Restaurants face profit drop as food prices rise

By Emma Eversham

- Last updated on GMT

Related tags: Restaurant

Restaurants face profit drop as food prices rise
Restaurants may have to swallow rising food costs to keep cash-strapped customers coming through the door, analysts have warned.

Food costs rose by 9.3 per cent for foodservice operators in June, with restaurants – due to a reliance on fresh food – seeing prices rise by 11 per cent.

However, hospitality analyst Horizons said many businesses were holding fast on prices to boost trade.

Market Analyst 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.

“Already we have seen operators, particularly pub companies, announcing a slowdown in like-for-like sales. Consumers are 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.”

Food costs rose 7.2 per cent in May and food commodity prices have grown by 40 per cent over the past year.

Backman said there were still several months of price rises “in the pipeline”.

“The good news is that food commodity prices have stabilised over the last few months, so some relief is in sight for operators in the longer term,” he added.

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