Cost of food has overtaken rent and rates
In the last six months, food prices have overtaken rent and rates in the list of major overheads facing UK restaurants, and now come second only to staff wages, finds the fourth Livebookings European Dining Index.
The Index, based on interviews with 200 UK restaurants and supported by industry data, reveals that three quarters (74%) of restaurants cite food costs as the factor that has most impacted menu prices in the last six months, followed by tighter consumer budgets and staff costs. Nearly all restaurants interviewed (90%) reported a rise in their food bill over the last two quarters, and said that in the last six months food costs were the single biggest expenditure to increase.
Moreover, food costs rank higher than any other expenditure for nearly a quarter (24%) of restaurateurs, and come second only to staff costs, which remain the principal cost base for roughly one in three (34%) restaurants. Rent and rates have dropped within the list of outgoings, and compared to the number of restaurants whose highest cost is the staff wage bill, only half as many say the same thing about what they spend on utilities (18%).
Extreme weather conditions followed by low harvest yields, which for over a year have been impacting the global price of wheat, dairy and meat, have now filtered through to the UK hospitality industry. Knock-on effects reported by UK restaurants include: changing their menus more frequently as they react to price changes; increasing their efforts to source locally as a way to control costs; re-structuring relationships with suppliers to protect against price changes where possible; and an increased need for communicating changes to customers.
These latest figures are in stark contrast with the results of H2 2012 Livebookings European Dining Index, in which fewer than one in five restaurateurs (17%) noted a rise in their food bill in the preceding two quarters, and said that food costs were the single biggest expenditure to increase in that period. In July 2012, staff costs were the principal cost base for nearly half of all restaurants (48%), followed by rent and rates(the highest expenditure for nearly one in five) restaurants, and food costs, which were the highest cost for 17% of restaurants.
Colin Tenwick, CEO of Livebookings, says, ?They have survived the recent economic decline, and are seeing improvement in the number of customers through the door, but many restaurants operating today are still facing a daily mission to maintain a sustainable profit margin. The rising cost of produce creates a need to constantly reassess their supply chain, and what they offer to customers. No doubt the industry will show its characteristic resilience and creativity to overcome the challenge, and it?s likely we?ll see a rise in things like single concept restaurants as restaurant owners aim to tightly control their cost centres, and protect their margin.?
Cost changes necessitate behaviour changes
Industry experts warn that the problem is unlikely to go away. John Dyson, Food Adviser at the British Hospitality Association, explains: ?The cost of food is unlikely to stop rising. The hospitality industry is widely aware of the need to constantly scrutinise their menus to find ways to cut out waste and reduce the costs of the raw materials. It?s important to improve training and skills across the industry so that businesses can manage these challenges.? Businesses will also need to
understand better the expectations of their customers about quality and quantity so that they can deliver a great guest experience at the right price point.?
In the latest Livebookings European Dining Index, restaurants report that several alternative strategies are helping them to avoid passing costs on to consumers, and that a heightened public awareness about global food price rises has helped, provided communication with customers has been maintained. Shaun Alpine-Crabtree, co-owner of The Table Caf? in Southwark in London, explains:
?At the moment, we?re reacting to food prices every single week. If we didn?t, we wouldn?t be here. It means having policies in place about sourcing more locally, procuring only seasonal food, using lesser-known fish and different cuts of meat. We?ve also built much closer relationships with suppliers, who help us keep an eye on seasonal food and best prices. Wheat and dairy prices represent a challenge as, without constantly changing suppliers, you do feel at the mercy of the markets. On the whole, though, we?re finding that despite the challenges food prices are creating, several beneficial changes have taken place as a result. We have even started making our own bread and offering customers new options, such as?giving them a greater choice of coffee cup sizes.
Overall, we?ve found that as long as you offer great value and keep customers informed about what you are doing and why, the impact of prices rises can be controlled. For example, we?ve actually reduced the number of fish options on our menu, but have yet to find diners complaining. Communication has been key, as has the fact that consumers recognise the problem of food costs as something that is outside of our control ? they face the same issue when they do the weekly shop in the supermarket.?
Digital channels help restaurants meet customer communication challenges
At a time when restaurants need to make frequent changes, communication with customers becomes ever more crucial. It is notable, then, that in this latest snapshot of the industry, the number of restaurants investing time in cost-effective digital communication channels has actually fallen. In H2 2012, 79% of restaurants said they were actively using Facebook to talk to customers, and 62% using Twitter. In H1 2013, however, this has fallen slightly, to 74% and 50% respectively.
Colin Tenwick, CEO of Livebookings, comments: ?In an extremely busy industry like this, it?s easy to understand how short-term distractions mean restaurants get side-tracked and invest less time in longer-term strategy. However, one look at the behaviour of most diners shows the need for restaurants not to neglect these channels. Customers expect communication, and restaurants must make sure they are involved in the online discussion. The real winners from a testing time like this will be those who make the most of the latest technology.?
Growth in online and mobile bookings
The H1 2013 Livebookings Dining Index shows the continued rise in mobile bookings across the industry. By the end of 2012, 33% of online bookings were made on smartphone and tablet devices, up from 13% at the end of 2011. Despite the rapid adoption of mobile and smartphone usage, this area remains lower than expected on the list of priorities for restaurants. Only 39% currently optimise their website for mobile, and only 71% take online bookings. Fewer restaurants have made themselves available for mobile bookings than are active on Twitter and less are open to online bookings than have a Facebook page.
Across Europe, reservations made through a mobile device increased by 87% in quarter one 2013 compared to the previous year. The UK has seen the biggest boom in this medium, with more than twice as many bookings made through mobile compared to this time last year (105% year-on-year growth in mobile bookings).
In all markets (UK, Germany and Sweden), the rise in mobile reservations exceeds the growth in online bookings. Online bookings have continue to grow but at half the rate of mobile. In the UK alone online bookings have increased by 40% in the last year compared to a 105% year-on-year growth in mobile.
?A third (33%) of all online restaurant bookings now comes through mobile devices, a figure that will only rise with the introduction of 4G. The fact is, so many consumers now rely entirely on smartphones for communication and interaction with businesses, that restaurants risk cutting themselves off from both new and existing customers if they don?t join in? concludes Colin Tenwick, CEO of Livebookings.