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What Rising Food Costs Mean for Foodservice Brands

https://www.sld.com/blog/brand-strategy/how-foodservice-brands-can-cope-with-rising-food-costs/

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Post March 5, 2020 by Melinda Deines

What Rising Food Costs Mean for Foodservice Brands

In spite of new agreements such as CUSMA (the new NAFTA) and the China – US managed trade pact, trade wars can be expected to continue as long as  protectionism remains a global trend. For foodservice operators, this presents a destabilizing pressure as food costs and availability fluctuates, in some cases wildly. Consider the proposed tariff on cheese coming to the US from Europe at 100 percent!

Unfortunately, unpredictable food supply chain and price variations are likely to continue for the foreseeable future. Regardless of governmental policies in countries like the United States, other issues (most significantly climate change) will continue to create chaos in the food supply chain. 

So, what is a foodservice operator to do? The simplest answer is to raise prices accordingly, but this is never a preferred choice – especially for brands built on a value offering. Here are some strategies that foodservice operators can use to help build flexibility into their menu in response to fluctuating food costs. 

1. Digital Menu Boards with Local Flexibility

While you may prefer to absorb the cost instead of doing away with a menu item based on the price of ingredients, this will likely become unrealistic in the future. Instead, being able to swap out ingredients to accommodate changes at a local level will become a necessity. Foodservice operators need to ensure their digital signage can be locally manipulated to allow for ingredient swaps, temporary unavailability or menu alterations. Templated systems and pre-planned menu alteration strategies will ensure that local managers are keeping within the brand guidelines for image and taste.

2. Go Local

This is something foodservice brands should already be thinking about. We  know Millennial and Gen Z consumers are willing to pay for items that align to their values – one of which is to support local economies. As imported products become more costly, the value in going local may increase. This may seem like a daunting task for a large national or multi-national brand with numerous locations where local food supplies may vary wildly. As artificial intelligence, iOT and blockchain begin to impact the food supply chain more significantly, it is possible that smaller producers will use these technologies to access larger markets. This will allow larger brands to tap into local markets. For independent brands whose food supply chain is more straight-forward, going local is a much more tangible goal and can become a key point of difference from chains. Celebrating the local producers will be a significant benefit, so brands should ensure there is a content and in-store promotion strategy to tell these stories.

3. Limited Time Offers

As most foodservice operators know, LTOs can be a big hit. The Starbucks pumpkin spice latte has become so popular there is now a cultural backlash! Thinking about how LTOs could make use of seasonally abundant local food products or other alternatives to regular items could help foodservice operators keep food costs lower while also introducing an element of discovery to their brand. Partnering with local producers, CPG brands and top chefs could result in the kind of LTO that has people lining up. Brands need to become more responsive to the need for menu alterations, allowing them to reduce the time to market and cost of introducing new items.

4. Sing Your National Anthem

For brands finding that certain popular products, French wine for example, have become more costly as trade wars continue, finding national alternatives and marketing them as “made in the USA” is a strategy that leverages local on a larger scale. It allows customers to discover treasures that are hiding right under their noses. 

For example, Canada is hardly a country known for wine. In recent years, however, winemakers have excelled at cultivating grapes bred for a northern climate and Canadian vineyards are now producing internationally award-winning wine. Most fine dining establishments in Canada now stock Canadian wine alongside French, Californian and Australian options. Many customers will be delighted to “discover” something their friends don’t know about, and storytelling around sourcing can romance national flavors in a way that leverages national pride to turn the negative into a positive. 

Absorbing food costs impacted by trade wars is not a viable long-term strategy – the cost of food is going up and brands need to strategize now to ensure their growth strategies are not impacted. Local flexibility requires some regional autonomy, so larger brands will need to rethink their business model to allow for more agile responses to food supply chain issues.

Independent brands are already more flexible when it comes to menu alterations – however it may be harder in the long term to handle overall rising food prices without raising the cost to the consumer. Therefore, independent brands need to ensure they are offering something big brands will find harder to deliver, such as frequent menu alterations, location-specific experiences, authentic ethnic or specialty experiences and unique models.