Sharp rise in food prices hits pubs

Food costs rose nearly 10 per cent across the foodservice sector in June, putting further pressure on the independent pubs as managed groups absorb costs to grow market share.

Sector analyst Horizons says that with suppliers expected to hike prices further, pressure on operating margins has never been greater.

Horizons' latest research shows food costs rose by 9.3 per cent last month, with outlets which depend on fresh food hit particularly hard, seeing prices up 11 per cent.

The rate of food inflation continues to increase, up two per cent on the previous month, when food costs rose 7.2 per cent.

Over the past year, the biggest price rises have been seen in eggs, up 37 per cent, with butter up 32 per cent, and oils and fats up 24 per cent.

The price rises are hitting the freehouse, leased and tenanted pub sectors hardest, because managed pub groups are better able to absorb the costs in order to appeal to cash-strapped customers.

Last week, Mitchells & Butlers which serves 110 million pub meals a year across the UK, said its focus on maintaining value in its food offer had seen it continue to gain market share.

Horizons' director Peter Backman said: "Because consumers are also feeling the pinch in the current climate, food operators are having to take a hit on their margins rather than raising prices to mitigate costs.

"For many this potentially wipes out profits altogether."

He warned: "Consumers are now reining in their spending, often opting for a takeaway rather than a meal out, or choosing a cheaper restaurant than they otherwise would.

"We are unlikely to see any uplift in trading for the rest of 2008."