Menu prices rises 'inevitable' as industry forced to pass on costs

By Restaurant

- Last updated on GMT

Menu prices rises 'inevitable' as industry forced to pass on costs

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Hospitality businesses will be forced to increase menu prices further to offset cost pressures and the forthcoming return to the 20% level VAT, UKHospitality has warned.

The trade body says that restaurants and pubs will pass on double-digit price rises to customers with a survey of more than 340 hospitality businesses finding that almost half of respondents (47%) will increase prices charged to customers by over 10% this year.

The hospitality survey, which represents 8,200 venues employing 190,000 people, found that 15% of businesses anticipate having to increase their prices by over 20%.

Overall, UKHospitality predicts that menu prices across the sector will increase by 11%.

The rises come off the back of a Christmas trading period hit hard by Omicron in a sector already mired in debt and low on cash reserves, following nearly two years of severely disrupted trading. The increase in prices is being driven by soaring operating costs, with businesses reporting average rises of 41% in energy bills, 19% in labour costs, 17% in food prices, 14% drinks prices and 21% insurance costs.

With a return to 20% VAT, plus a rise in business rates and higher labour costs proposed for this April, UKHospitality says that the hospitality sector’s plight will have a significant impact on the UK’s economy. Hospitality’s proportionately larger weighting in the Consumer Prices Index (CPI) means that the average 11% price increase would mean a 1.7 percentage point rise in CPI. By comparison it would take a rise of more than 50% in energy prices to have a comparable effect, it says.

“Omicron has infected the start of 2022 with lower-than-expected trading levels and higher than expected cancellations in hospitality venues. One in three businesses in our sector have no cash reserves left and are already carrying heavy debt burdens. Many of our community pubs, restaurants, hotels and hospitality venues will therefore fail as the cost-of-living crisis bites, causing demand to faulter. This can only cause the UK’s wider economic recovery to stutter,” says UKHospitality Chief Executive, Kate Nicholls.

“This April’s planned increases in VAT, employment costs and business rates are therefore likely to prove one financial burden too many for businesses who only then, as we come out of the quieter winter trading period, can hope to begin to start trading at full capacity once more.

“The industry wants to play its full part in the UK’s recovery from the pandemic but, as these latest figures highlight, we can only do that with further support from the Government - support that must include keeping VAT at 12.5% permanently.” 

UKHospitality says the knock-on effect to the wider economic recovery could be significant, particularly given that confidence remains low. Over 80% of operators surveyed said they had experienced either moderate (39%) or severe (42%) levels of cancellations since the start of the year, indicating that consumers are already feeling the pinch.

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