Balance of Power Changes in the Restaurant Supply Chain

Restaurants today face both unprecedented opportunities and unprecedented challenges.

For one, in the aftermath of the first two years of the pandemic, consumer demand is high, with many people seeking both dine-in and take-out dining experiences. On the other hand, the combination of staffing difficulties, inflation and supply chain challenges make it difficult to meet this demand.

See also: Food prices, labor shortages and supply chain issues threaten restaurant sales

Steve Jackson, president and CEO of the Hungry Howie’s Pizza restaurant chain, based in Madison Heights, Michigan, which has more than 550 locations in 22 states, told PYMNTS in an interview how these obstacles have changed the world. balance of power in the restaurant supply chain.

“When COVID hit, spacing requirements forced these manufacturing plants to experience an immediate drop in capacity that they still haven’t really recovered from,” he said. “Two years seems like a long time, but when it comes to capital to build a processing plant, they can’t do it that fast. So we faced this situation where over the past years suppliers were fighting over our business. Now we compete for their business.

The pizza problem

Certainly, supply chain challenges are top of mind for many restaurants. Take, for example, small independent establishments. Research from PYMNTS’ March study, “Main Street Economic Health Survey: Navigating Economic Uncertainty,” created in collaboration with Melio, which was inspired by a survey of more than 500 business owners on Main Street USA between January and February, revealed that 22% of these companies consider the inability to buy from suppliers to be a relevant challenge. In addition, 5% see it as their biggest challenge.

Read more: New Survey Shows High Street Businesses Are Battling Economic Uncertainty With 3 Key Investments

Additionally, the study noted that 5.5% of Main Street businesses that said there was a good chance they would not survive the next two years, and 14% cited disruptions to the supply chain as one of the reasons why they are pessimistic about their survival.

The pizza industry provides valuable insight into these difficulties, even large chains like Hungry Howie’s are experiencing significant challenges. Jackson noted that players in the pizza business — quick-service restaurants (QSRs), fast-food brands and some convenience stores, among others — are competing for the same resources.

“They’re all pretty much in competition for delivery times and so on,” he said.

He noted that the pizza category, given expectations for speed, has additional constraints, with ingredients having to be prepared in advance. Cheese, for example, should be diced or grated and meats should already be cooked.

“There’s a very small subset of vendors that actually do this,” he explained.

That’s all you know

Given these challenges, restaurants are doing everything they can to improve their inventory management and obtain enough merchandise and ingredients to maximally meet existing demand. Fast-food brand Chipotle Mexican Grill, for example, announced in late March that it was testing radio-frequency identification (RFID) technology to improve inventory management efficiency and accuracy.

See more : Chipotle tests RFID technology

Meanwhile, grocery giant Kroger announced earlier this month that its Dallas division was launching a restaurant supplies business.

Read more: Kroger launches restaurant supply in Dallas to ease concerns over market swings

Jackson argued that, in the face of these supply chain challenges, restaurants that have existing, longstanding relationships with suppliers have the advantage. Yet, he noted, even these companies had to make changes. Hungry Howie’s, for its part, began giving sellers months’ notice instead of weeks’ notice of future purchases.

“When they’re setting their production schedules, they’re looking at the orders they have, and if you get your order in a timely fashion versus two or three weeks like it’s been in the past, you’re the only one that will enter the calendar, ”he said.

He added that the company has also increased its storage capacity to reduce the total number of orders needed. Even with these changes, the company also had to expand its supplier base in recent years to get everything it needed.

The internal advantage

Jackson noted that, with driver shortages contributing so significantly to these challenges, Hungry Howie’s managed to add in-house driver training programs and take advantage of “limited opportunities” to reduce the difficulty of warehouse jobs and Delivery.

Ultimately, despite all the challenges, he added that some of the unpredictability was starting to fade.

“Not everyone is sure what the pandemic issues will be in a year from now, but I think when you talk to the supply base, they feel like they’re starting to reach the new normal” , Jackson said. “I mean, everyone understands what abilities are and what they can do to influence them. So I think at least in pizza we’re slowly getting back to full allocation. »

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NEW PYMNTS DATA: THE FUTURE OF BUSINESS SUPPLIER INNOVATION STUDY – APRIL 2022

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