Cost Reduction

Restaurants Combatting Continued Supply Chain Disruptions and Rising Food Costs

One resounding question seems to echo in the halls of homes, grocery store aisles, and restaurant dining rooms: We are now 19+ months into the pandemic; why are food prices continuing to escalate?

For many, COVID-19 brought to light a supply chain that has needed a significant upgrade for some time. Really, more than an upgrade—a redesign—like when you start remodeling a home and find that the foundation is cracked. We witnessed produce rotting in the fields, millions of gallons of fresh milk dumped every day into manure lagoons, and mass euthanized livestock.

While many farmers did what they could—donating some surplus to food banks which had been inundated with demand—the cost of harvesting, processing, and transporting put an additional strain on these growers who had already lost over half of their paying customers as businesses, restaurants, and schools closed their doors.

According to the American Farm Bureau Federation, only 8% of farms in the U.S. supply food locally. The rest travels a complex network involving processing, marketing, transportation, and distribution. In the end, about 40% of the food grown and produced in the U.S. is never eaten.

The Rising Cost of Food

Continued labor shortages, ingredient shortages, transportation issues, and weather disruptions have continued to put a strain on the food supply chain. Sugar cane refineries shut down in Louisiana after hurricane Ida and drought diminished the sugar beet production in the Upper Midwest.

Over 85% of California is under extreme drought conditions, which means inadequate water for agriculture and livestock that needs expensive supplemental feed. The end of September saw container ships line up off the coast of Southern California, awaiting entry into the Port of Long Beach and the Port of Los Angeles. According to The New York Times, one day in September saw a record 73 vessels anchored offshore waiting to unload cargo, with many more adrift up to 20 miles from the coastline, unable to drop anchor.

This record-breaking traffic is due to increased demand as pandemic restrictions eased and the continued labored shortages brought on by the Delta variant and quarantined workers. And as the need for shipping containers continues to escalate, so too do the rates.

In August 2021, wholesale inflation climbed over 8% year-over-year, the biggest increase since the Labor Department started calculating the number in 2010, reported The Washington Post.  Meat, poultry, fish, and eggs are up almost 6% since last year and over 15% when compared to prices in August 2019. Aluminum, cardboard, and polyethylene have all hit some of their highest price levels in years.

Restaurants Respond to Rising Food Costs

In response to rising food and labor costs, restaurants have raised their menu prices. The National Restaurant Association reports an increase of 4.6% between August 2020 and August 2021—the strongest 12-month gain since 2009.

Additionally, restaurants are restructuring their menus and streamlining operations. Keeping a keen eye on data and numbers, such as profit margins and customer buying trends, is critical during the current upheaval. Here are a few of the additional measures operators are undertaking to maintain or increase profits despite rising costs.

  • Simplifying menus to decrease complexity and reduce waste. Keep the most popular items, and maintain accurate and updated food and beverage costs for each menu item. Place high-profit items in the golden triangle on your menu—the middle, top left, and top right sections. If some popular items show a profit loss, can you adjust the menu, supplier, or recipe without affecting the final product? Remove the items that are not selling.
  • Maximizing inventory usage by utilizing trim and byproducts to create broths and stock and other menu items. Tracking and reducing food waste can save 2-6% on food costs. Utilize appropriate portion control measures for both BOH and bar.
  • Reducing excess inventory by reevaluating needs and keeping an accurate count of all items on hand.
  • Utilize a software program that incorporates inventory management, recipe costing, sales data, and operating expenses to save time and ensure real-time data.

While it may seem that the effects of the pandemic have created a never-ending spiral of disruption, this too shall pass. For now, paying attention to the details can help restaurants remain profitable while ensuring satisfied, repeat customers.

Cost Reduction
  • Subscribe to our latest insights


Are you capital raise ready?