Food Service Inflation Slowed by 6% in the 2nd half of 2023 but remains ahead of official food and beverage inflation. Meaningful Vision tracks the top 100 chains among fast food, coffee shops, and casual dining, and according to their latest data the major fast-food chains experienced an average 17% price increase in the second half of 2023 when compared with the previous year. Since June 2023 foodservice price inflation has consistently decreased, with November witnessing the smallest month-on-month average price rise at 13%, intensifying the trend seen throughout this period toward a gradual reduction in month-on-month price increases.
Analysis reveals the decline in the rate of price increases over the last six months amounts to an average of 6% across the industry. However, this rate does not apply to all products across all sectors. Meaningful Vision’s reporting reveals price increases differ markedly across various sectors: a slowdown in price growth was more visible for dine-in and takeaway vs delivery, for food items vs beverages, and for higher price brackets vs lower price points.
Price Increases for Dine-in and Takeaway Decline at Different Rates
Meaningful Vision’s latest report demonstrates that food service price inflation, affecting major aggregators such as Deliveroo, JustEat, and Uber, was 5% higher than equivalent prices for dining-in during the second half of 2023, continuing a trend that has seen price increases for dine-in restaurants decline from 15% in 2022 to 10% for 2023, while price increases for food delivery declined from 20% to 15% in the same period. Delivery remains more expensive than takeaway and the decline in price increases is taking place at a slower rate there than elsewhere in the sector.
Rate of Price Increases for Premium Food Items Declines Faster than Lower Cost Items
A closer examination of individual categories reveals variable price movements across the typical menu. Price increases among food items declined faster than those of beverages in the last 6 months. Non-alcoholic drinks saw a 12% increase in prices, continuing the relatively steady month-to-month rate seen in the latter half of 2023. Food prices increased 13% in November, a significant reduction over the high of 19% seen earlier in the period under review. The price trajectory of lower-cost products, those in the sub £2 range, remained consistent at 24%, while items priced in the £5 to £10 range slowed from 14 – 15% to 10%. By contrast, premium items priced at £15+ saw the rate of increases slow from 12% to 6%.
Price Increases Vary Between Different Menu Sub-Categories
Meaningful Vision’s data analysis of individual menu categories reveals that on average, price increases for main meals were smaller than those for snacks during the 2nd half of the year, and the rate of price increases for these products slowed more rapidly. Price increases applicable to main meal categories, such as burgers, sandwiches, pizza, and meal deals, have slowed significantly over the 6 months under review. By contrast, snack categories, like cookies, cakes, and sweet bakery items, all experienced continued price increases in November. Hot drinks, ice cream, soup, and salad prices showed the highest price growth during the 2nd half of 2023, while burgers, sandwiches, meal/combo offers, and pizza demonstrated the lowest growth rates.
Rate of Price Increases Differ Between Various Regions and Cities
An examination of our data on a regional basis shows price increases declining in tandem with overall rates nationwide, however, a closer inspection of prices in a variety of UK cities reveals differences of as much as 20-25%. In the 2nd half of 2023 price increases declined by an average of 4-8%, depending on the region, with Belfast and Manchester demonstrating a faster rate than other areas of the UK.
Trends, Challenges, and Strategies in H2 2023
Meaningful Vision CEO Maria Vanifatova remarks – “The Office for National Statistics reported the core CPIH annual inflation rate was 5.2% in November 2023, while prices on food and beverage went up by 9%. The ONS data also reveals the slowdown in price increases for the food and beverage sector amounted to 8% during the last six months. Meaningful Vision’s data shows that, across the sector, increases have slowed by 6% over the last 6 months, but this average alone does not provide the complete picture as price shifts are applied variously across a wide range of different products. Delivery remains the most expensive option and has witnessed significant rises in end cost to the consumer, while the price of premium items from a typical menu, core products such as burgers, sandwiches, and main meals, have seen more modest increases.
Price Rises Accompanied by a Drop in Traffic
While this is potentially good news for both operators and consumers, it must be noted that both fast-food prices, and the rate at which those prices have increased over the previous 6 months, are both higher than the average rate for the food and beverage sector. Despite the 6% slowdown in price rises, overall traffic decreased by 3% in H2 2023. According to Meaningful Vision data, consumer traffic in food service has not been growing for the last few months. Even in the budget-friendly fast-food segment, with a commendable 4% growth of footfall in Q2, growth stalls from September onwards. November sees a stark 3% decline in traffic compared to the previous year.
Strategic Approaches for 2024
In addition to rising prices and a decline in consumer demand, restaurants are simultaneously experiencing other pressures on costs, beyond the price of ingredients. Labour, administrative, and other costs (constituting around 65-70% of their total operational budget) have all increased, adding to the challenge to maintain profitability. Under these circumstances we confidently expect price increases in food service to remain higher than in retail going into 2024.
Fortunately, the food service industry has at its disposal various other instruments and strategies to spur consumer demand beyond merely increasing or decreasing prices, examples include differentiated pricing, meal deals, and promotions. A weighted pricing strategy, informed by extensive knowledge of the competitive environment which MV’s market insights provide, empowers operators with the foresight to navigate a successful path through the challenges 2024 holds in store.”