As we start the new year, Avendra is forecasting continued inflationary pressures on key areas within the hospitality industry. While pressures have eased a bit and are slightly below the peak inflation of 2022, ongoing geopolitical strife continues to add duress to already strained global markets, which have led to some broad macro trends in the hospitality supply chain.
Avendra’s commodity experts are watching these five key areas closely as we move into the new year: Food demand, monetary regulation, labor markets, raw materials and transportation costs, and geopolitical turmoil effects across categories. Recently, Avendra published our Commodity Market Update for Q1 2024, with Avendra’s sourcing specialists providing an outlook for the quarter ahead:
Food demand: While overall food demand is slowing and even declining, food and beverage prices remain at elevated levels. Avendra is forecasting single-digit inflation in this area through at least the first two quarters of 2024, with beef remaining among the most elevated protein category.
Commodity markets remain uncertain in the face of higher interest rates, the wars in Ukraine and Israel, and the ongoing threat of a potential recession. Grain markets have eased but remain volatile due to these uncertainties.
In Mexico, Avendra expects some categories of Food and Beverage to experience greater price increases than others due largely to the upcoming minimum wage increase set to take effect on January 1, along with the currency exchange rate. Expect to see single-digit price increases, but some categories may be affected more.
Monetary regulation: Economic uncertainties remain as the Federal Reserve tries to cool inflation and job growth. Aggressive measures throughout 2022 and 2023 sought to move inflation from a high of nine percent in mid-2022 to a target of two percent, with current numbers around three percent. Spending and job growth through the first quarter will be key indicators of whether the Federal Reserve continue to hold interest rates as they have so far this fall.
Labor markets: Despite higher inflation, the unemployment rate has continued to hover at near-historic lows with continued consumer spending. The hospitality industry is still grappling with a surge in travel and a small labor pool, with many managers turning to technology solutions for staffing issues.
Raw materials and transportation costs: Supply, labor, and trade-related pressures on raw material inputs, fuel, freight, and ocean shipping have eased since peak levels experienced during the pandemic. The year-on-year producer price index changes show input cost inflation in some sectors nearing or falling below zero percent.
For example, the global price of cotton is declining but is not yet down to pre-2020 levels. Demand for textile products remains high and challenges some manufacturers to meet the demand. In the United States, expect increases of one to two percent, and in Canada, expect two to four percent increases in textile costs. Mexico and the Caribbean, too, are forecast to experience single digit increases in textiles.
Globally, ocean freight has stabilized but it is currently unknown if the Panama Canal vessel reductions continuing into 2024 will impact deliveries.
Geopolitical turmoil: Ongoing conflict in the Middle East and Ukraine continues to impact supply chains globally. Further escalation in the Middle East could contribute to even greater food insecurity locally and globally.
The continuing war in Ukraine has led to a rise in natural gas prices, which has, in turn, impacted industrial metals. As Russia’s invasion of Ukraine carries on, the impact remains a challenge.
Budget mitigation strategies: Avendra’s supply chain experts closely monitor these and many other factors to ensure clients always have the data they need to make cost-effective decisions for their properties.
In general, Avendra recommends ordering early and buying in bulk whenever possible. Review purchasing data to help find the best volumes and purchasing windows to maximize your budget and remain in close contact with your Avendra representative throughout the forecasting and contracting periods. Your Avendra representative can help find alternatives and substitutions without sacrificing quality and find delivery solutions that ensure PAR levels are met.
Furthermore, the Avendra sourcing team can help you find creative culinary solutions to help adjust your menus and help leverage relationships with local suppliers to ensure freshness and quality.