‹ go back

Spring Statement 2022 & What It Means for Hospitality | Zupa

  • Asset Type: Blog Post
  • Author: Ollie Brand | CEO
  • Publication Date: 25 Mar 2022
post

Introduction

It feels a very long time since my first blog on the global supply chain impacts of Russia’s invasion of Ukraine a few weeks ago . Whilst nothing can compare to the devastation and suffering we’re witnessing in Ukraine, we’ve all come to realise that we are all impacted in one way or another by Putin’s actions due to our global supply chain.

While many of the outcomes have been predicted, I have been taken aback by how rapid the fallout – undoubtedly compounded by the pandemic and Brexit – has been felt by businesses and consumers alike.

In the week where we’ve seen inflation hit a 30-year high, it felt that the UK spring statement could not come quickly enough. However, whatever our views on Sunak’s announcements, we cannot ignore the fact that the longer the Russian-Ukraine conflict continues, it will take more than a generous Chancellor to shield businesses and consumers from burgeoning inflation due to food insecurity, high global energy prices, and ever-fragile supply chains.

Growing food insecurity

Grain Last week the UN food agency highlighted the real and present fear of starvation for countries of North Africa, the Middle East and Asia with large populations, which depend on bread as much as they do on water.

Ukraine alone supplied 12% of global wheat before the war, and was the biggest producer of sunflower oil. No surprise that wheat prices have neared all-time highs. Grain, aluminium, coal, gas and oil are all experiencing supply shortages as Ukrainian farmers take up arms to defend their country and Russian sanctions come into play, all tipping the scale of supply and demand.

The downstream impact of this through products, for direct or indirect consumers of these commodities, is going to be profound. The short-term impact for the UK is exaggerated by recovering demand following the pandemic. This has not been helped by the Bank of England’s delay in increasing interest rates to 0.75% in mid March (17th).

The squeeze on domestic farming and the drop in global supply of some key commodities are now starting to bite in the UK. Farmers are calling for action from the government as inflation on fertiliser is limiting their ability to do their job, already made difficult due to post-Brexit staff shortages. According to farminguk.com, current quotes for ammonium nitrate fertiliser are currently in excess of £900 per tonne (in March 2021 the average price was £271 per tonne). As we enter spring, farmers are focused on planting for this year’s harvest in the face of fertiliser shortages, which will likely yield less than usual, thereby causing further risks to inflation and suppliers will need to source elsewhere.

Meat And it’s not just grain. We’re in a perfect storm for all global food commodities. Such is the struggle to secure meat supply chains currently, one of our suppliers told us: ‘We are unfortunately in unprecedented times, all protein markets are in turmoil... We have never seen anything like this in our generation'.

From the fallout from the winter hit of Avian flu in Eastern Europe, to the heated competition with China for South American beef, through to challenges in UK lambing, there’s a shortening supply of meat globally; even normally cheaper meats, like pork, are experiencing price increases. And chicken is not unaffected. Despite the 1.12 billion broilers (young chickens) that are slaughtered in the UK each year (Statistica 2021) one supplier told us they have limited visibility of chickens in their supply chain in the UK at the moment: ‘we can only see what we get – it’s a totally unknown market now’.

Smarter Globalisation

As the UK moves past peak-globalisation and continue to realign following our departure from the EU, there will be a pressing need to address our logistics and connectivity across the world. There is genuine global concern around food security that can’t be ignored. The fact that this is being played in conjunction with trying to reduce our impact on climate change all feels like a jive on a tight rope.

Smarter globalisation is needed to blend both top-down and bottom-up approaches to supply chain. The top-down view will include cross territory shared knowledge around products, patterns and practices; better allocation of people with smarter supply contracts, robust legislation and logistic patterns. Bottom-up, on the other hand, will need to focus on smarter ways to reduce wastage and identify efficiencies for more robust business and localised supply chains.

Land, sea and air transport

There will be increased pressure for mass correction in global logistics and supply contracts. The Suez Evergreen issue last year alone demonstrated the ramifications disruption at sea can have on global supply chains. Currently Ukraine’s loading ports are closed and, whilst Russia’s ports to the black sea are open, all traffic has grounded to a halt.

In my predictions for my procurement trends 2022 blog in November (and how that feels like a very long time ago) I focused my sights on carbon footprint, AI, ecommerce and the need for a single source of truth. However, logistics now makes a return to the spotlight - especially the capability for purchasing control. Companies like Flexport are introducing the agility and visibility across Ocean and Air freight, as well as Trucking. It is likely they will need to provide leadership and the aggregated data to help inform top-down productive supply chain outcomes too.

Where do we go from here?

The UK is facing a recession and this year risks being a very difficult one for millions of people.

Growth forecast has been slashed from 6% to 3.8% and, along with inflation running at a 30-year high in recent months, we’re looking at an economy significantly contracting. And the news does not get any brighter in the short term. The Office for Budget Responsibility (OBR) predicts inflation will peak at 9% - a 40-year high - if wholesale energy prices remain as high as markets expect. They also forecast that this year real household disposable income per person will fall by more than at any time since serious data was collected, thus signalling a dramatic drop in living standards.

And so, to the spring budget.

What has the Chancellor done to support the UK hospitality sector?

Other than a small rise to the employment allowance, there was no other real additional support on offer in the spring statement. The Chancellor did extend the new Business Rates Discount, which is due to take effect next month, which will allow businesses to claim up to a maximum of £110,000.

Disappointingly, however, there was no mention of maintaining the reduced 12.5% VAT beyond April. For many hospitality businesses still struggling to get their businesses back on track following the devastating impact of pandemic-related restrictions and to changes in consumer habits, this is grim news. They’ve barely had a chance to recover and are now facing rising costs along with a consumer market that's going to have the biggest squeeze on their purse strings in decades.

There is little doubt that this is a pivotal time for the hospitality sector. And there are opportunities for those businesses willing – and able - to invest in technology.

The reason is as stark as it's straightforward; businesses large and small will need to come to terms with the reality of operating in continued tumultuous times. They will need to understand their businesses at the most detailed level to maintain competitive advantage - even to survive. In order to relieve business pressure, no stone can be left unturned as they manage margins in real-time, forensically control all costs, and ensure immediate end-to-end visibility of their supply chains.

by Ollie Brand | CEO | Zupa

More Insights