Food inflation puts processors and restaurants on 'survival' footing

Caught between surging costs and cash-strapped consumers, Scotland’s food processing and service firms have been cutting back in ways that for many would have been unthinkable before double-digit inflation took hold last year.

“Everybody is in survival mode,” says Gordon Allan, who together with his brother James runs family-owned Malcolm Allan, one of Scotland’s leading food brands which has been making sausages, haggis, steak pies, black pudding, and burgers since 1954.

With annual turnover of roughly £15 million, the company has evolved from its roots as a high street butcher into providing products via the major supermarkets. However, it maintained its “point of difference” as a processor of whole animals, making it one of the last independents buying directly from farms and auctions throughout the country.

That was until a £900,000 increase in the annual electricity bill forced Malcolm Allan to mothball its cutting plant in Larbert this past December. While the dozen staff working there have been deployed elsewhere in the business, the company’s total headcount has fallen by 60 to 108 during the past year.

At the Mercat Grill outside Musselburgh, owner Graham Blaikie is wrestling with prices and portions for a new menu to take account higher energy and staff costs, as well as repeated waves of price increases from suppliers.

“There are some suppliers that don’t even tell you that the prices have gone up, and I don’t like that,” he said.

“I don’t mind so much when people tell me so I can combat it, [and] pay attention to it. When you are busy running the business, you don’t always have your eye on every individual item.”

READ MORE: Menu headaches as price increases come fast and furious

Despite putting some of his prices up in January Mr Blaikie, who also serves as president of the Scottish Licensed Trade Association (SLTA), said his gross profit margin has fallen to an unsustainable level. The results from his latest stock-take will determine where he is “really at”.

“My wine suppliers, normally they will put the price up one time a year, but this is probably the third time that they have done it this year,” he said. “It just shows you that people are having to adjust quickly to the costs, and of course this month my gas has gone up, the minimum wage has gone up, and there have been other increases as well.”

It’s a similar story for Stephen Montgomery at Our Place Annan in Dumfriesshire, which opened in June of last year.

“On the food increases alone, the average of that is about 48 per cent,” he said. “But you can’t just take food increases into what you pass on to the consumer because you have to take everything in.

Gordon Allan of Scottish butchers Malcolm Allan (Image: Malcolm Allan)

“We have been able to pass some of it on but not all of it because there’s only so much you can charge for a steak, or a macaroni and cheese, or a pizza – there’s only so much that people have got to play with.”

On the retail side the major supermarkets have taken part of the inflationary hit for consumers as well, though overall profits remain considerable.

Market leader Tesco reported a 51% decline in profits to £1 billion for the year to February 25, and underlying pre-tax profits at Sainsbury’s were 5% lower at £690m for the year to March 4. Morrisons, which in September was overtaken by discounter Aldi to become the UK’s fourth-largest grocery chain, reported a 15% decline in underlying profits to £828m for the year to October 30.

However, both Sainsbury’s and Tesco have drawn fire after consumer group Which? found that the budget items that consumers are increasingly seeking were available less then 1% of the time in their convenience stores. That compares to 87% in larger stores.

READ MORE: Higher food prices 'baked in' as shoppers seek inflationary relief

“Despite many Scots all over the country skipping meals and using food banks, our research shows budget range foods are not available to people who can’t get to a large supermarket as major supermarket chains rarely stock essential value ranges in their convenience stores,” Which? head of policy Sue Davies said.

“Everyone should have access to affordable nutritious food no matter where they live. This is why Which? is calling for supermarkets to ensure budget ranges that support a healthy diet are available in all stores including smaller convenience stores as well as making sure their pricing is clear and easily comparable.”

Back in Larbert, Mr Allan explained the series of events that have led to the suspension of operations at the butcher’s cutting plant.

Malcolm Allan's current facility in Larbert opened in 2014 (Image: Malcolm Allan)

The decision was triggered by a hike in Malcolm Allan’s annual electricity bill in January 2022 from £300,000 to £1.2m. To fund this, the company sold off all £500,000 of its “buffer stock”, which is used when prices on the open market are high.

Without this fall-back, the company has streamlined down to using just five or six cuts of meat, rather than the entire animal.

“What everybody has done through Europe is sell their stock, so all the stock that was sitting in cold store – whether you are buying pork from the Danes of stuff from the Italians, whatever you are buying – is gone,” he said. “There is no stock, so we are now in a supply and demand situation.

“So Scotch beef is the highest it has ever been, pork prices are up 30% in six weeks, and it’s just mental. But that’s it – everybody has had to do the same to pay for energy prices.”

Tomorrow: The final day of our series will examine potential solutions to the food price crisis.