A combination of supply-chain problems, increased logistics following Brexit and labor challenges including demands for higher wages is putting considerable pressure on United Kingdom businesses, including hotels.
Costs are going up across the board, including for traditionally luxurious food and beverages from international sources, such as caviar and champagne, amid delays getting to market.
The Office for National Statistics, the U.K.’s official statistician, announced inflation jumped by more than 3% year over year in August and September, adding pressure on the economic recovery as life slowly returns to normal.
In a release from the ONS, the organization said “the largest upward contribution to the September 2021 … 12-month inflation rate came from transport (0.91 percentage points), with further large upward contributions from … restaurants and hotels (0.34 percentage points) and recreation and culture (0.31 percentage points).”
Food and non-alcoholic beverage prices increased 1.1% between July and August, which the ONS said is its highest increase in 13 years.
UKHospitality, the U.K.’s principal hotel and hospitality membership organization, has lobbied the government to keep value-added taxes at 12.5%, a rate that has been reduced from 20% to encourage spending during the pandemic. The rate of VAT in most European countries is lower than 20%, and in many cases lower than 12.5%.
UKHospitality CEO Kate Nicholls said the inflation figures are very concerning, with costs for hospitality businesses rising between 11% and 13%.
“Such rising costs have the potential to seriously derail the sector’s recovery, and its ability to boost national recovery, due to a heady cocktail of substantial increases in the cost of essential goods and services," she said. "Combined with suppressed sales due to labor shortages, it is inevitable that businesses will have no choice but to pass on some of this pressure to their customers through higher prices."
The Bank of England, the U.K.’s central bank, is under pressure to increase interest rates to help settle the inflationary trend. Its government-set target for inflation is 2%.
Hook, Line and Sinker
Nicky Prentice, director of U.K. procurement firm The Full Range, said the supply chain problems are the worst she has experienced in her 25-year career, and she blames the “toxic Brexit-COVID combination, the two together being a hammer blow to the hospitality industry.”
She said other countries face shortages of labor and supplies, but Brexit is an issue solely on the shoulders of the U.K.
“There are unprecedented challenges right across the board. Sometimes it is suppliers struggling, or customers, but this time around everybody is in the same boat," she said. “The biggest impact is the labor shortage, which is absolutely chronic and puts huge pressure on the supplier base, and it comes at a time when there is a massive spike in demand."
She added: “Obviously the high-end stuff coming from Europe is much more difficult to get now, but anything around butchery also is very tough. The lack of availability of products is across the board — chicken, beef, lamb, pork."
Most of Prentice's clients are hoteliers, and she said now is not the time to look for new help.
“Suppliers are not seeking new business, rather struggling to retain what business they have. Hoteliers have to work with their suppliers," she said. "It is not time to find someone else, as you will not find someone else. I suppose it is better the devil you know."
Relationships are critical, as is working well in advance.
“Do not order today what you want tomorrow, as half the delivery will not turn up, and especially if you are catering to functions and events," Prentice said. "You literally cannot get the product, and suppliers are offering the best price they can. The grass certainly is no greener on the other side."
Any change of procurer is likely to put that client at the bottom of their list, Prentice said.
“It is tough, but I pity those who do not have a procurement company right now,” she said.
One company has taken proactive measures to overcome delivery delays.
Raphaelle Simmons, managing director, U.K., at Paris-based caviar, seafood and truffles producer Petrossian, said her company will open a “caviar lab” close to London to offset red tape and control prices paid by U.K. consumers. The company also operates restaurants such as the famed one on West 58th Street and 7th Avenue in New York City, currently undergoing renovation.
Opening in November, the lab can mature caviar on site, which noticeably reduces delays and logistics at the consumer end of the manufacturing and sales process.
“We could receive tins in 48 hours before Brexit. Now [without the new lab] it would take six to eight weeks. That was made more tricky with lockdowns, as we had to gauge what we were able to sell. We are lucky in that most suppliers are in the same boat, and the hospitality industry has been very supportive. So far we have not had to raise prices,” she said.
Luxury goods such as caviar are staples of hotels.
Simmons said hoteliers have moved into two different camps in respect to luxury food and beverage.
“Some have completely stopped any risk in food buying, but others have completely reinvented themselves,” she said.
“The Dorchester [in London] is a good example. It never stopped ordering from us, continuing to buy caviar for small groups, whether it was for an outdoor terrace event with caviar service or a caviar master class. They thought, 'How can we be better? How can we stand apart?' And as we have a great relationship with the hotel, we were also able to give it ideas as to events and promotions,” she added.
Simmons said she has noticed hotel restaurants are still extremely busy.
“Small country hotels, for instance in the Lake District, have been booming,” she said.
Philip Gooding, statistician of consumer price inflation at ONS, said August 2020’s “Eat Out to Help Out” scheme, in which U.K. diners received 50% discounts on meals, inevitably resulted in some inflation uptick a year later after the scheme was discontinued.
ONS figures for August show a year-over-year increase of 11.6% in accommodation costs, and a 10.5% increase for September, while catering costs grew 8% in August and 4.1% in September.
“Last year we were seeing quite negative figures. Then prices were done to attract customers, more so on the catering side. Another interpretation is that inflation has been compounded by increased demand,” Gooding said. “The world is such an unusual place right now, and with the changes that come from Brexit on top of that."
He added that during the lockdowns in the U.K. in the latter part of 2020 and the early part of 2021, hotel prices were unavailable. This resulted in the ONS having to construct figures and interpret them with caution.
Pounding the Pocket
Petrossian’s Simmons said price increases are inevitable.
“[The country is] now paying for delays during lockdowns, and now everyone wants it all at once,” she said, adding other goods her firm produces are becoming more expensive.
“King crab has more than doubled in price in the past year. Supply is limited, and salmon roe, there is almost none left until the next production,” she said.
The silver lining is that new luxury hotels have opened in major cities such as London despite the pandemic, she said.
Prentice also does not see any light at the end of the tunnel, certainly not for this year.
“If anything, it will become worse in the buildup to Christmas, and I do not see it improving in January or February but well into next year," she said. “The government should be doing more. They do not get the severity of what this industry is going through."
Simmons said one thing U.K. companies do not have a shortage of is paperwork.
“The hardest thing in all of this is the logistics. It is a nightmare. Forecasting, the supply chain, have both become more complicated, and many more people are involved than there used to be. The paperwork is intense, and there are more links in the supply chain, so if one is delayed, the entire chain is held back,” she added.
As true caviar comes only from a wild fish species called sturgeon, there are more bureaucratic hurdles to jump though, potentially more delays and likely added and increasing costs, Simmons said.
She said that caviar is subject to regulations from the U.K. government’s Department of Environment, Food & Rural Services, known as DEFRA.
“It takes absolutely ages to get a permit. In France, it is two days; in the U.K., six to eight weeks. Our caviar has a shelf life of 56 days, so this is horrendous," she said. “We will all adjust, of course, whether it be by shortcuts or having better relationships, but things do not always go to plan, so we are doing what we can to take the stress out via importing in bulk and undergoing maturation here."