THR's opinion
Inflation and Shortages - A Critical Situation for the Hospitality Industry
Since the end of 2021, the price of electricity in the wholesale market has experienced an unprecedented increase in Spain, further aggravated by the conflict in Ukraine. The war has also had an impact on the prices of other commodities - particularly fuels - which has led to transportation strikes all over the country.
These circumstances are seriously affecting the Spanish economy, in particular the hospitality sector, which was already struggling against the forces of the pandemic beginning in 2020.
How is the hospitality industry affected by this complex patchwork of issues, and what are some potential solutions?
Energy and commodity prices
The Spanish economy was already feeling the effects of the rise in electricity prices when they further jumped after the beginning of the conflict between Russia and Ukraine, reaching an historical record of €545/MWh at the beginning of March.
While electricity is an essential expense for any business, it is particularly important in the hospitality sector. Not only does hospitality require energy-intensive assets such as heated ballrooms, air conditioning and induction hobs for cooking, but most facilities operate throughout the whole day and during peak price hours.
According to data from Hostelería de España – the Spanish corporate organization which represents bars, restaurants, and pubs - the average cost of electricity in a hospitality establishment generally ranges from €300-1.000 per month. If we take into account price increases, that cost is estimated to jump by nearly 40%, driving many businesses into an unsustainable position.
In parallel hospitality businesses have been affected by price increases in basic commodities such as oil, coffee, and juice, some with increases of 30%. Faced with this situation, the sector calls for measures to help mitigate price rises and guarantee economic viability.
Transport strikes and product shortages
In addition to inflation, hoteliers are facing another major threat: a shortage of products due to the strike in the transport sector. The significant rise in fuel prices resulting from the war in Ukraine has caused wide protest across the industry.
Many industries are facing product shortages as their supply of materials is interrupted by the transport stoppage. Major industries such as dairy and brewing have announced that they will be forced to temporarily shut down production if this situation is extended.
The dairy giant Danone was forced to shut down two production plants in Spain due to the lack of raw materials, and large beer brands such as Heineken Spain and Cruzcampo announced that they may be unable to deliver their products to shops, bars, and restaurants. According to beer industry association Cerveceros de España, thousands of establishments could be affected, compounding the issues the sector has faced since the beginning of the pandemic.
What solutions could mitigate this crisis?
Unfortunately, while many measures have been suggested, there is no clear, easy exit from the crisis.
The Spanish hospitality industry has proposed incentives for increasing consumption, the extension of the grace period for public loans and the utilization of European Union funds for aid to these companies, among other options.
On the other hand, the measures proposed by the government to reduce the price of diesel for hauliers by 500 million euros have not been enough for the sector to call off the strike, as they consider these measures to be insufficient.
Other measures on the table also include limiting electricity and diesel prices or lowering taxes on them.
In Sum
The hospitality industry, already weakened by the impact of the pandemic, is now threatened by two other major problems: the rise in the price of electricity and other products plus the shortage of raw materials. If the situation continues, many establishments may be forced to shut down permanently.
The sector is therefore calling for immediate action to solve both problems in order to ensure the viability of thousands of businesses and jobs. It remains to be seen in what format and how quickly the challenging situation for hospitality can be alleviated.