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It’s a perfect storm that’s been approaching the UK’s food and drink sector for some time, according to Tony Hindhaugh, director of Parson’s Nose, a London-based butcher. “Unprecedented demand, large sections of the economy closed, Brexit, Covid… the inevitable is coming,” he told Speciality Food. “It’s as if everyone has been looking the other way.”
Margins are being squeezed – even more than usual – as retailers grapple with the highest inflation rate in almost 30 years. Costs are rising for everything from meat to cardboard. “Amazon bought up decades worth of cardboard in a month, and that left people like us not being able to get a hold of egg boxes, delivery boxes and wrapping paper,” Tony said. “If we wanted them, the price was doubled and the lead time was quadrupled.”
Wages are on the rise too. Parson’s Nose increased pay for delivery drivers as the shortage of hauliers inflated pay. “If we wanted to keep them and stay in business, we had to increase wages,” he said. Brexit, too, has played a role. “In the farming and food industry, farm labourers and factory workers all headed home,” Tony explained. “Our turkey farmer had, for the last 30 years, relied on up to 35 foreign works to help in the season, but they were no longer available. Local English workers needed to be hired, and they are more expensive – as a result, so is your turkey.”
Cost pressures bite
This perfect storm is reaching far and wide across the industry. “Rising inflation is just one of many pressures impacting small firms across the country,” said Mike Cherry, national chair of the Federation of Small Businesses (FSB). “After a torrid two years marred with closures, restrictions, staff shortages and a disappointing festive period, many hospitality firms, and those in the supply chain, are now contending with ever-rising business costs, and, come April, a hike in National Insurance. The fact small firms have been excluded from support for those struggling with rocketing energy bills is another blow.”
A survey by SME payments company Tyl, part of NatWest, revealed 54% of small businesses in the UK are spending more than £3,000 on their annual energy bills. Micro-businesses with fewer than 10 employees have been particularly hard hit.
“The list of prices increases is endless, and every business is facing the same dilemma,” Tony said. He predicts that by April or May, businesses will be forced to put prices up. Research by the Institute of Directors found that 38% of businesses are planning to offset rising costs with price hikes. However, there is a fear that raising prices will put newly price-sensitive customers off. “As a small business, if we increase our prices to reflect the price rises we incur, we risk losing customers to the bigger businesses who can absorb the rises. If we don’t put our prices up, our margins are squeezed even further, which means we struggle to be viable,” said Jez Lamb, the founder of Beers@No.42, a Wirral-based speciality drinks shop. “The cost of living squeeze has been devastating in recent months, whether in the form of food and fuel price rises or raw materials, the list goes on. We’re now back on the see-saw of uncertainty yet again.”
While the ‘see-saw of uncertainty’ is a frustrating place to be, retailers like Parson’s Nose are working hard to come up with innovative solutions for their customers. For example, the butcher is launching a new 12-month, fixed price meat subscription box. “There are four packed meat, fish and vegetable boxes available on a 12-month subscription. The price will not change, even when meat prices go up.”
How can the shop guarantee set prices? “We have already bought the meat, and we have already taken out fixed-price options with the farmers and fisherman to guarantee supply at the right price,” Tony said. While he can only offer a limited supply, it’s a creative approach to both ensuring a steady supply of customers over the year and keeping prices as low as possible for shoppers.
Yet the FSB’s Mike Cherry believes Government support will be crucial to ensuring small business success over the months to come. “If the Government wants to empower the independent food sector to recover it should extend the emergency VAT cut in April; make sure help finally gets through to the supply chain; and act to reduce employment costs, for example by extending the Employment Allowance to £5,000 a year,” he told Speciality Food. The British Chambers of Commerce has also called on the Government to reconsider a planned rise in National Insurance contributions. As the Food and Drink Federation’s chief executive Karen Betts recently said, “Good collaboration between Government and industry [will be] critical in the coming weeks and months.”