Associate Professor Brian Warrner, CHE, teaches food and beverage industry management at Johnson & Wales University College of Hospitality Management in Providence, R.I. Research, interviews and his own insights inform these strategies for restaurants to ride out the latest challenge: supply chain issues.
“May you live in interesting times.”
The origin of this expression is debatable, it could be meant as a blessing or a curse! What is not debatable is that we are most certainly living in interesting times, especially in the restaurant business. COVID and other world events have upended everything we thought we knew about navigating uncertain waters. And the waters remain choppy. In just the last four months, I have made two presentations and written two articles on the supply chain and how food and beverage operators can deal with associated challenges. In each case, my operational recommendations have shifted slightly because circumstances have shifted. Here’s one more bite at the apple considering today’s environment.
According to the National Restaurant Association's 2022 State of the Restaurant Industry report, 96% of operators reported delays in supply. Most operators and consumers have become accustomed to their preferred menu items not being available.
Most operators and consumers have become accustomed to their preferred menu items not being available.
Many of these delays are related to labor-associated bottlenecks. Early in the pandemic these shortages were often related to COVID. At this point, they are more likely to be caused by workers uninterested in supply chain jobs like, for example, long-haul trucking drivers and instead they are opting for jobs that provide better pay, benefits and quality of life.
Some delays are associated with reductions in production because of pandemic-related uncertainty. Many producers cut outputs dramatically during the pandemic and are now struggling to produce at levels to meet current demand. The airline industry provides an excellent example here. Some carriers reduced capacity dramatically. Flight delays and cancellations are partly the result of their inability to ramp back up to meet surging customer demand for travel.
Even though the food and beverage industry has gained thousands of jobs, it still has not bounced back to pre-pandemic levels.
While many jobs have returned to the food and beverage sector, many others have yet to return. On a positive note, the industry added 1.7 million jobs in 2021, according to the same NRA report, and has continued to steadily add jobs through the first half of 2022. Unfortunately, even though the industry has added 350,000 jobs in 2022, there remain 750,000 jobs fewer than prior to the pandemic. Nearly two-thirds of these missing jobs come from the fine dining segment. Perhaps most unfortunate, 75% of operators report being short labor, and workers have yet to migrate back.
No kidding! Consumers and producers alike understand inflation has been running at 50-year highs. Gasoline and food especially are taking a huge bite out of budgets. Operators are dealing with labor shortage and wage increases that have been precipitous and still haven’t solved their shortages. These are all key costs associated with running a restaurant and so have had a particularly profound impact there.
Food costs are up across the board, up 13.5% in the last year. Dairy prices have increased about 30%, Fruits and vegetables around 20% and meat fish and poultry about 20%. The cost of eggs has increased 156%! (These number change monthly; check the USDA Food Price Outlook for the latest figures.)
While supply and delivery are certainly partly responsible for these increases, they are most likely the result of red-hot demand. The federal government is hoping to put the American economy into a gentle and short recession at the end of this year in order to cool this demand. But wage increases, unspent stimulus money and especially pent-up demand for discretionary activities have yet to wane. At this year’s National Restaurant Show, I shared a cab to the airport with a salesman for a beef slaughterhouse in Iowa. I asked him how much of the price of beef was the result of “gouging” consumers. He reminded me that his company was just charging what consumers would pay and to that point they hadn’t reached the top of the market.
I asked some operators for their day-to-day solutions for dealing with supply chain uncertainty. All of them mentioned that this presented a new challenge that required new solutions and especially, a flexible approach to operations.
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Takeout and delivery remain strong alternative revenue streams for restaurants.
The reasons for current conditions give some direction about how to proceed moving forward. As the operators above can attest, reacting to permanent changes and remaining flexible provides the best chance for success.
... reacting to permanent changes and remaining flexible provides the best chance for success.
With fewer employees, technology could be a worthwhile investment for restaurant owners and a win on convenience for customers.
Shaky supply chains and inflation continue as the norm and will likely be for a little while longer. That said, shortages seem to be waning and some key costs are inching downward. We are likely headed for a recession and a return to some sort of equilibrium. Operators can rest assured that in the interim, the actions mentioned above are necessary — until we come to rest in less interesting times.