How Have Supply Chain Disruptions Affected the Restaurant Industry in 2023?
The restaurant industry suffered significant losses during the height of the COVID-19 pandemic, with thousands of businesses closing their doors for good. Most restaurants can still feel the ripple effect of COVID-19 today, as inflation, supply deficiencies and labor shortages have trickled into 2023.
How have supply chain disruptions impacted the restaurant industry so far this year? What might be in store for 2024? What can businesses do to address the problems?
Current State of the Restaurant Industry
To understand how supply chain disruptions have affected the restaurant industry, it is vital to get a comprehensive view of the industry’s current situation. Here are the most recent findings from the National Restaurant Association’s economists:
- Rising Food Costs: 92% of restaurants said rising food costs have become a significant issue in 2023.
- Higher Menu Prices: Due to high food costs, restaurants have had to raise menu prices. This trend will increase the food service industry’s sales totals on paper.
- Help Wanted: 500,000 new workers are expected to join the restaurant industry in 2023, which will help businesses pick up the slack from the Great Resignation of 2021 and 2022.
- More Industry Competition: 47% of restaurant owners expect competition to be more fierce in 2023 as the industry continues to recover from the pandemic.
So, although 2023 has lots of growth potential, rising operational costs are holding many restaurants back. A handful of major supply chain problems are to blame for these high costs.
Essential Food Shortages
The most concerning reason for high food prices is global supply shortages. Production of essential food items like grain, meat and cooking oil has decreased. Much of this problem has to do with high production costs in agriculture for seeds, fertilizers and farming equipment. Big and small food manufacturers cannot afford to produce their products at pre-pandemic levels.
Grain shortages have been a problem since the war between Ukraine and Russia began in February 2022. These countries combine to produce 28% of the world’s grain and wheat, so global grain production has significantly decreased. Millions of tons of exports also cannot leave Ukrainian ports due to Russian occupation, which has brought grain supply chains to a standstill.
As a result, grain and wheat prices have increased by 48% and forced many restaurants to take desperate measures. Finding affordable flour suppliers is a significant challenge. They also have to raise the prices of every grain-based item on the menu. In extreme cases, restaurants must scrap wheat from the menu altogether and find alternative ingredients.
Due to smaller livestock supplies, climate change, changing consumer attitudes and a number of other factors, the world’s biggest meat suppliers have also slowed down their shipments.
However, production is only one of the problems. There is actually a surplus of meat available because consumer demand for beef, veal and chicken has decreased. Prices temporarily dropped in 2022, but they rose by 2.2% in early 2023 and caused many restaurants to limit their meat-based menu items.
Unforeseen factors like the avian flu have come into play, causing meat shortages at chain restaurants and raising consumer concerns about eating meat. Working conditions at big meat manufacturing plants are also under severe scrutiny, worsening the labor crisis and fanning the flames of negative consumer attitudes about the meat industry.
Ever since the Ukraine-Russia conflict started, countries around the world have seen massive disruptions in their cooking oil supply chains. Sunflower and vegetable oil have been particularly problematic, since Ukraine and Russia are the world’s leading producers and exporters of these products.
This trend has caused the United States to increase its reliance on soybean oil, driving up the prices by as much as 11.5%. All fried food prices have also increased as a result, altering how millions of people feed their families. Grocery stores have felt the pain of price increases too, not just restaurants.
As an inevitable consequence of higher food prices and operational costs, many restaurants cannot pay their employees a livable wage. The average bartender makes $11.54 an hour not including tips, which is a low number given the long hours and high-stress work environment. Research has also found that 2 in 3 restaurants are understaffed.
However, there is some silver lining to the restaurant labor crisis. Managers are putting more emphasis on training and development, which will bring new hires up to speed more quickly. It will also improve working conditions and provide a more supportive environment.
The average restaurant also manages seven different service models, which shows how much take-out and delivery services have grown in the post-COVID era. This positive development has played an important role in significantly increasing job opportunities across the hospitality industry, not just for eating establishments.
What Can Restaurant Owners Do?
Although many restaurant owners believe their supply chains will never return to pre-pandemic stability, they can still do several things to mitigate the negative impact.
First and foremost, the importance of relationships has remained the same. Vendors and their clients need to maintain positive relationships in this tumultuous time. It does not help anyone to cut off long-standing ties and seek other business partners. If they can afford it, restaurant owners should maintain their existing connections and work with people they trust.
Constant communication is also more critical than ever. Getting through supply chain disruptions requires manufacturers and suppliers to be on the same page at all times, especially when handling perishable goods. The introduction of cloud documentation and artificial intelligence software has been revolutionizing communication and supply chain management.
Owners should also embrace technological developments with open arms. Recent innovations like food distribution apps could completely change the way that restaurants gather their essential ingredients. Modern challenges require modern solutions.
2023 is a Year of Uncertainty
Given the latest developments in the restaurant industry’s supply chain and labor pool, 2023 is a year of great uncertainty. Economic conditions could continue to deteriorate, which would worsen the existing problems with grain, meat and cooking oil.
There is also potential for massive industry growth as restaurants rebuild their workforces, change their business models and adopt new technologies. Only time will tell which path the restaurant industry takes.