Prior to the start of the crisis in the Ukraine, operators in the hospitality industry and consumers were facing unprecedented food price inflation. Following news that wheat prices have reached an unprecedented high and that the world is facing a grain shortage (Russia and Ukraine together produce more than a quarter of world’s wheat and a fifth of corn exports), the inflation position could prove much worse than first feared for operators.
Businesses therefore are at a crucial point in their decision-making. Whilst many may have made pricing decisions earlier in the year based on best-guess inflation forecasts and the impending VAT rise back to 20% from 12.5%, the reality of the economic impact of the Ukraine crisis is that re-based margin and profitability budgets will be under severe pressure unless additional measures are taken.
Given the escalating near-, medium-, and long-term challenges for supply chains, revised procurement strategies are unlikely to provide the solution. This leaves pricing as the only realistic lever to pull, with a number of critical factors to consider when determining a refreshed strategy in this area, including:
- Developing a clear understanding of changing costs on margin, on a product-by-product basis
- Obtaining detailed, real-time pricing data from across the market to identify strategic pricing opportunities (both in-store and home delivery)
- Performing in-depth consumer research on price perception and the likely purchasing response at various price points; and
- Developing options for increasing prices across all SKUs and stores to recover margin and mitigate the damage
We are in a period of unprecedented food-cost inflation across the sector, and we expect menu prices to generally increase across the board, which may ultimately lead customers to re-base their pricing expectations on hospitality occasions.
By taking a considered and strategic approach to pricing, operators can ensure the greatest return, with the lowest potential impact to customer perception, increasing the chances of striking a position of strength in the market as customers become ever more discerning on their discretionary spending in the current environment.