As energy prices soar, food and drink businesses prepare for the painful winter ahead
The UK population has had months of warnings that Ofgem, the Government’s energy regulator, would be raising the price cap on energy bills in October. As of today (26.8.22), we know by how much – the current price cap of £1,971 will be hiked 80% to £3,549 a year.
This is of course bad news for consumers, who are already dealing with the worst cost-of-living crisis in 40 years affecting the price of their food and fuel. The devastating ultimatum of ‘heat or eat’ will likely affect more people than ever in the coming months, with consumer champion Martin Lewis warning “lives will be lost this winter”.
As well as affecting 85% of the UK population – an estimated 24 million households – the rising cost of energy is also positioned to wreak havoc on the country’s small and medium sized food businesses. Independent food manufacturers and retailers, as well as foodservice businesses like cafés, restaurants and pubs are bracing for a tough winter ahead.
The situation is dire for many pubs, which have already experienced rough trading years because of the pandemic. According to a report from The Guardian, some 70% of public houses do not expect to survive the winter because of soaring energy costs.
“We have entered one of the most challenging times for the brewing sector,” the Society of Independent Brewers said, in a letter also signed by the chair of the Campaign for Real Ale. “Small brewers are reporting that their energy bills are doubling or trebling, putting their future ability to brew at risk.”
According to data from British Independent Retailers Association (BIRA) members, some 88% of independent shop owners feel they are being forced to raise their prices because of energy price hikes. This is in direct opposition to the position the UK Government encouraged food businesses to take in the face of inflation.
With the Conservative leadership race in full swing, and current Prime Minister Boris Johnson’s pledge to not introduce any new policies in the final weeks of his tenure, there has so far been no support outlined by central or local authorities.
“There has been no specific help coming through from central or local authorities to help businesses who are struggling with their bills which has been very disappointing,” said BIRA CEO Andrew Goodacre. “While some areas may have hardship funds or slight reductions in business rates, this is not seen across the country.”
It is hoped the next Prime Minister, either Rishi Sunak or Liz Truss, will announce some kind of supportive measure to combat energy prices when the next PM is announced on 5 September. However, there is no consensus yet on what this might be.
BIRA has written an open letter to both Tory leadership candidates with its recommendations. These include the continuation of 100% business rates relief for retailers, pushing energy companies to put a cap on energy increases for businesses, reducing the multiplier for small businesses and cutting VAT for retailers to stimulate demand.
As shown by BIRA’s demand, currently there are no caps for energy prices when it comes to businesses. This means some businesses are faced with costs which are completely different than expected.
Lynsey Harley, the Founder of Modern Standard speciality coffee roaster in Glenrothes, Scotland and a coffee shop in Edinburgh, has had to halt plans to expand her cafés premises because of the cost of energy. She told Food Matters Live the electricity contract for the prospective new site was 423% more expensive than what she is currently paying.
BIRA also wants to see the Government put funding behind low-energy technologies in retail outlets, which it says could protect shops from higher energy bills in the long term. Currently, business owners are not supported in such actions.
Lynsey, for example, is in the process of spending thousands for a solar panel installation for her roastery, in the hope she can generate much of her own electricity and bypass as much of the price hikes as possible.
“Coffee roasting is an energy intensive business,” she said. “Our electricity contract expires next summer, so we’re installing a £35,000 solar system on our roastery roof. We’re fortunate we can do this but the worrying thing is how far it affects the supply chain, will our customers be able to survive?”
Left to mitigate the rising costs of operating themselves, as it stands right now, 65% of BIRA members said they would soon be forced to reduce staff numbers or wages. Meanwhile 40% are considering limiting opening hours in a bid to cap the amount of energy being consumed.
A similar story of struggle is currently playing out among food manufacturers and foodservice businesses like restaurants, pubs, and cafés. On the former, Food and Drink Federation Chief Executive Karen Betts said: “The soaring costs of energy are putting food and drink manufacturers under extreme pressure, with no price cap on the energy that businesses use.
“Manufacturers are all looking at where they can make efficiencies to reduce their energy consumption – but there are limits. There are further conversations to be had with government as we approach the autumn on how they can best support manufacturers and producers, as a critical part of UK food security.”
For brands like Silent Pool Distillers, which engage in both gin manufacturing and some retail, the hike in energy prices is a double blow. Located in the Surrey Hills, Silent Pool Managing Director Ian McCulloch told Food Matters Live that rising prices will significantly impact his business, not least because of the cost of producing glass for their artisanal gin.
“For us at the moment It’s everything – the cost of glass, bottle stoppers and anti-tamper capsules,” he said, adding that the war between Russia and Ukraine has also disrupted the wheat supply chain.
As for what his business is doing to try and mitigate the issue, Ian says some changes – like introducing solar panels and sourcing honey for drinks from a local beekeeper – have helped. But in the case of energy prices, it is hard for any SMEs to make effective business decisions.
“We endeavour to negotiate everything but given the widespread nature of the energy price increases, it’s been tough creating competitive tension and an alternative supply; so we’re trying to expend effort on the things we can change but not railing against the inevitable,” Ian said.
Sharing his own general advice for businesses, Adrian Turner, Senior Director at built environment solutions company Accruent said SMEs should take time to interrogate their appliances. “Older devices are less energy-efficient and therefore cost more to run,” he said. “Pay attention to anything that’s making a lot of noise when it runs, as it could be a sign that the motor needs a service – which will mean it runs more efficiently.“
Other suggestions from Adrian focus on switching off appliances where possible. “Do you
need to keep non-perishable cold drinks on ice 24-7?” he said. “The same applies to thinking about heating and ventilation. If you are running heaters and the door is wide open all day, it’s time to rethink this approach. The same applies if you’re leaving all the lights on when you’re not open for business. Turning them off will lead to energy savings.”
Understand what rising inflation means for the food industry by listening to this Food Matters Live Podcast episode: