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Transformative Changes in Foodservice Series - Profit Margins

Transformative Changes in Foodservice Series - Profit Margins

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Last Published: 06/15/2016

Although consumers are growing more reliant on foodservice and using away-from-home dining options to meet the demands of an increasingly on-the-go lifestyle, supply chain challenges are threatening profitability for operators. 

 

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Labor Costs

While labor has always accounted for a large percentage of restaurant costs, recent demands for a minimum wage hike have put commercial and non-commercial kitchens under financial stress. California and New York recently pledged to meet the demands of the “Fight for 15” movement by raising the minimum wage to $15 over the next several years. While these are only two states, they account for a tremendous amount of the nation’s business and are major suppliers of produce, livestock, seafood and dairy. All of these are critical ingredients to kitchens, which indicate that restaurants across the nation will feel the impact of a bi-coastal wage hike.

Transportation

Transportation logistics will likely increase costs and lower foodservice margins in the coming years. Due to severe driver shortages and lack of rail capacity, distributors are having to raise prices to maintain a reasonable profit and are passing these costs along to the operators. Unfortunately, not only is the method of delivery causing price premiums, but the ingredients are as well.

Climate Change

Climate change, and the resulting weather volatility, is disruptive to agriculture and crop outputs all over the world. This has created unwieldy price fluctuations due to supply shortages in some areas and unusually high crop yield in other areas. Severe weather also causes low consumer mobility – blizzards and tropical storms have resulted in decreased restaurant visitation as consumers opt to stay home and avoid the elements.

 

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