Product shortages, a labour crisis and a host of other supply chain issues are throwing up a wall of costs for hospitality businesses. Procurement technology can't solve the underlying problems, but it can help you navigate them better, as Elly Earls reports
The lack of product in the supply chain caused by extra cost and restrictions on imported goods as a result of Brexit combined with widespread supplier labour shortages has led to a situation in the hospitality industry that veteran procurement specialists have never experienced in their careers.
While the shortages of lorry drivers and hikes in fuel prices have put pressure on any item moved by road, the cost of shipping containers to move products by sea has also surged five-fold. What's more, the National Living Wage, which applies to many F&B service and kitchen roles, will go up by 6.6% in April 2022. Wage inflation above this level is also happening, as staff shortages drive up rates.
Supply chain pain
This is all having a huge impact on how the supply chain functions. David Read, chairman of foodservice and hospitality procurement consultancy Prestige Purchasing, explains why the supply chain is so sensitive to the pressures: "You start with a farmer or a grower or a fisherman, then the product goes through one or two points before it hits the wholesalers. Perhaps there's a processor, who cleans or washes or slaughters, then a second level of intervention, such as butchering or manufacturing. Then a wholesaler will put it in store and deliver it to the caterer on the day.
"The problem is that every step in that chain is short of labour, which is squeezing availability of product. Plus, there are problems in distribution just getting products from the processor to the manufacturer and so on. There has been a lot of delivery failure. It's a huge game of ‘whack-a-mole'. You hit a problem and the action you take to resolve that problem causes a problem somewhere else."
When you have a shortage of supply, it puts stress on pricing. Prestige Purchasing predicts that the inflation rate could be running at between 3% and 6% by Christmas and probably even higher in the New Year. The weeks commencing 29 November and 6 December are set to be particularly challenging for hospitality because schools and business and industry will still be ordering, and Christmas volumes will have started. "In nearly 30 years in purchasing in hospitality, I have never ever referred to weeks being dangerous," Read says. "This is a very unusual set of circumstances."
On top of this, many rent holidays that were negotiated to help businesses through the worst of the pandemic are coming to an end, while VAT has risen from its temporarily lowered rate of 5% to 12.5%. It's set to be back at 20% by March. "Every penny that goes on the price is a penny off the operator's margin unless they move their prices," says Read. "They are going to have to pass on price increases to diners. There's a wall of costs coming their way. If they don't put up their prices, most operators won't survive."
Ali Mubarak is the founder of Sania Group, a franchise brand partner of Pizza Hut delivery units and German Doner Kebab, and a master franchisor of Café Barbera and You Me Sushi. He expects 18%-20% cost increases throughout the business over the next six months. While he is not planning any immediate price rises, he says Sania may well have to consider them soon. "If things continue to spiral, then all businesses in the retail and food sectors will have to give it serious consideration as there will be a crossover point," he says.
One thing F&B businesses can do to mitigate the cost challenges is reduce the complexity of their operations. Many have big menus that require hundreds of ingredients, which can sometimes change on a daily basis.
Read explains: "There are lots of decisions made without too much thought – for example, frequency of delivery. If you get offered a delivery every day, then you take it but, of course, putting complexity and additional service into the inbound supply chain raises costs. If you have enough storage in your kitchen to have only three deliveries a week of a particular product, then that's going to be more economical for suppliers."
Similarly, it's a much less expensive affair to run a restaurant with a menu that uses only 50 ingredients rather than one that uses 500. "Of course, one should never adjust one's menu in order to suit the supply chain – it should be about the customers. But it's also important to ensure you don't put so much choice on your menu that it doesn't add value to the customer while costing you a lot," Read says.
James Kennedy, head of group procurement at RBH Hospitality Management, says his group is now looking with renewed vigour for areas where they can drive down costs and consolidate delivery schedules to further reduce cost and delivery issues. "Communication has been key to understanding specific issues and risks to act more proactively," he says.
"Furthermore, we have been liaising with our suppliers on a specific Christmas strategy whereby we have weekly communications about any products being out of stock while listing several alternative products on our system to ensure continuity of supply. We have also encouraged hotels to stockpile sensibly on important Christmas F&B lines so as not to disappoint customers, and to be flexible with menu descriptions."
Arya Razi, the founder of Mexican-inspired restaurant and bar Caldera in London, has also been doing what he can to mitigate any price rises. He has, for example, reduced the size of the menu and taken advantage of seasonal ingredients to keep prices low and is closely monitoring wastage for both environmental and cost-reduction reasons.
"We're listening to what our guests want to make sure we are offering food that they enjoy, but also looking at wastage insights to improve our offer," he says. "Delivery platforms have also helped us, as we are able to include promotions for dishes which need to be sold on the day, and this really allows us to avoid throwing the food away. We're at a point now where we would much rather have sold out of a dish on the menu – even at the weekend – than have it in stock and then have to throw away at the end of the night." Purchasing 101
While purchasing technology can't solve the underlying challenges facing the hospitality sector, it can help businesses navigate them much more effectively than if they were simply picking up the phone to suppliers.
