Chicken wings.
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Supply issues with chicken, especially wings, has forced some operators to get creative.

Journey to the Next Normal Part 2: Supply Chain Disruption

What is causing supply to come up short of operator demand?

In part one, we looked at the short- and long-term challenges associated with labor shortages. Now, let’s examine supply chain disruptions and the obstacles restaurant operators face today to provide consistency to customers.

Even the largest brands are grappling with supply challenges at this stage in the pandemic recovery. The good news is consumers are frequenting restaurants at record pace as COVID-19 restrictions loosened much quicker than expected. There was little time for suppliers to ramp up production. And when unexpected labor shortages became a serious obstacle, it stifled production as well as affected the ability to transport product to distributors.

Distributors also felt the crunch of a “sick” supply chain. They were plagued with a variety of issues, including late deliveries to customers, incomplete orders, and too many substitutions. They are also having labor issues both at their warehouses as well as with drivers. That only exasperates the situation.

Distributors are being forced to decide which of their customers are going to receive full orders, partial orders, or be shorted completely. Not an ideal customer service scenario.

Is there enough labor to support the high demand for produce and other products?

What we don’t know …

Off-premises business continues to be strong for restaurants, and it’s unknown where it ends up. This has a significant effect on the supply chain as more disposables are being used and menu mix is quite different from traditional in house to off-premise business. At the same time, menus became more compact, and SKUs eliminated. There is uncertainty as to whether this is a long-term play. There are more LTOs being offered to keep customers engaged.

Can the supply chain support these LTOs?  

Last, but not least, is the pressure to follow new customer behaviors related to adding popular high-volume products, such as wings? There is only so much supply, and yet operators must still find a way to offer these products or risk losing business.  

From Kinetic12’s Q2 Emergence Report: Supply chain disruption is currently No. 3 on the Operator Top Business Issues list.

Kinetic12 chart.

SUPPLY CHAIN DISRUPTION: Addressing the problem with quality solutions.

Supply chain disruption historically occurred due to the sudden rising demand of popular products thanks to high volume menu changes, extreme weather fluctuations, or recalls on certain products due to viruses and other circumstance causing a recall.  

The current supply chain crisis is different. The dramatic surge in consumer demand post-COVID has been exasperated by labor shortages throughout the supply chain as well as shortages in supply of items like chicken and disposables related to menu changes and off-premises volume.

What can operators do to get ahead of this? Here are five ways operators can proactively manage the current supply chain crisis.

COMMUNICATE WITH DISTRIBUTOR AND MANUFACTURER PARTNERS

Collaboration with strategic partners is now more important than ever. The world of buying and selling in a confrontational engagement is not conducive to a long-term win-win relationship in today’s environment. More frequent communication is needed and total transparency is necessary for partners. Key discussion points are now focused on short- and long-term supply and the pricing associated with it, as well as alternate options at pricing that is consistent.

From Kinetic12’s Q2 Emergence Report: Here are the top supply chains issue according to Kinetic12’s Q2 2021 emerging & growth chain survey.

Kinetic12 chart.

KEEP MENUS SIMPLE AND INCORPORATE MORE LTOS INTO THE MIX

Complexity is expensive. Menus are being simplified to maintain and enhance the quality standards of restaurants and make it easier for staff to prep and prepare. Close-in LTOs allow operators to introduce new menu items that are variations of customer favorites. For example, if chicken parmesan is a favorite, a pizza or calzone can be offered as potential LTOs. There are currently many ingredients that are limited in supply or have gotten extremely expensive. This makes complex menu innovation difficult. Using these ingredients on a limited basis, in an LTO, allows for menu innovation without the same risk of supply shortages.

BE FLEXIBLE AND INCORPORATE INGREDIENTS THAT ARE READILY AVAILABLE

With supply chain disruption occurring and the added burden of labor shortages, flexibility becomes more important than ever. There are simply products on everyone’s menu that must be produced the same way and with the same ingredients as these menu items are staples.  

The need to bring on speed scratch items and adapt ingredients without sacrificing quality is essential in today’s climate. For instance, buying a high-quality chicken stock that can be used to produce a signature soup or multiple soups saves labor, reduces ingredients, and provides consistency. Consumers are looking for great products and service but understand that the industry in a transition phase towards the next normal. There will be bumps in the road and being flexible allows operators to navigate those bumps.

INNOVATE USING PROTEIN CUTS THAT “EAT WELL” AND ARE COST EFFECTIVE                                             

This is the time for an operator to be open minded about new cuts, species, and general variations of products that have not been considered previously. It is also the time for suppliers to introduce these products and support operators with culinary support and exciting ideas for multiple recipes that are profitable and will be satisfying to customers. A steak does not have to be sirloin and fish ‘n chips does not have to be made with cod. There is so much that you can do with chicken thighs if breasts are in short supply and prohibitively expensive. Collaborating with suppliers is an effective way to understand protein options and supply chain risk.

TAKE EMOTION OUT OF THE EQUATION: SOMETIMES IT COSTS LESS TO PAY MORE                            

Does scratch cooking mean that you have to trim every stalk of broccoli or every breast of chicken? How much labor does it take to do this and how much useable product is actually going in the trash? “Speed scratch” offers the opportunity to be creative and primarily scratch without all the wasted labor and space. It also provides flexibility in the supplies you need. Demand may be high for the wrong reasons (cost alone).  

What the data shows

According to the Kinetic12 Q2 2021 Emergence Report, which tracks survey results from more than 75 emerging and growth chains, there are four areas of focus as we transition toward the “Next Normal.” Labor sourcing, productivity and engagement, Menu re-engineering and differentiation, off-premises optimization, and store footprint re-design.  You will notice that “supply chain disruptions” is not one of these four. Operators believe that supply disruptions are short-term, but this may not necessarily be the case. Operators are proactively addressing these disruptions, which can ease the pain and allow them to focus on what will drive the business longer term.

Kinetic12 chart.

What are the ramifications of rising labor and food costs?

Sales, for many operators, are back above 2019 numbers and average check size is rising due to off-premises business holding steady. But what about profitability? If being fully staffed means significantly raising salaries and wages as well as offering more benefits, and if supply chain disruption continues leading to higher food costs, can operators wait any longer to raise prices? How will the consumer respond? Kinetic12 will look at this topic in part three of our “Journey to the Next Normal” series.

Bruce Reinstein and Tim Hand are partners with Kinetic12 Consulting, a Chicago-based Foodservice and general management consulting firm. The firm works with leading Foodservice suppliers, operators and organizations on customized strategic initiatives as well as guiding multiple collaborative forums and best practice projects. They also engage as keynote speakers at operator franchise conference and supplier sales meetings. Their previous leadership roles in restaurant chain operations and at Foodservice manufacturers provide a balanced industry perspective. Contact us to talk or learn more about how we can help your organization understand the Restaurant of the Future and how Emerging & Growth Chains will define the future of Foodservice. Kinetic12.com Bruce@Kinetic12.com or Tim@Kinetic12.com

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