Distributors warn fuel price spike will hit food bills

Increased fuel prices will mean people pay more for groceries in shops and restaurants, an industry association said.

The high diesel costs are ultimately passed on to the customers, said the association of wholesalers.

Rising fuel prices are adding to other pressures on businesses, including labor shortages, retailers said.

Households are facing a cost of living crisis as inflation rises.

With fuel prices hitting record highs, the UK Wholesalers’ Trade Association has told the BBC its members will pass on increased transport costs to their grocery and restaurant customers, who in turn will pass those costs on to consumers.

“Food price inflation is already happening, but that’s going to make it worse because the fees are passed on to customers and then of course to end consumers,” said James Bielby, chief executive of the Federation of Wholesale Distributors.

“So people who buy food and drink in stores are paying more because the cost of getting those goods to the point of sale has increased so much.”

Fuel prices are rising amid fears of a global economic shock from Russia’s invasion of Ukraine.

Prices are mainly determined by the price of crude oil and the dollar exchange rate, as agreements are made in dollars.

At one point this week, oil prices temporarily rose to $139 a barrel, their highest level in almost 14 years, before easing slightly.

Philip de Ternant is Managing Director of Creed Food Service. Its 80 trucks deliver 3,500 groceries a week to restaurants, cafes, pubs, care homes and schools across England and Wales

The cost of diesel has become a major concern. The company is paying £13,200 a week more than it did at the start of the year.

“We buy on card at gas stations, but the majority is filled up on site with bunkered fuel. We buy an average of 33,000 liters per week.

“In January 2021 we bought 92p a liter. This January we bought an average of £1.17 per liter. In February it averaged £1.21.”

This week he was shocked at the cost. “We bought for £1.55 and our fuel wholesaler has told me it could be £1.70 next week.”

Mr de Ternant said some diesel suppliers had told him they could deliver next Wednesday at the earliest and could not say what the price would be.

He said the costs could not be absorbed in a low-margin industry.

“We’re going to have to find some mechanism, whether it’s a price increase for everything or a surcharge for each delivery – and I have to do it quickly.”

He acknowledges that not all customers will be happy, but believes all of his competitors will be having the same conversations.

“I am exhausted. None of us saw this coming. For the past two years, it’s been relentless for any foodservice business leader.”

The Federation of Wholesale Distributors represents 600 companies that supply food and beverages to retail, hospitality and public sectors such as schools and nursing homes.

Some companies have large quantities of diesel for their vehicles delivered to their business premises, while others buy from filling stations.

Mr Bielby said: “When you distribute goods across the network, fuel costs are 25 to 30% of your distribution costs.

“The wholesalers who buy on the so-called spot market see their costs increase by up to 50% per liter. So that’s a huge impact, and that then translates into a premium for customers.”

He said some larger companies that had hedged or pre-purchased their fuel weren’t as badly hit yet but would likely feel the impact when current contracts expire.

He said recent fuel increases would add to existing cost pressures.

“When you think about all the other stresses in the supply chain that have been going on for the past two years and beyond, it gets really, really difficult.

“And that ultimately means that consumers need to spend more on food and beverages at a time when their energy bills are rising and at a time when the cost of living is skyrocketing.”

Mr Bielby said if prices stayed high, operators buying fuel locally would also choose to only partially fill up the tanks for cash flow reasons. This could mean that some hard-to-reach areas are served less frequently.

“So if they get deliveries every other day, that could be once a week. This would mean that the choice and range of products they receive will decrease.

“That would typically be areas at the end of the distribution line, i.e. rural communities or coastal cities,” he said.

Many wholesalers had already expected additional costs from April if they were no longer allowed to run their refrigerators or freezers on cheaper red diesel, he added.

Not only sales and transport companies feel this. Olivia Bell runs Countrywide Coaches in Buckinghamshire with her husband.

Their 14 coaches are used for a variety of jobs, including day trips and a home-school public transport contract.

Countrywide has been quoted at just over £14,000 for their standard delivery of 6,000 litres, which is expected to take around a week. That’s almost double what they would have paid in September.

“It’s a massive problem, it seems to be eating up all our money. We just got over Covid, just starting again, then we were hit by it. There is no respite.”

“We have no choice but to raise some prices,” she says, “because it’s not sustainable.”

But she adds that there is no wiggle room when it comes to the Council contract.

Fuel price hikes will add to the cost pressures retailers are already facing, industry body British Retail Consortium said.

Labor shortages, higher commodity prices and higher energy prices mean consumers are likely to continue paying more until these pressures ease, it said.

Andrew Opie, Director of Food and Sustainability at the BRC, said: “Rising fuel prices are putting further pressure on retail supply chains, driving up costs for shipping, heavy haulage and last mile delivery.