The restaurant industry has been severely impacted by the COVID-19 pandemic, with operators constantly having to adapt to evolving government guidelines and customer preferences. But even as restaurants reopened and guests eagerly dined out again, supply chain disruptions related to COVID-19 and price increases due to inflation prevented what many had hoped would be a return to normal.
From chicken wings to cherries to alcohol to lettuce — and even non-food items like takeout containers, glass bottles, and walk-in freezers — inflation has increased food prices and packaging costs. Learn how these restaurant operators in the U.S. and Canada are learning to embrace flexibility and mitigating the effects of inflation and supply chain shortages.
What's behind the restaurant supply chain shortages?
This year's supply chain disruptions have been caused by several factors that started in 2020, and have only been exacerbated by current inflation. Increased consumer demand, labor shortages, manufacturing slowdowns, and port delays have led to bottlenecks across the entire supply chain. We talked to three restaurateurs in the U.S. and Canada about some of the challenges they’ve faced dealing with supply chain shortages, and how they’re preparing for the future challenges.
Increased demand for supplies
Justin Tisdall is the co-owner of Juke Fried Chicken, a restaurant and bar in Vancouver, British Columbia. “We like to say we are comfort food,” Justin says. “Juke Fried Chicken is focused on good food, good tunes, and good vibes.” Alcohol delivery and takeout were a sizable component of Juke Fried Chicken’s business before the pandemic, which meant that the restaurant didn’t need to pivot as abruptly as some of its peers. While the restaurant has sustained itself throughout the pandemic, the scarcity of takeout packaging and other supplies has started to cut into the restaurant’s bottom line.
“Our company ethos has always been to be as green eco-friendly as possible, so all of our takeout packaging is recyclable and compostable,” Justin says. “The cost is already 30% higher than the regular stuff—add COVID on top of the shipping and quantity issues, and the price has skyrocketed.” The packaging that the restaurant uses has gone up between 18 and 25% and Justin is in talks with his partner on how to mitigate the impact of the new price increase. “It's been a challenge not to charge that back to the guests,” Justin says.
We need to make sure our food's affordable without compromising what we feel our business core values are.
Labor and supply shortages
The same staffing crunch that restaurants are experiencing is happening throughout the supply chain — among farms, manufacturing plants, warehouses and distribution centers, and shipping companies. Susan Taylor is the CEO and President of Juice It Up!, a chain of franchisee-owned juice and smoothie bars. With 83 locations, Juice It Up! has to ensure that inventory is available for each of its owner-operated stores, but labor shortages have proved to be a challenge.
“Our biggest pain point last summer—which is our busiest time—was that our distribution center was short-staffed. They didn't have people in the warehouse to pick and load trucks and they didn't have enough truck drivers,” Susan says. “We were challenged with orders arriving on time or being complete.” Similar to Juke Fried Chicken, Juice It Up! also had to work on getting enough disposable containers to meet customer demand. “Obtaining disposable items has been a challenge for a year and a half simply because some of the raw material that our suppliers use here in the United States come from out of the country,” Susan says.
Shipping bottlenecks throughout the supply chain
The increased demand for products once the world started to reopen, congested shipping routes and the recent shift to lean manufacturing (which, among other things, encourages supplier efficiency and profitability by not stockpiling large inventories) have all contributed to major bottlenecks at each stage of the supply chain.
Now that consumer demand for products has increased, there aren’t enough shipping containers to transport goods—and ships along major ports throughout the world are often at sea for weeks or months at a time before waiting for their cargo to be offloaded. Susan has seen this firsthand while living in Southern California. “Back in December there were ships as far as the eyes could see,” she says. “It looked like a traffic jam on the ocean.”
Advice for restaurateurs on managing supply chain shortages
While we can't predict what the next shortage will be or when supply chain operations will get back to normal, restaurant operators can develop strategies to manage ongoing supply chain disruptions. Following are five tips from other restaurateurs to keep customers happy and continue to operate amid supply chain shortages and inflation.
1. Make menu substitutions
If you can't bear to pull a dish from your menu, another strategy that many restaurants have undertaken is finding substitutions. For example, Amanda Cohen, chef and owner of Dirt Candy in New York City told CNN that she had to substitute golden or red beets for her usual eye-catching candy cane beets. If you cannot find a substitute ingredient that allows you to maintain the integrity of your dish and stay true to your brand, consider replacing it with another dish entirely. While these changes may feel disappointing in the moment, remaining flexible will enable your business to continue to thrive during today's uncertainty.
2. Use your best judgment on how to communicate to customers
Sean Reiter is the Director of Revenue for The Melt, a California-based fast-casual chain serving burgers, grilled cheese sandwiches, and more.
