Food and drink have been making an increasing contribution to consumer inflation in recent months, as outlined in our Recent drivers of UK consumer price inflation: March 2022 article. They are one reason consumers may be seeing price increases in their regular spending.
Price rises in food and drinks partly reflect challenges faced by businesses in the food and drink sector. These challenges include supply chain issues, increasing costs, and labour shortages.
Businesses were able to explain in their own words the challenges they face in free text responses to the Business Insights and Conditions Survey (BICS). We also explore other sources to show how consumers are responding to recent price rises in food and drink.
Recent challenges in the food and beverage sector
Businesses in the food and beverage sector have been affected by the recent rise in energy prices. In March 2022, 60% reported being affected by the rise in energy prices, compared with 38% across all sectors. A respondent to BICS explained that:
Prices have shot up in an unprecedented manner. Then electricity prices and wages on top of our raw materials – it's very difficult. We are struggling to keep pace with the increases.
Increased energy prices affected food and beverage businesses more than other businesses
Proportion of businesses with 10 or more employees not permanently ceased trading, reporting energy prices had an effect on production and/or supply, weighted by count, UK, 7 March to 20 March 2022
Source: Office for National Statistics – Business Insights and Conditions Survey (BICS)
Notes:
- Mining and quarrying, education, and water supply have been removed for disclosure purposes, but are included in "All Businesses".
- Food and beverage sector includes businesses in the manufacturing and wholesale and retail sector (See About the data section).
Download this chart Increased energy prices affected food and beverage businesses more than other businesses
Image .csv .xlsThe Ofgem energy price cap is rising again from this month. BICS data show that 7% of food and beverage businesses reported that their fixed electricity costs were due to expire in March 2022, while 2% reported that their fixed gas prices were due to expire in March 2022.
More than one in eight (13%) businesses in the food and beverage sector in March 2022 reported they have variable gas prices, while 20% have variable electricity prices (compared with 15% and 19% across all businesses, respectively).
With increased cost of energy we experienced higher prices of services and goods
Estimates from BICS suggest that food and beverage businesses were more likely to have incurred extra costs due to the end of the EU transition period compared with all businesses.
Goods imported are taking longer to reach us. They cost more, and we are having to consider other suppliers' goods whose prices are greater than what we bought before.
Food and beverage businesses were approximately twice as likely to report additional transportation costs
Proportion of businesses with 10 or more employees not permanently stopped trading, reporting extra costs due to the end of the EU transition period, weighted by count, UK, 7 March to 20 March 2022
Source: Office for National Statistics – Business Insights and Conditions Survey (BICS)
Notes:
- The chart shows the top three cited reasons for experiencing extra costs due to the end of the EU transition period.
- Caution should be taken when interpreting these results based on the specific routing of this question, meaning that only a small number of businesses responded.
Download this chart Food and beverage businesses were approximately twice as likely to report additional transportation costs
Image .csv .xlsIn March 2022, approximately 17% of businesses in the food and beverage sector reported changes to supply chains due to the end of the EU transition period, compared with 7% across all sectors.
We have experienced significant price increases across the supply chain. These have been anything up to and including 100% increases.
Meanwhile, 31% of businesses in the food and beverage sector reported global supply chain challenges in March 2022, similar to across all sectors (26%).
In response to challenges, BICS suggests food and beverage businesses were more likely than other sectors to have changed supply chains due to the end of the EU transition period in the first three months of 2022. Over half (55%) were using more UK suppliers, 37% were increasing diversity in suppliers, and 25% were expanding into different modes of freight (compared with 50%, 43%, and 16% across all sectors, respectively).
Worker shortages are reported in the food and beverage sector, but they are broadly in line with shortages across all businesses. In March 2022, 28% of businesses in the food and beverage sector reported experiencing worker shortages. This is broadly in line with that across all sectors (31%).
It is very difficult to recruit and maintain staff, both managerial and production staff.
In March 2022, 60% of businesses in the food and beverage sector reported a low number of applications for the roles on offer, the same as that across all businesses.
Labour shortages mean that we are struggling to fill vacant positions.
Worker shortages are also reflected in higher labour costs. In February 2022, 29% of food and beverage businesses reported paying higher wages for existing employees and 30% for new employees compared with normal expectations for this time of year. This is similar to all businesses (27% and 28%, respectively).
BICS estimates show that until September 2021, the proportion of food and beverage businesses reporting price increases was broadly in line with all businesses. However, in the final three months of 2021, the proportion of food and beverage businesses citing price increases in items bought and sold increased more sharply, compared with businesses across all sectors.
Food and beverage businesses are more likely to have reported price rises for materials, goods, and services
Percentage of businesses not permanently stopped trading, broken down by industry, excluding businesses with 0-9 employees, weighted by count, UK, 1 June 2020 to 20 March 2022
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Notes
Businesses were asked for their experience for the reference period, however, businesses may respond from the point of completion of the questionnaire.
Data are plotted in the middle of the period of each wave.
“All businesses” includes all industries who responded to BICS.
In March 2022, more than two-thirds of businesses in the food and beverage sector reported an increase in the prices of materials, goods, or services bought compared with half of businesses across all sectors.
