suggest this, is a negative one – usually something like “of course they do, just look at their scale”. But this ignores the massive opportunity open to hospitality by investing in a focus on supply chain through the use of skills, data and technology.
But the second is the downward pressure created by retailers on the perceived value of food. This sector is in a race to the bottom and has been for some years. Food now represents 11% of the average household’s annual expenditure, which is down from 33% in the 1950s. Indeed, there are very few nations below our number – ones like the US at 6.8% and Australia at 9.9%.
There is a thing called Engels Law, that states that the richer a nation is the more cash they spend on food, but the lower the proportion of total income food represents. This is true for most nations until you encounter the ones with a heavily industrialised and consolidated food systems – the UK, US and Australia all fall into that group. It is in these nations that retailers, processers and manufacturers collaborate to control choice, packing supermarket shelves with increasingly processed and cheapened food that lowers price but still improves their margins. Indulgent foods like these are packed with fats and sugars (and many other ingredients to lower cost/improve shelf life), are convenient, accessible and mildly addictive. This is partially why food is so much cheaper in supermarkets than in hospitality.
The more consolidated and industrialised our food system becomes, then the more conditioned our (hospitality) customers become about what they see as the true value of food. Today in Aldi you can buy a British 195g Ribeye steak for around £4.40, or a ready-cooked Lamb Shank (for two) at £7.49, or a ready-cooked Pork Casserole (for two) at under £4. If your household budget is under pressure then the delta between this and almost any form of eating out is huge. In recent times Deliveroo and Uber Eats have even started delivering groceries, so there is little incentive to go out except for the added experience. This is one of the major reasons why operators feel under pressure on selling price and volume.
For hospitality businesses to survive I believe it’s important that we accept a few things:
- From a competitive point of view we are under pressure from more directions than ever before.
- The retail driven race to the bottom is undermining consumer’s perception of the value of food.
- Discounting to compete is increasingly futile.
- People can and will spend more of their household income on food, but we have to be worth it.
So, choosing our battles is important – so what we can control and focus on is:
- The efficiency of our own buying of food and drink
- Being clear about who one’s customer is and choosing them wisely
- Serving exceptional and stunningly tasty food – the like of which you cannot get/make at home
- Making the whole experience of dining out your priority – do it different and much, much better
Battening down the hatches can only take us so far. Investing carefully in the right things may well be the only way to survive.
And all the time AI is changing the rules of engagement. Operators must act quickly to adapt.
