All over the world, global food and beverage services are facing unprecedented challenges that require fundamental changes. Labour shortages, rising raw material costs, climate disruptions, and geopolitical conflicts are forcing difficult quality-versus-price decisions. While these challenges are daunting, they also present opportunities for progressive enterprises to innovate, enhance efficiency and reposition themselves to gain a competitive advantage.
Labour shortages
Whilst the food and beverage services industry has recovered from pandemic-era closures in terms of customer demand, a pervasive staffing crisis is threatening its stability across virtually every major market globally.
In extreme cases, workforce shortages have resulted in reduced operating hours and declining service quality. This in turn has led to increasing levels of customer dissatisfaction and reputational damage. But perhaps most concerning for businesses is the fact that tight labour markets have driven wage expectations significantly higher, creating financial pressures that many establishments are struggling to absorb without substantial price increases.
Food and beverage services in popular tourist destinations across Europe report severe staff shortages across all positions, from entry-level to management. Spain exemplifies this crisis, with many restaurants and bars consistently unable to fill half their positions during peak tourist seasons. The European Labour Authority has identified two key factors exacerbating this trend: competition from other sectors offering better working conditions and Brexit removing a significant pool of EU workers previously available to the industry.
Similarly, in America approximately 70% of US restaurant owners report difficulty filling job openings, with nearly half admitting they lack sufficient staff to meet customer demand. This widespread shortage has forced many establishments to implement adaptive measures like reduced operating hours or limited menu offerings. Industry analysts attribute this persistent problem to several factors, including pandemic-driven career changes, widespread burnout among remaining staff, and historically low unemployment rates giving workers unprecedented leverage in job selection.
The Middle East is also experiencing significant labour shortages, although this is largely due to ambitious hospitality expansion plans. Projections indicate the food and beverage services sector in the GCC will require over 90,000 additional workers within the next year to support the rapid development of new hotels, restaurants, and tourism attractions. To manage this surge in demand, regional governments and businesses are investing heavily in training programmes and streamlined recruitment processes for foreign talent. However, the industry is still heavily reliant on expatriate labour, making it vulnerable to high turnover rates. Elsewhere in the Middle East, political and economic instability has disrupted the hospitality workforce, creating new challenges for the sector’s recovery and stability.
While in Africa, demanding work conditions combined with modest compensation are driving an exodus of talent, undermining local food and beverage services’ ability to maintain consistent quality standards. This “brain drain” of skilled culinary professionals seeking better opportunities abroad has significantly weakened the talent pool available locally. Even in nations like Kenya and Nigeria, which suffer from high youth unemployment, finding properly trained and reliable food service workers remains challenging, suggesting structural issues in education and training systems.
Rising raw material costs
Escalating ingredient prices have created unprecedented financial strain on food service operations worldwide, diminishing profit margins throughout the food service sector and threatening the long-term viability of many restaurants, cafés, and catering businesses. Food service operators face the difficult choice between maintaining quality standards with premium ingredients at higher costs or compromising on ingredient quality to preserve affordability.
The impact of price surges has been particularly severe in Europe, where the conflict in Ukraine has significantly disrupted critical supply chains for essential commodities like wheat and sunflower oil. This has caused dramatic price fluctuations that have yet to fully stabilise, and the financial consequences for food and beverage services have been severe. For instance, in Germany, higher food commodity costs resulted in a staggering 32% increase in restaurant meal prices between 2020 and 2024.
Similarly, climate-related crop failures in major coffee-producing regions like Brazil resulted in global coffee prices soaring nearly 39% in 2024, with premium Arabica beans commanding prices 58% higher than the previous year. This dramatic increase in price has forced cafes and coffee shops to either raise retail prices or substitute premium coffee beans with less expensive or blended varieties.
Inflation and economic pressures
The combination of inflation and widespread economic uncertainty is creating unprecedented challenges for food and beverage services all over the world. While headline inflation figures have moderated, the accumulated price increases remain embedded in the system, and businesses are facing dramatically increased operating expenses across virtually every facet of their operations. Energy costs have surged, making everything from refrigeration to cooking considerably more expensive. While at the same time property rents continue to trend upwards in most markets. All of this adds substantial fixed costs and comes at a time when labour costs and ingredient prices are rising, creating additional strain for food service operators.
To make matters worse, these businesses are facing declining consumer spending power. As householders grapple with inflation’s impact on their own budgets, dining out has become more of a luxury and less of a routine activity. Many consumers who would have dined at casual or mid-tier restaurants are now “trading down” to quick-service options or eating at home. While those who continue to dine out are spending less per visit, often foregoing appetisers, alcoholic beverages, or desserts – which typically carry higher profit margins for the food service providers.
This shift in consumer behaviour has been stark, with 55% of American adults reducing their restaurant spending specifically due to economic concerns in the third quarter of 2024. Similarly in Germany, 70% of restaurant patrons have reduced their dining frequency due to price increases.
Food service operators have responded by creating adaptive strategies to protect their diminishing profit margins. Common tactics have included implementing smaller portion sizes, creating more value-orientated deals, and developing strong customer loyalty programmes to retain price-conscious patrons.
Forge ahead with Farrelly Mitchell
The food and beverage services sector faces significant challenges. Supply chain volatility, labour shortages, rising raw material costs, and inflationary pressures are forcing businesses to rethink traditional operational models. Successfully navigating these issues will require adaptability, strategic planning, and innovation. Businesses capable of swiftly adjusting their operations, investing in workforce optimisation, and effectively managing their supply chains can not only weather these challenges but also gain a competitive advantage.
At Farrelly Mitchell our food and beverage experts can deliver targeted solutions that address our clients’ most pressing issues. Our expertise includes operations improvement, supply chain optimisation, risk analysis & management and much more.
With proven experience across both the food and beverage industry and the food service and retail sectors, we can help clients transform industry headwinds into opportunities for innovation and growth. Contact us today and discover how our tailored food and beverage consulting services can help your business build the operational resilience needed to thrive in today’s volatile market.
