Responding to COVID-19’s Impact on the Restaurant Supply Chain

by Bora Kang

The COVID-19 pandemic has proven to us all just how interconnected our food system is in the US if not, the world. The supply chain failure and the domino effect of its impact have been a wake-up call for even the veterans of the food industry. Nationwide outbreaks have forced manufacturers to shut down their plants, leading to disruptions in operations downstream in the supply chain (1). Restaurateurs who were eager to reopen their doors after lock-down only a few weeks ago are having to confront temporary product shortages and price inflation, vulnerable to spontaneous out of stock notices or unexpected shipment delays. Perhaps more unsettling is the uncertainty of it all. It’s just impossible to predict consumer behavior, especially when the pandemic is new to all of us.

So the question is: how do you respond? Here are the top three actionable steps we think will help operators overcome the supply chain crisis.

Multiple Sourcing and Backup

If you haven’t considered multiple sourcing before, now is the time. According to John Davie, CEO of Dining Alliance, “Restaurateurs who are reopening and asking what they should do regarding supply chain should prepare to engage smaller suppliers who have multiple sources of product” (2). This is because “as restaurants open fully, most distributors will experience some shortages. Restaurants wanting to make sure they have everything they need should have a few different channels to rely on, especially when it comes to specialty products” (2).

And research seems to agree. According to Costantino and Pellegrino’s study of choosing between single and multiple sourcing based on supplier default risk, single sourcing has the advantage of a strong partnership between buyer and suppliers while lowering purchase price, but this dependency between the two creates vulnerability and increased risk of supply interruption (3). Meanwhile, multiple sourcing allows operators to “reduce probability of bottlenecks due to insufficient production capacity to meet peak demand.” It has the advantage of allowing the operator to have alternative sources of materials in case of delivery stoppage by the supplier, as well as the flexibility and agility to react to unexpected events that could disrupt the supplier’s capacity (3).

Mahesh Rajasekharan, CEO of Cleo, a software company that provides wide ranging big data integration solutions between businesses and applications, suggests that companies become more agile in their efforts to connect with multiple suppliers for the same product (3). “If Supplier A has 50 cases of [a product] for $800, and Supplier B has 25 cases for $750, the buyer can purchase all 50 from Supplier A, and then source the rest from Supplier B based on prior buyer trends,” he wrote in Supply and Demand Chain Executive (SDCExec) Magazine. The key is to adopt a “holistic view of the supplier ecosystem. A company can find the best price at any point in time and refactor supplier integrations accordingly” (4).

You must consider the worst-case scenario and have backup plans in case your food-supply is unexpectedly compromised, especially for your priority products. According to Yerkes, Vice President of Business Development in Supply Chain at Consolidated Concepts in Boston, MA, operators should consider a wide range of options and communicate with your supplier for when a product cannot be delivered—for example, “if you don’t have this product can you do with another substitute?” (5). Other sources recommend using ready-made pre-cut items to save on labor, as well as shifting to different cuts of meat—for example, moving to ham which is more readily available in foodservice (2). We think the best operational strategy is establishing a contingency plan for the items you know you can’t do without, especially in dairy, meat where we’ve seen shortages; upscale restaurants may be struggling most because they require specialty products and are more specific (5).

Menu Changes and Flexibility

Menu changes have become a widely-adopted solution to a variety of supply issues facing operators. Akash Kapoor, CEO of Bay Area-based franchise Curry Up Now, is simplifying his menu by combining. “We used to garnish with four different microgreens, but now we’ve gotten rid of that,” said Kapoor in an interview with Berkeleyside News (6). “We’re back to a simple mix of cilantro, mint and chives. And whatever we use, we also use in some other way on the menu. It can’t just exist as a garnish. It has to have a purpose on the menu.”

In some ways, the COVID-19 crisis has created opportunities for restaurants to rethink and evolve their menu. “One thing we can do is just go back to being chefs, which I think is kind of cool,” said Kapoor (6). “You can just go to the market and do with what you’ve got.”

Like Kapoor, restaurateurs may be starting to think about shrinking down their menu and working with items that are not (yet) subject to volatility. According to Tim Hand and Bruce Reinstein from Kinetic12 Consulting, this kind of simplification “allows fewer moving parts and gives the restaurants the ability to be significantly more productive by requiring less labor, fewer deliveries, lower waste, and improved execution” (7).