Prices have increased because our costs have increased.
Separately, businesses currently (or partially) trading were asked in which ways their business had been affected by any price rises they had experienced, with 58% of food and beverage businesses reporting that they had to pass on price increases to customers in March 2022, compared with 37% across all businesses.
Our suppliers have increased the cost of many of our materials. We have had to recover much of this by pushing the prices up for our customers.
Only 3% of food and beverage businesses reported they had not been affected by price rises, compared with 20% across all businesses.
Production price rises in domestic and imported food have played a role in rising food and beverage consumer prices
12 -month growth rates, UK, January 2015 to February 2022, index 2015 = 100
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Notes
- Food and non-alcoholic beverages consumer prices are specific to shops only and does not include prices in restaurants and hotels.
Download the data for 12 month growth rates in domestic and imported food (XLSX, 29KB)
In 2016 to 2017, when consumer food prices last rose rapidly, the main driver was a sharp increase in the cost of imported food, reflecting a weaker pound. Through most of 2021, the price of domestic food for food manufacturers increased at a faster pace than imported food, although they have now converged.
With food and drink businesses paying more for both domestic and imported food, consumer prices are once again rising. Food and beverage prices for consumers have been rising since August 2021, with February 2022 seeing the highest annual growth rate (5.1%) since September 2011 (6.4%).
Consumer spending patterns have changed as prices rise because of business challenges
The Opinion and Lifestyle Survey (OPN) asked adults about changes in their cost of living over the last month. In March 2022, 87% of respondents reported that their cost of living had increased (a rise from 62% when this question was first asked in November 2021). Of those adults who said their cost of living had increased, 31% reported spending less on food shopping and essentials.
People are buying less when food shopping
Percentage of adults who have been buying more or less when food shopping over the past two weeks, UK, 8 September 2021 to 27 March 2022
Source: Office for National Statistics – Opinions and Lifestyle Survey and Coronavirus and the social impacts on Great Britain: Personal experience of shortage of goods
Notes:
Respondents were asked “In the past two weeks, which if any, have you been doing when food shopping?”
The response option "My shopping habits have not changed" has been omitted from this chart for presentational purposes
Download this chart People are buying less when food shopping
Image .csv .xlsBetween December 2021 and February 2022, around a third of businesses in the food and beverage sector reported turnover decreased compared with normal expectations for this time of year. In comparison, around a quarter of businesses across all sectors reported turnover decreased compared with normal expectations for this time of year.
The food and beverage sector has seen its turnover performance hit since December 2021
Proportion of businesses with 10 or more employees currently trading, reporting a decrease in turnover, three-wave moving average, weighted by count, UK, 1 June 2020 to 20 February 2022
Source: Office for National Statistics – Business Insights and Conditions Survey (BICS)
Notes:
- Businesses were asked for their experience for the reference period, however, businesses may respond from the point of completion of the questionnaire.
- Data are plotted in the middle of the period of each wave.
- For presentational purposes, response options have been combined.
- "All businesses" includes all industries who responded to BICS, not the total of industries displayed on the figure.
Download this chart The food and beverage sector has seen its turnover performance hit since December 2021
Image .csv .xlsLooking ahead, energy prices and inflation are among main business concerns
We continue to face significant challenges as a business and remain in constant crisis management mode to ensure that we are not being adversely affected by the current inflationary environment.
Food and beverage businesses more likely to cite concerns on inflation and energy prices compared with businesses across all sectors
Proportion of businesses with 10 or more employees not permanently stopped trading, broken down by industry, weighted by count, UK, 21 February to 6 March 2022
Source: Office for National Statistics – Business Insights and Conditions Survey (BICS)
Notes:
- Responses not included in the chart are "Not sure" and "No concerns for my business".
Download this chart Food and beverage businesses more likely to cite concerns on inflation and energy prices compared with businesses across all sectors
Image .csv .xlsAbout the data
The indicators and analysis presented in this article are primarily based on responses from the Business Insights and Conditions Survey (BICS), of businesses with 10 or more employees.
BICS is a voluntary, fortnightly survey that captures businesses' responses on how their financial performance, workforce, prices, trade, and business resilience have been affected, over a two-week reference period. A detailed description of the weighting methodology can be found in our recently published Quality and Methodology information report.
BICS responses were sifted by their Standard Industrial Classification (SIC) Code. These were:
SIC 10 – Manufacture of food products
SIC 11 – Manufacture of beverages
SIC 46.17 – Agents involved in the sale of food, beverages and tobacco
SIC 46.21 – Wholesale of grain, unmanufactured tobacco, seeds and animal feeds
SIC 46.3 – Wholesale of food, beverages and tobacco (Excluding SIC 46.35: Wholesale of tobacco products)
SIC 47.11 – Retail sale in non-specialised stores with food, beverages or tobacco predominating
SIC 47.2 – Retail sale of food, beverages and tobacco in specialised stores (excluding SIC 47.26: Retail sale of tobacco products in specialised stores)
The quotes used in the article are derived from the free text responses within BICS. They reflect the overall experiences reported by businesses between 7 March to 20 March 2022. Some have been summarised and all safeguard the anonymity of the respondents.