"Good procurement relies on high-quality data," Read stresses. "If you're going to buy something, you need to know where you're buying it from, what price you're paying for it, what volume you're buying, how frequently it's delivered, and what the spec of the product is. That's purchasing 101. Yet we are still in a position where there are some operators in the market who don't have any form of ordering platform of their own."
RBH uses Access's Procure Wizard, which has helped ensure its F&B procurement sticks to approved price lists and authorised suppliers only. "This ensures compliance to products that have previously been approved by the procurement department," explains Kennedy.
"All products are allergen-compliant, which is monitored by the software, ensuring we comply with Natasha's Law and adhere to relevant health and safety requirements. This has been an especially challenging period, as we have had to onboard several new suppliers to deal with delivery issues. When supplier increases do come through, all prices can be increased with a few clicks of a button, which makes things much more efficient."
RBH finance director Stuart Houston, adds: "Managing the addition or amendment of suppliers and products for all properties in the estate centrally via one platform, enabling changes to be made and implemented with a few clicks of a button, makes the process more efficient. Changes – which have been irregular and far more frequent than normal trading due to the fulfilment pressures our suppliers have been under – can be reflected in the master supply list and cascaded to all units."
According to Read, there is an increasingly important role for technology around stock management. "Having your procurement system linked to your stock management system is purchasing 101 right now," he says.
The other part of the picture is ingredient and recipe management. "Best-in-class operators manage their menus using technology that gives a single version of the truth in terms of what the recipe looks like and what the ingredients are," Read says. "That then joins up with the stock system and with the purchase-to-pay system, and is completely visible and accessible to everyone in the organisation who is authorised."
It's also possible to integrate stock management with an electronic point of sale (EPoS) system. Sania Group has invested in a new PoS to enable the business to do this. "One feature that really stands out for us, in operational terms, is the ability to integrate stock controls with our online ordering portals, meaning that if we do have stock issues or short deliveries, then we can immediately inform the customer at all points of purchase," Mubarak explains. "This gives a far better experience to the people who are ordering, our staff in providing better customer service, and our business, as we can immediately see electronically what the stock levels are in each store."
The technology transformation we will see emerge over the next few years will be around ingredient-level data, according to Read.
Procurement systems can already hold information on allergens and frequently used food standards. This kind of data could evolve to include estimated carbon footprints, and eventually, over the next five to 10 years, actual carbon footprints, which Read says will have a much more profound impact.
If you look at the information about a chicken breast in a supplier's catalogue today, for example, you will likely find its country of origin, weight and water content listed, and perhaps an association with an organisation like Red Tractor. In a few years, you may also be able to see more granular detail about its carbon journey, including the farm it was reared on, which processor cut it and how it was transported. "There could be an absolute avalanche of data enabling operators to say, ‘I managed this really well and my carbon footprint looks exactly like this'," Read predicts.
"The two big things burning in consumers' minds are provenance and climate change, and they are increasingly aware that food is the generator of over 30% of greenhouse gases and has negative health impacts. There will be a relentless focus on creating data that will expose good practice and bad practice in the food system. That's going to drive change."
Family-run Cairn Group owns and operates 33 premium hotels and 28 bars and restaurants around the UK. Before the business implemented Access Procure Wizard, manually entering a single invoice into the accounts system would take up two minutes. With 150,000 invoices passing through head office a year, streamlining that process has saved a huge amount of staff time and driven profitability as well as employee and customer satisfaction.
Before, Cairn could find it difficult to generate an accurate report on spending at individual sites and to understand where efficiencies could be made from co-ordinated purchasing. Now, the team can pull consumption reports from Access Procure Wizard, which give an accurate picture of what has been spent on what product and where, helping to streamline the contract tendering process, as well as boosting consistency and quality across the group.
Embracing technology has also had an impact on Cairn's bottom line. Around 5% of all invoices raised include an overcharge. Before the procurement software was introduced, capturing these inconsistencies would have involved manually checking every line on every invoice and highlighting any discrepancies. Within 12 months of using the new system, the group had saved £185,046 through credits that may previously have slipped through the net.
Sponsor's comment: Access Hospitality
Access Hospitality is a division of the Access Group created to specifically cater for the UK's fast expanding £73b turnover hospitality sector.
More than 1,300 customers across the UK use our modular, scalable cloud-based business management suite, which features over 20 integrated Software as a Service (SaaS) solutions and services designed specifically for pubs, bars, nightclubs, restaurants, food-to-go and coffee shop operators.
Our hospitality business management suite covers reservations, ticketing, EPoS, finance, business intelligence, property maintenance, procurement, CRM, order and pay, work management, learning and development, and workforce management.