Market Mondays: Selling to Restaurants - The Impact of Labor Costs & Opportunities
The food service channel is ever changing. Businesses within this channel have a front row seat to consumers perceptions of their food. For restaurants, their proximity to the end consumer affords them the ability to shift their purchasing and iterate their menu offerings . Consumer preference isn't the only factor that can impact restaurant purchases. One of those factors is a rise in operating costs. The operating cost for restaurants in a few states has risen because of an increase in state level minimum wage.
According to the Economic Policy Institute (EPI) the proposed, Raise The Wage Act of 2019 would gradually increase the Federal minimum wage to $15 by 2024. They noted that several states have already approved state minimum wage increases including: California, New York, Massachusetts, D.C., Oregon, Washington, Colorado, Arizona, Michigan, and Maine. Minimum wage costs impact producers in every part of the food value chain because of the small margins associated with food sales. In New York City the NYC Hospitality Alliance conducted a survey on the labor costs impact on restaurants, and how they are responding to the increase. The Rising Labor Costs survey found that 60.8% of full service restaurants intend on reworking food and beverage menu offerings to reduce costs. 62.5% of limited service restaurants said that they intended to do the same this year. The survey results highlighted additional measures that were impacted by the rise in labor costs. Two measures that outpaced reworking the menu to reduce costs, were increasing menu prices and reducing employee hours. It is likely that restaurants in other states may decide to make similar decisions when deciding how to offset an increase in total operating costs. Data from New York City shows that more than half of restaurants surveyed will adjust the food and beverage menu offerings to reduce costs this year. While the results did not outline how the restaurants planned to do so, it is likely that they will change suppliers or reduce the variety of options purchased. Looking ahead there are still opportunities to sell to restaurants. If you would like to start selling to restaurants, or if you'd like to explore different options outside of your current buyers, here are two opportunities worth pursuing.
A virtual restaurant is a delivery only food service business, sometimes referred to as a ghost restaurant. Virtual restaurants do not have a physical location for dining and tend to operate out of an existing restaurant or from a commissary kitchen. These restaurants sell their food through delivery partners like GrubHub and UberEats. Virtual restaurants don’t have the overhead that traditional restaurants do so most of their labor costs will not be impacted in the same way that it is for their brick & mortar counterparts. These restaurants may be best suited for smaller producers that do not have the capability for larger order fulfillment. Storage and refrigeration space may be limited for a virtual restaurant so smaller orders may be preferred.
Mixology – Supply The Bar
The NYC Restaurant survey results included both food and beverages in the data on reducing menu offerings. However, alcoholic beverages are always premium menu items at restaurants. Restaurant owners expect a higher margin on alcoholic beverage sales. The drink menu may be an area that a restaurant invests in, instead of reducing offerings if they have an established bar program. You might be surprised by the ingredients that mixologists are using for cocktails. Kimpton Hotels and Restaurants Annual Culinary & Cocktails Trend Forecast for 2019, shows that mushroom infused spirits and moringa may be cocktail trends this year. They also noted that the trend in vegetable cocktails from 2018 will continue, which included ingredients like corn, beans, and beets. The report mentioned that this year, a variety of different vegetables like Jicama & chayote may be cocktail favorites. Supplying a restaurant bar is another option for smaller producers and producers that need to sell leftover surplus. Many restaurants have seasonal drink menus and they may only require smaller orders which makes fulfillment easier for some producers.
When it comes to selling to restaurants think inside the box. There may be untapped opportunities that exist that you haven't tried. Rising operating costs are shifting purchasing decisions for some restaurants but it does not hinder your access to selling into the market.
 :Why America needs a $15 minimum wage” https://www.epi.org/publication/why-america-needs-a-15-minimum-wage/
 "NYC Hospitality Alliance: Rising Labor Costs Survey" https://thenycalliance.org/assets/documents/informationitems/021Ib.pdf
 “What are Ghost Restaurants?” https://www.webstaurantstore.com/blog/2348/what-are-ghost-restaurants.html
 “From Superfoods to Craft Mocktails: Kimpton Hotels & Restaurants Reveals Top Culinary + Cocktail Trends of 2019” https://www.ihg.com/kimptonhotels/content/us/en/press/releases/kimpton-hotels-restaurants-reveals-top-culinary-cocktail-trends-of-2019