“We’re serving fresh takes on all American comfort food,” he says. Unlike many restaurants who had to streamline their menu and contract their hours during COVID-19, The Melt did the exact opposite—they expanded their menu with new items and extended business hours. “In the beginning when people were taking their menu and saying, ‘Oh, we've got to feature less of our menu,’ we said, ‘No, we need to feature more.’ People need more comfort. Let's figure out a way to deliver milkshakes.” Sean says. The expansion proved successful, as Sean reports that stores are doing 100% more business compared to pre-pandemic. “We were a lunch-dominated concept and we've come out of COVID with a heavy concentration on night and weekend and delivery,” Sean says.
While The Melt has made a small price increase over the last two years, they haven’t communicated this to customers—and it hasn’t negatively impacted the business. “I like to approach business from the perspective that our customers and employees are smart, honest people that want to do the right thing,” Sean says. “They see and know that prices are going up, whether you're getting gas or toilet paper.”
While whether (and how) to communicate price increases is dependent on many factors, there is no right or wrong way to approach it. As every restaurant and customer base are different, it’s up to the restaurateur to assess what’s best based on their market.
For Justin, it’s important that Juke Fried Chicken continues to be financially stable while still keeping and growing its customer base. “Right now my business partner and I have been debating what we do to increase prices to where people will still pay for this without gouging,” he says. “We're trying to cover the economics of inflation.”
As he continues to communicate how to approach price increases, he’s been looking at other restaurateurs to see how they’ve dealt with inflation. “I've seen some of our friends with restaurants do social media posts just explaining it. We may not have to say anything because our prices are fairly inexpensive compared to most restaurants,” he says. “We’re working on the key messaging behind this as well. We're trying to do what we can while still being affordable.”
3. Focus on profitability
Now is a great time to conduct an analysis to help you identify your most popular and profitable items. Understanding which dishes drive the most sales — and which are dragging down your profit margins — will help you make data-driven decisions about whether to raise menu prices based on supply chain shortages, launch promotions to highlight your most profitable items, or swap out dishes for more bottom line-friendly alternatives.
4. Have backup suppliers (and additional backups) if possible
For Sean, the toilet paper shortage of early 2020 was a trigger for future supply issues to come, and he took it as a sign to start securing suppliers early. “We got proactive as we saw supply chain issues start to happen and started working with Sysco and various providers to line up our substitutes,” Sean says. “We recognized that it was going to be a problem, and we wanted to be ahead of it. We worked with some of our purveyors to guarantee our stock.”
And while the process hasn’t been foolproof—The Melt has often made substitutions at a higher cost when products weren’t available—it hasn’t affected profitability. “In the beginning, we approached the supply chain shortage with a realistic pessimism of ‘Things could get worse—if so, what are we gonna do?’ We tried to optimize for that,” Sean says. “We’ve been so lucky to never curtail our hours or have to close a restaurant cause we didn't have a product.”
Our utmost intention is to protect the customer experience and ensure that they walk into [The Melt] in what we like to call the "I love it here!" experience every time.
5. Stay ahead of industry trends and lean on colleagues
Susan also made sure to keep up with supply chain trends in the industry and leaned on her colleagues for support. “In addition to working closely with your suppliers, always understanding what the trends are within the industry is important,” she says. Susan is an avid reader of trade magazines, and often listens to podcasts and webinars to keep abreast of current trends.
For Susan, making sure that each of the Juice It Up! locations has products is paramount, and came up with a sizable list of suppliers in case of any future hiccups. “We have backups to backups to backups,” Susan says. Last year we created an Excel sheet with every product that we had and who our main supplier was, then we looked for backup suppliers for each of those.” Many of the company’s contracts have a 6-12 month term, ensuring that owners get what they need. Juice It Up! also partnered with a third-party service, Consolidated Concepts, who were able to leverage other suppliers across the country.
One of the things that we've found helpful in driving awareness and sales is looking at what programs like DoorDash or others have to help drive customers to our brand—because every little bit helps.
She also credits her colleagues for their help and encourages restaurateurs to ask for guidance and join associations to leverage their resources. “I'm involved with the California Restaurant Association, and they’re a great peer group,” she says. “I've gotten a lot of help or come up with ideas by talking with people and asking, ‘How did you handle this?’”
In supply chain shortages, focus on what you can control
Supply chain shortages across the restaurant industry have caused headaches and frustrations for both restaurant staff and their customers. As these disruptions unfortunately won't be going away anytime soon, the best thing that you can do as a restaurant operator is to focus on what's under your control. That means creating a flexible menu that can easily scale up or down, brainstorming ingredient or dish substitutions in advance, and maintaining ongoing communication with your staff, suppliers, and customers.
For more operational tips to help restaurants thrive during the pandemic, watch our on-demand webinar Money Management for Business Owners, and explore our Financing Your Restaurant and Projecting Profits guide.