Unfortunately, Yerkes says some changes will be difficult because operators are “emotionally tied down to their menus” (5). Differentiation in foodservice is what gives a restaurant its unique identity, and often what gives restaurants its competitive edge. Sometimes, an operator may believe that losing their specialty products and items that differentiates them from the competitors may also lose their competitive edge. “While this is true if you are not careful, the brands we work with are making changes very thoughtfully,” said Yerkes. “Slimming things down a bit and having alternative solutions will help [brands] survive. The reality is everyone has to adjust in some capacity but everyone is very focused on the guest’s experience still and that will get them far” (5).

Likewise, Hand and Reinstein support simplification over differentiation, saying that the former “eliminates some of the emotional decisions that create broad and complex menus that are too big for restaurants to execute profitability and consistently, and results in too many ingredients that only have one use” (7). In conclusion, differentiation “must now go hand in hand with simplification, efficiency, and profitability” (7).

Communication

All the working parts of the food industry, as we’ve experienced first-hand, are interconnected and interdependent. As such, communication and transparency is a necessary component of recovery.

The first step operators should take is communicating with their suppliers. According to Hand and Reinstein, operators should “reach out to their top suppliers for assistance on driving both front-of-house and back-of-house efficiencies. This can include streamlining the food preparation process through labor saving products, new equipment innovation, new order-taking technologies, supply chain simplification ideas and finding efficient no-touch solutions for self-serve condiment and beverage stations.” This streamlining process is necessary, as “[suppliers] must have a clear understanding of what each restaurant brand is focused on and support their operator partners with the types of products, insights and innovation that are necessary to help drive revenue while maintaining and improving efficiencies” (7).

Consulting an expert helps, too. According to Yerkes, this is because “partners have a line of sight into what else is going on….we can offer multiple solutions because it wouldn’t be the first time we’d encountered similar issues” (5).

Another important consideration for operators is communicating to the staff about their supply status. For example, if your supply shortage prevents you from including certain items in the employee meals do they understand why? What about issues concerning reducing food waste? Having a transparent, honest relationship with your staff, suppliers and customers will help your business tremendously in the long run.

The food industry has been hit hard by the pandemic and operators may find themselves restless as restaurants reopen and they readjust to the new normal. The good news is that you don’t have to brave this alone. This pandemic has opened up new communication channels for people. “We may have our own agendas, but people have been genuinely helpful, trying to support each other in these times,” said Yerkes (5). “Free resources are being available. New webinars are popping up everywhere like LinkedIn, available to everyone.” She also added that “[these times] have “won me a lot of friends….The silver lining of this is good relationships.”

Conclusion

If the pandemic taught us anything it is that we cannot take anything for granted. “Nothing will surprise me at this stage of the game,” said Yerkes. “The resurgence of the virus is expected, making all this unstable” (5). While we do predict a “semi-permanent” impact on the shortage of sanitary items, such as face masks and vinyl gloves through the rest of 2020, the supply situation can change at any given time, and no strategy is guaranteed to work or fail.

Preparing your business for product shortages and future outbreaks is necessary for the recovery process. It will take some time for us to win back the consumer confidence around safety, and until then, you should consider multiple supplier options, be creative and nimble in your menu changes, and communicate with vendors, staff and your customers about what’s to come.

And remember, no change should compromise quality. The fundamentals still are what they’ve always been and the most resilient of us will find ways to win small victories, even if there have been losses along the way.

*Special thanks to Meredith Yerkes, Vice President of Business Development in Supply Chain at Consolidated Concepts in Boston, MA, for providing her expert insights

References:
(1) https://www.technomic.com/technomics-take/coronavirus-foodservice-view
(2) https://www.restaurant.org/articles/news/a-supply-chain-take-on-the-post-covid-19-world
(3)https://www.researchgate.net/publication/240167996_Choosing_Between_Single_and_Multiple_Sourcing_Based_on_Supplier_Default_Risk_A_Real_Options_Approach
(4) https://www.sdcexec.com/sourcing-procurement/article/21134023/cleo-the-covid19-supply-chain-impact-avoiding-the-bullwhip-effect
(5) Yerkes, Meredith. (2020, June 11). Telephone interview
(6) https://www.berkeleyside.com/2020/05/18/east-bay-restaurants-brace-for-instability-in-food-supply-chain
(7) https://www.fsrmagazine.com/expert-takes/simplification-covid-19-era-what-it-means-restaurants-and-suppliers

For more information on services provided by Goliath Consulting Group visit or website at goliathconsulting.com or contact us at getresults@goliathconsulting.com

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