Providing an update on the restaurant industry’s supply chain crisis
Supply chain issues are, like many pandemic-related challenges, a setback for restaurants without a schedule. No one can say for sure when commodity pressures will ease, prices will recalibrate, or simply, when delays will stop becoming an accepted page in the operations manual.
A November survey by the National Restaurant Association showed that 96% of operators experienced supply delays or shortages of key food or drink items in the past few months. Another eight in 10 said they had encountered similar problems with equipment or service items.
Of course, that’s one of the culprits for the menu price hikes. It also forces restaurants to change what they offer customers. Among operators who experienced supply delays or shortages in the Association’s survey, three in four said they had made changes to menu offerings in response. Eighty-five percent of fine dining restaurants have done so; 81% in casual restaurants; and two-thirds limited-service operators.
On top of that, 91% of restaurants noted that their total food costs as a percentage of sales were higher than before COVID. Only 3% said food costs now represent a smaller proportion of sales.
In Yelp’s fourth quarter economic average report, out on wednesday, consumer reviews citing a rising cost of goods and services hit a five-year high after plummeting at the start of the pandemic. This is a 29% increase from the fourth quarter of 2020 and a 49% jump from the five-year low of the second quarter of 2020.
The reality is also far from being anecdotal. The Producer Price Index for all foods, which represents the change in average prices paid to domestic producers for their production, increased by 12.2% between November 2020 and November 2021. This is the fourth consecutive month with 12-month gains above 10%.—something that hasn’t happened in over four decades.
Given the continued uncertainty, the industry is bracing for stronger increases in shipping and logistics prices following the spike in supply chain costs in 2021.
Aaron LaMotte, Vice President of Supply Chain Management for North America at Sodexo, spoke with RSQ on the challenge ahead, where restaurants go from here and when (if) operators can expect a return to normal.
First, tell us about your role at Sodexo.
Like Vice President of Supply Chain Management for North America, I manage the regional food team as well as the local supply and customer support teams. In my role, I manage groups of people who focus on regional and local sourcing and help our operators make smart decisions about what to buy and from where, and how to use the right suppliers to maximize value for our customers.
Let’s dive into the supply chain challenges facing restaurants today. What are some of the culprits at work that are causing big increases in shipping and logistics?
Specifically, regarding shipping and logistics, the main culprits are a few things. A few years ago, the US federal government passed a law that required electronic time and trip logs for short and long haul carriers, which certainly added costs to the system. And then COVID hit. By then, the trucking community was already retiring or changing jobs at an alarming rate. The average age of carriers was about 60 years old. We found ourselves in a situation where we were down all accounts, over 60,000 open positions needed to be filled, while dealing with the effects of COVID and people getting sick.
You have a situation that was already not great. This only exacerbates when people are away for long periods of time and different protocols like contact tracing have to take place. This has really created a difficult environment in the trucking industry which has worsened considerably leading to increased costs. Truckers are driving fewer miles per day with more loads than they needed to haul historically, a recipe for higher costs.
COVID was not the cause of the shipping and logistics challenges we face today. We had issues before COVID, including increased costs that got worse due to the pandemic. COVID took an already difficult situation and exacerbated it, which really got us to where we are today.
To what extent is this a working reaction?
It all comes down to work at the end of the day. It’s missing somewhere about 70,000 truckers today. Truckers who are still on the road are in a much better position to leverage wages and earnings. They may charge more, depending on the volume of work being done. There are not enough people to unload the ships, and not enough trucks and drivers to pick up those containers and transport them across the country. Although work is not the root cause, it is absolutely what is driving the current situation.
And the shortages? What should restaurants understand in this regard?
What restaurants need understand is that the supply chain is currently in high demand; and it starts at the manufacturer and producer level. We don’t have enough people to harvest our fruits and vegetables. We also don’t have enough healthy people to maintain the product production lines we have in our manufacturing base.
We also don’t have enough trucks on the road or enough last-mile carriers to move product from factories to distribution centers and then from distribution centers to restaurants and their customers. The rule to follow is that patience is not just a virtue, it is a necessity. At this point, there will be times when there will be an abundant supply of products that they need, and there will be times when you will need to make adjustments, substitutions, and menu changes to accommodate what is available. Supply shortages are the norm for now, likely at least for the next calendar quarter.
Do you think some commodities will face more inflationary pressures in 2022 than others?
OWe haven’t seen any particular industry take a much bigger hit than the others. The global commodity market is currently a widespread inflow. I don’t expect there to be anything standout that will really drive up commodity costs. We’ve seen problems with wheat and we’ve seen problems with corn and soybean meal. We’ve seen issues across the board, but they’re relatively static across all of the different product types. I don’t necessarily see anything coming out that will really, really drive or exacerbate current situations or inflation.
One question I hear all the time is simply timeline. Nobody knows exactly when the supply issues will even out, when they will stop having to buy products on the spot market, order materials six months in advance, etc. Do you have any idea of this moment? Or should operators prepare for the long term?
No one knows for sure when this will calm down, so it is absolutely wise to prepare for the long term. I think there were several times when we started to see an increase in fill rates and an increase in production levels. We have seen an improvement in the overall health of the industry, and then only to see that level level off or start to decline again. I certainly have no idea when, in the short term, we will see relief from what is happening now. I think the smart game is to prepare and expect it to be a long term problem, and if it ends sooner then that’s a good thing. But I would prepare for the worst and hope for the best.
What are the short term solutions? Shorter circuits, local food products, seasonal offers, etc. How do you counter the pressure, as best you can?
Short-term solutions include flexibility in your menus and the ability to make changes. At Sodexo, we are constantly working with our culinary teams to ensure that as we see challenges ahead, these are known to the culinary team so they can make operational adjustments. Sodexo does a lot of local sourcing. We work with local farms, minority-owned farms and local entities, bakeries and dairies across the United States. It’s much easier to buy local and ship local when you live in that community and the results of what you do affects that community. One example is our partnership with Circle B Farms in Caribou, Maine, which allows the farm to source local foods from schools in the UMaine system.
And what about the work side? Is this a “new normal” on some level? How do you think the vendor industry will pivot to get ahead of what is an industry-wide reality?
I think we’ve already started to see that. We have seen wage increases and we have seen job mobility the likes of which we have not seen in historical time. People have more opportunities to work in different parts of the country and do the job they want to do. I think on the workforce side, we’re going to continue to see advancements in the use of technology and new, innovative ways of recruiting that will try to bring stability back to the workforce side work.
I absolutely think this is part of the new normal. I think the workforce has grown to expect and demand certain things that didn’t exist a few years ago, and I think that’s going to continue as we move forward. I don’t see that going away anytime soon.
One of the benefits for a company like Sodexo is that we have such a reach in the supplier community. We can buy enough different things that can really have a positive effect on production and help create stability on the manufacturing side. We can help our customers access products, goods and services. As a supply management organization, we spend an enormous amount of time ensuring depth and breadth of products and meeting and exceeding our customers’ requirements in the best of times and in the most difficult times.