‘How much more is it going to cost me to build a new kitchen or replace a piece of equipment next year?’
It’s a question that every operator should be thinking about at this stage of the year, even if they don’t necessarily want to.
The fourth quarter is traditionally the time when manufacturers begin notifying distributor partners of any changes to pricing that might be effective from the New Year, and inevitably those rises will filter down to operators over the coming months.
While annual price rises are pretty ordinary occurrences in most industries, there is no denying that the economic circumstances that operators find themselves in make the topic more sensitive than it usually is.
Last week a report came out that revealed ‘controllable costs’ now account for more than 52% of turnover for the average hospitality business, partly due to higher staffing costs and pressure on F&B margins. The raft of CVAs we have seen this year has also reiterated just how exposed operators have been to high rents and the devastating impact this can have on profitability.
With all that in mind, the prospect of further cost increases in areas such as kitchen infrastructure can be a hard pill to swallow.
Suppliers, of course, face cost challenges, too. The sheer volume of kit that flows into the UK market from Europe and North America means importers have been at the mercy of dramatic currency swings over the last couple of years. There is only so much they can absorb – invariably the rest has to get passed down.
I know from discussions with manufacturers that these decisions are not taken lightly. Most recognise that operators will only suck up so much before their brand loyalty is tested.
I understand that catering equipment giant Nisbets recently wrote to its suppliers notifying them that its purchasing team has been instructed not to entertain price increases in 2019.
Nisbets said it did not wish to comment publically on communications between itself and suppliers when approached by FEJ for clarification on this, but it will be interesting to see how this situation plays out. Supplier partners planning increases will have to decide how much they wish to irk a customer that probably accounts for a significant portion of their revenue.
I would assume that any reluctance from Nisbets to see prices increase is based on the position that it makes no sense to give customers a reason not to make purchases when costs are already under so much scrutiny.
The kitchen purchasing chief of a major restaurant chain that is currently looking at prospective equipment for a series of new stores it is planning to open early next year told me this week: “When we are carrying out like-for-like reviews of equipment, we have to be a lot savvier if increases are coming in. We have to understand what the longevity of the equipment is because it is no good buying a piece of equipment that is going up in cost or that you have to fix every three months or replace every year. We have to make sure that we get the best piece of equipment at the best price, and that the service levels are acceptable as well.”
Last week, the Ali Group brand Baron notified its customers that most items in its catalogue will increase 3% next year. Other cooking equipment suppliers are likely to follow based on what has happened in previous years.
Lincat is currently reviewing its prices for 2019 as we speak and plans to release details to its distributor partners on 1 December.
Welbilt, meanwhile, says that it faces “vast economic pressure” to increase prices but said it is “working hard to keep price increases to a minimum”. At the very least, it said that any hikes across its portfolio would be “lower than previous years”.
In the warewashing space, the likes of Hobart, Meiko and Winterhalter have reviewed pricing. Meiko plans a 6% increase, but this won’t be applied until 1 March 2019 following liaison with its factory and head office in Germany.
“This has been kept to a minimum where possible but certain factors have meant a sustainable price from 2018 could not be held,” explained UK managing director Paul Anderson, who said clients and partners had received four months’ notice from the time the increase is due to give them ample time to prepare.
One of the biggest unanswered questions for the market is whether 2019 will bring a ‘double rise’, similar to the one seen in 2016 when some importers raised their prices again mid-year after the outcome of the EU referendum sent the value of sterling crashing.
With pending Brexit levies and decisions on some import duties yet to be disclosed or agreed, many suppliers face the prospect of seeing the financial playing field impacted by decisions outside of their control in the coming months.
Combi oven giant Rational is one manufacturer that has pledged to keep its prices the same for now, but it acknowledges that it has got one eye on what happens with Brussels.
“If we end up with a Brexit result of ‘no deal’, there may be additional costs, such as import taxes and significant currency devaluation. If that happens we may have to consider how these additional costs will be covered,” said UK managing director Simon Lohse.
The uncertainty of what will happen next March undoubtedly brings an unwanted and unhelpful twist to the whole situation. Factor in exchange rate fluctuations and component costs, and the chances of the market seeing additional pricing revisions next year remains very real.
Operators planning kitchens in 2019 must hedge their bets accordingly when they are drafting their budgets. But there will be no excuse for being surprised.