In the Store | November 2011 | By Sam Oches
Brooks-Vidal says it’s especially critical in the Krystal system that there are back-up suppliers in place, because its signature slider patties can’t be made everywhere.
“[Our distributor] communicates with different division houses in different locations on our behalf,” she says. “For instance, if our Florida division is at risk, then our Montgomery division is going to be there for support, and vice versa.”
Beyond wanting to keep restaurants well stocked to maintain profitability, Brooks-Vidal says, Krystal also wants to ensure its food is ready for “humanitarian efforts.” With its units primarily scattered throughout the Southeast U.S., Krystal was significantly impacted by this year’s powerful tornado season and put itself in the position to feed affected citizens, Brooks-Vidal says.
Weather events are not the only unexpected obstacles that can disrupt a quick serve’s supply chain. In fact, David Rutkauskas, CEO and founder of Beautiful Brands International (bbi), has another, much more unpredictable, event that he fears.
“The thing that I worry about the most is homegrown terrorism,” Rutkauskas says. “If there’s an event like 9/11 again, everything will get all out of whack. Ten years ago, when that happened, the business world shut down for about six months. It affected everybody.”
Although an act of terrorism might be less likely to occur than a serious weather event, Rutkauskas says the BBI system, which is comprised of 13 quick-service and fast-casual brands, does have contingency plans in place for a worst-case scenario.
“We teach our franchisees every day to have money stocked away, have product stocked away, have a rainy-day fund in case something like that does happen and you don’t have any customers for two weeks and you’re still paying rent and still paying your electric bill,” Rutkauskas says.
At BBI, Rutkauskas says the most important tool to keeping franchisees and system operators prepared for the worst is clear interoffice communication. The new, high-tech communication system in place at BBI keeps his employees apprised of the game plan in real time.
“It’s a portal where everything is put out there on a daily basis, and it’s an inner communication tool that everyone has access to from their Macs, from their iPads, from their iPhones,” he says.
“The fluidity of it really helps us manage any of these types of issues that might come up.”
The Tail That Wags the Dog
While weather events and other natural disasters can prevent a quick serve from delivering product to its stores, prolonged seasonal patterns or disasters can affect what food can be delivered in the first place.
The extended oil leak in the Gulf of Mexico in April 2010, for example, caused long-term damage to that region’s seafood supply. And the worst deep freeze in 60 years ruined many crops in the Southwest U.S. earlier this year, affecting ingredients such as peppers and tomatoes.
A severe drought and historically high temperatures in the Midwest this summer, meanwhile, caused the price of corn—the “tail that wagged the dog” in the U.S.’s food supply, says consultant Bob Bresnahan—to jump.
The drought forced the U.S. Department of Agriculture, in its “World Agriculture Supply and Demand Estimates” report, to reduce its prediction of corn harvested in the fall.
It had previously predicted 13.5 billion bushels of corn harvested, which would have been a record, with 158.7 bushels per acre; its most-recent report lowered those numbers to 12.9 billion bushels harvested, with 153 bushels per acre.
In the same report, the USDA predicted corn prices to rise 70 cents per bushel; the season-average farm price was listed at $6.20–$7.20 per bushel.
Bresnahan, CEO of agriculture consulting firm Trilateral, says higher corn prices lead to higher retail food prices across the board. Not only is corn used in several popular quick-serve menu items, but its use as feed for cattle also causes other grains to become more expensive, not to mention the meat itself, he says.
“If there’s not a lot of corn, or corn is very expensive, people will feed wheat,” Bresnahan says. “So if you’re a baker or a restaurateur … for the wheat they need to make the buns or the cookies or the tortillas, all of a sudden they’re fighting for food with the cattle feeders.”
The ever-fluctuating price of commodities and other ingredients, and the events that cause them to jump unexpectedly, is something the experts say operators must always keep an eye on. After all, the quick-serve system is very reliant on affordable food.
Macksood says Domino’s, which owns its supply chain and has 16 supply centers getting food to its stores, maintains good relationships with suppliers to be able to negotiate agreeable prices.
“We have put a lot more attention and resources on commodities,” Macksood says.
“We’re doing probably three, four, or five conference calls a week on commodities and different ones and tracking different reports to really get the best sense of where the markets are going, or for future buys and supply and understanding.”
Much like with isolated weather events that affect distribution to stores, experts suggest that having an alternative supply is the best option to avoid being at the mercy of high commodity prices caused by an unruly season.
Eric Grundmeier, executive vice president of supply chain for Qdoba, says he also keeps up relationships with suppliers so they can help look for alternative food sources, if necessary.
“If that’s altering your specifications on something like a tomato, which we’re in a position of doing if we need to here at Qdoba, you can source from other regions of the country,” he says.
Grundmeier says Qdoba usually uses red round tomatoes for its signature pico de gallo. However, should those tomatoes ever be affected by a drought or other seasonal disaster, the company can use roma tomatoes, “based on the quality, based on the availability, and based on price.”
“Having those things approved through the entire process—operations has approved them, R&D, quality assurance, food safety, all of the aspects of the supply chain all the way through to the restaurant—is important,” he says.
Ensuring the security of a supply is especially critical for those quick serves touting fresh or local ingredients, considering geographic differences in weather and the expectation from customers for them to deliver on their promises.
Early this year, Domino’s featured advertisements boasting its cheese from Wisconsin. Macksood says a specific, local-leaning campaign like that can only be done if the supply is already assured.
“If we’re launching into a promotion such as that, before we get into it we make sure we’ve secured supply for that entire promotion and that it’s available,” he says. “If there’s something that came up that was more dependent on local crops, we would make sure we have contingency plans for those.”
Regardless of the ingredients a quick serve uses and of the type of disasters that throw supplies into limbo, BBI’s Rutkauskas says the most important thing an operator can do is stay one step ahead.
“I’m following all of the world events, I’m following weather patterns, I’m following trends in the stock market, I’m a voracious reader of stories,” he says.
“Business is competitive, but the restaurant business is even more competitive, and you have to be prepared with contingency plans.”
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