March 2, 2021

COVID-19’s Impact on Restaurant Food Cost Volatility Has Just Started

by Jillian Straw

When businesses started shutting down at the onset of Covid last year, articles across the nation covered the impact on food providers and prices. Everyone saw the images of American Dairy farmers having to dump gallons of milk because of the drop in demand. Schools, businesses and restaurants were no longer open and thus no longer ordering, but as ABC notes, cows were still making milk. This was a devastating blow to the dairy industry.

The volatility isn’t just in dairy production, however. In fact, looking at the data provided by our clients’ invoices at Ottimate, we were able to see one particular item, Alaskan pollock, not only rising in demand but also rising in average price as well.

Alaskan pollock is an important food ingredient in many restaurants; it forms the basis of many fast food seafood menu items like McDonald’s Filet-O-Fish. It is also commonly packaged into block molds that are deep frozen and used throughout Europe and North America as raw material for high quality breaded and battered fish products. So if the price of Alaskan Pollock goes up or down, you can bet that your fish stick prices are going be affected.

We first noticed a surge in the demand for Pollock in March 2020, which was followed by a price increase of 5% in the following month. That same April, restaurants shut down across the nation and the demand lessened, decreasing the price per pound by 5%, but not forever. January of 2021 brought along another 5% increase that has held through February as well. 

Wholesale Price Index of Alaskan Pollock. Source: Ottimate Insights

According to the Wall Street Journal, which quoted this data in their article, “U.S. Seafood Suppliers Face Trouble for Lent”:

A smaller catch last year led to record wholesale prices for some Alaskan pollock, which is used in products from McDonald’s Corp’s Filet-O-Fish sandwiches to surimi, a paste used for imitation crab meat. Wholesale pollock prices are up around 5% this year from a year ago, according to Ottimate.

Container ships waited near the Port of Long Beach, Calif., Feb 1, from the article “U.S. Seafood Suppliers Face Trouble for Lent” by the Wall Street Journal, featuring original data by Ottimate

The main cause of this volatility is largely due to a workforce shortage caused by COVID-19; most seafood in the United States is imported, and a shortage of port workforce has caused backlogs at all major US ports, causing bottlenecks and supply shortages to ripple through the system.

The mismatch between supply and demand is causing (and will continue to cause) volatility across the food supply chain. 

In fact, according to the Wall Street Journal, 

Long John Silver’s LLC said higher seafood prices have increased its commodity costs by 5% this year over last. The chain of seafood restaurants, based in Louisville, Ky., locked in many of its fish contracts through the summer because it anticipated further increases, said chief marketing officer Stephanie Mattingly.

At Ottimate we’re able to track this data because our customers care about the cost of their ingredients, especially when it comes to price volatility. Price volatility in supply chains can be disruptive because most operators don’t have the ability to update their menu prices to reflect the most current cost of ingredients.

One of the solutions to managing food cost volatility is to lock in price contracts and enforce them. 

With Ottimate Insights, operators can set up price tracking and price comparison of commonly ordered restaurant supplies across locations, so they can better manage their costs, set up, and enforce contract pricing.

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