Inflation hitting food manufacturers and food sellers hard
Inflation is taking a toll on food manufacturers and restaurant owners, forcing them to adapt to keep their businesses afloat even as consumers cut back on expenses. Soaring energy bills and the price of raw materials are making it hard for manufacturers and retailers to keep up with surging operational costs without adjusting their prices.
The Trade Policy and Strategy Office recently reported that inflation rose 7.1% in May year-on-year, taking it to a 14-year high. The rate accelerated from 4.7% in April.
Prices, particularly for eggs and meat, have been climbing since January due to the pandemic and surging energy costs as a result of the Russia-Ukraine crisis have worsened the situation.
For any household, skyrocketing costs of staples and household items mean they have to squeeze their budgets even further. The prices of 289 items of products and services have gone up including electricity bills, cooking gas, vegetable oil, pork, chicken, vegetables, eggs, and ready-to-eat food.
The price of a 15kg cylinder of liquified propane gas (LPG), for instance, has increased from 318 baht in April to 363 baht in June. Reports say the price will rise to 378 baht in July. And the LPG price is being subsidized by the Oil Fuel Fund, otherwise, it would be as high as 463 baht per 15kg cylinder.
Food manufacturers and restaurant owners across the country have been affected by the impacts of the rising food costs and the Russia-Ukraine crisis. They have called on the government to step in.
Thailand’s consumer products conglomerate Saha Group recently asked the government for permission to increase the price of its products including “Mama” brand instant noodles and detergents because of the escalating production costs. The group’s CEO said the prices of wheat and palm oil used in the production of instant noodles have skyrocketed due to the crisis.
Head of the group’s marketing team for Mama instant noodles said if the government retains its current price control, the result will be a shortage as manufacturers will likely reduce their production capacity or even stop production because of losses.
But Commerce Minister Jurin Laksanawisit said the government insists on maintaining the current retail price of instant noodles and will keep the price cap in place for as long as possible to shoulder the burden on consumers.
Restaurant owners who are feeling the impacts and cannot absorb the extra costs are already passing part of the price increases to customers. Jae Jong, which is one of Bangkok’s best-known restaurants for fried pork, is among them.
The restaurant announced the price increases to its customers on its Facebook wall. The pinned post reads: “We regret to inform you that rising food and ingredients costs have left us with no choice but to raise all of our menu items by 2 baht starting from June 1, 2022. We apologize for the price increase and promise to review it when the situation improves.
Being flexible to create goodwill with customers
Most food sellers are trying to hold on to the same prices. In Northern Chiang Rai province, one of the most famous snack vendors “Roti Paa Yai” tried to stick to the same prices for over a year but eventually had to give in. “Cooking oil and butter prices have increased to more than we could afford. The increased prices do not even make up for what we are spending on ingredients but it helps a little,” the owner told Thai PBS World.
“Each piece of ‘special’ Roti such as Mataba Chicken now sells for 50 baht, an increase of 10 baht while corn Roti is now 30 baht and Raisin Roti is 40 baht. We keep the normal Roti and egg Roti at the same prices – 10 and 20 baht respectively because we want to help people. Some people just come to the shop with a 20-baht banknote in their hand and they can at least go home with one egg roti.”
Another measure that Roti Paa Yai uses to control the price is to cut down on packaging. It has a sign informing customers that they only put Roti in a box when it costs more than 30 baht. So far all customers have understood and no one has complained.
In Bangkok, Matthew Jansupee, 36, owner of Chef Phu Kitchen is managing the soaring costs by offering an option of smaller portions of regular menu items for popular Thai single dishes at lower prices for delivery to boost the restaurant’s sales and satisfy customers. The dishes are served in cups for just 29 baht. The regular serving size costs 59 baht.
“Inflation is real. It hits everyone’s budget. We’ve also felt the pinch. People earn less and they cut their spending. So, we serve dishes that fit their budgets,” he said.
In fact, the price of meat and other ingredients has been creeping up over the past year, Matthew noted. The chicken breasts he sources now cost some 90 baht per kg, double what it was a year ago. A liter of vegetable oil has jumped from 42 to 68 baht.
He said the change has enabled him to control food costs effectively while helping reduce food waste. It also helps customers save money and allows them to enjoy more menu items at the same price. The new option has received positive a response from his customers, particularly employees and parents who buy food for their children.
“You’ve got to be creative to keep your customers. People are more concerned about what and how much they eat. Bigger is not always better. Many of our customers couldn’t finish the regular plates we serve.” he said.
He believes that this change will help drive his restaurant’s revenue in the long run as more people choose smaller portions.
Matthew worked as a chef at JW Marriott Sukhumvit Hotel. In late 2020, he quit to open a steakhouse of his own. His business ran smoothly last year thanks to the government’s Khon La Khrueng co-payment subsidiary scheme that allowed individuals who buy goods from local shops and restaurants to pay only half the price for their purchases, while the government subsided the other half. But when a fourth phase of the scheme expired in April, his restaurant’s sales quickly dropped. The high costs of food and oil in May has rubbed salt into his wounds.
“Over 70% of our revenue came from customers who used the Khon La Khrueng (half-half) scheme,” he said.
Matthew urged the government to extend the scheme to help relieve the cost of living burden on low-income households and boost their spending.
“I would support a scheme where the government subsidizes 25% of buyers’ purchases and leaves the rest to them. That would be good enough for restaurant owners to keep running their businesses,” he said.
By Veena Thoopkrajae with additional report by SukhumapornLaiyok