The U.S. restaurant industry has been regaining momentum after extended periods of shutdowns due to the COVID-19 pandemic. Diners are enthusiastically returning to take advantage of new and favorite options for in-house dining. However, supply chain issues continue to disrupt the restaurant industry.
While consumers may not have initially been aware of restaurant supply chain issues, the problems have become pervasive. These challenges have such a significant impact on businesses that they impact the customer experience and overall business results. Here is how food supply chain issues are affecting the restaurant industry and many of the causes of these ongoing issues.
How Food Supply Chain Issues Are Affecting the Restaurant Industry
Things have changed a great deal for the restaurant industry. When the pandemic first struck, many restaurants closed or pivoted to take-out-only business. The food supply chain always has always been fraught with weaknesses. But many of those faults weren't uncovered until just a few short years ago.
One of the biggest weaknesses in the food supply chain is the fact that it is completely disjointed. There is a vast network of players, including farmers, processors, and logistics companies, who aren't connected in a meaningful way. The lack of clear communication and coordination has resulted in various challenges that continue to impact the restaurant industry and its customers.
Food Supply Chain Challenges in the Restaurant Industry (and How to Address Them)
Even though we are in a post-pandemic period, supply chain challenges that were uncovered over the past several years remain an ongoing issue. Here are the most prevalent of those challenges and how restaurants can best address them.
Labor Shortages
Food supply chain labor shortages began with widespread lockdowns but have continued due to disputes over fair wages and issues related to the employment of foreign workers. High turnover remains a serious concern in many sectors, like agriculture, manufacturing, transportation, and hospitality. Here are some of the strategies that are working to address labor shortages in these sectors:
Strengthening Partnerships
If you don't have strong partnerships with your food supply chain vendors, it's time to make some changes. When there is uncertainty in the supply chain, the best strategy is to create lasting relationships with key suppliers willing to go the extra mile to meet your requirements. At the same time, it's essential to have contingency plans in place should one or more suppliers be unable to fulfill their obligations.
Flexibility in Delivery
Restaurants will want to work with their suppliers to build more flexibility into their business. Requiring that everything be delivered on a specific day of the week will likely result in increased costs and missed deadlines. Instead, ask your logistics companies what the best day is for them. It might even get you a price break.
Leveraging Technology & Automation
Of course, it's usually possible to do more with less when you leverage the right technology and automation solutions. In the food supply chain, stakeholders are deploying these strategies more frequently in response to labor shortages.
On the supply side, technological strategies might include things like automated pickers and robotics in the food processing plants. Companies are increasingly implementing RFID tags throughout the supply chain to improve visibility and create a more efficient logistics process.
Rising Cost of Goods Sold (COGS)
Commodity prices have continued to fluctuate wildly due to the things like global instability and extreme weather events. These impact things like the price of grain, meat, milk, oil, and cheese. Some items, like wheat, have increased in price by over 22% in the past year alone. According to the USDA, the cost of wholesale oils and eggs is expected to increase by more than 19% and 25%, respectively, in 2022.
As the costs of the items continue to increase, restaurants will need to remain vigilant to ensure they remain productive and profitable. Here are several strategies that can work:
Consistent COGS Audits
Since food costs make up a significant portion of your restaurant's overall expenses, it's vital that you do frequent COGS audits to ensure every penny you spend is accounted for and covered. The formula for COGS is COGS = (Opening Inventory + Purchases - Credits - Ending Inventory)/Sales.
Menu Engineering
Many restaurants are also re-engineering their menus to account for rising and fluctuating costs. This makes a lot of sense, and many consumers understand the changes. While it's a time-consuming strategy, it can pay off regarding overall results.
Restaurant managers will need to carefully examine each menu item to determine if there are ways to save money through:
- Substitution — Can you substitute something that has soared in price, like chicken, for another item, like pork or fish?
- Portion Size — Are your chefs over-portioning dishes and using too much of your most costly ingredients?
- Waste Reduction — Ensure you aren't ordering too much of one product or another and then end up with produce spoilage.
As part of menu engineering, see how you can use some of your highest-cost items in your most popular dishes so that you can reduce waste.
Increasing Backorders
The supply chain bottlenecks we've seen taking place over the past several years have made it difficult for restaurants to continue serving the food consumers love and expect. When a restaurant can get staples like eggs or chicken wings because they aren't available, this is a serious business threat. Here are some of the ways restaurants can address ongoing backorder troubles.
Order early
What worked in the past isn't going to work today. If you want to hard-to-find ingredients and have them on time, you'll need to order a bit earlier so your distributor has time to source the items. Stay in close contact with your distributor so you understand how lead times might change on specific items from week to week.
Remain flexible
Start keeping some of the items that are critical to your business in stock. This works better for non-perishable items, like dry goods that have a long shelf life. You can stock up on these items when the price is right and focus more of your attention on perishable and scarce products.
The restaurant industry continues to face unprecedented challenges regarding its food supply chains. From labor and raw material shortages to rising energy costs, restaurant owners and other industry stakeholders must remain aware of these issues' potential impacts on their businesses. At the same time, the industry has the opportunity to address weaknesses in the supply chain and implement effective solutions that will strengthen the business for years to come and provide a better overall customer experience.
