Navigating the Storm: How Restaurants Are Tackling Inflation and Supply Chain Volatility

The restaurant industry is facing an unprecedented set of challenges, a perfect storm of rising inflation, persistent supply chain disruptions, and evolving consumer behaviors. To survive and thrive, restaurants must adapt and innovate. In this blog post, we'll delve into these challenges and explore strategies for navigating this volatile landscape. We'll draw insights from a recent episode of the Hospitality Hangout podcast, "How One Restaurant Owner Approaches Leadership Like A Game Of Craps — Everyone Wins Together | Season 10, Vol. 11," where Josh Kern, CEO of SPB Hospitality, shared his perspective on these critical issues. SPB Hospitality owns and operates brands like Logan’s Roadhouse, Old Chicago Pizza & Taproom, and Gordon Biersch. Josh and the hosts discuss the challenges of running a restaurant business, the use of AI in drive-thrus, the impacts of inflation and supply chain issues on pricing, and how technological advances are changing the industry. Join us as we unpack the key takeaways and offer practical advice for restaurant owners and operators.

Introduction: The Perfect Storm in the Restaurant Industry

The restaurant industry, known for its tight margins and demanding operations, is currently weathering a confluence of crises. Inflation is driving up the cost of everything from food and labor to energy and supplies. Simultaneously, supply chain disruptions are making it difficult to source ingredients and equipment reliably, leading to menu changes, increased prices, and potential customer dissatisfaction. The combination of these factors creates a challenging environment, demanding creativity, resilience, and strategic decision-making from restaurant leaders. The goal is to maintain profitability while continuing to provide exceptional guest experiences.

Understanding SPB Hospitality: A Broad View of the Restaurant Landscape

SPB Hospitality offers a valuable lens through which to examine the restaurant industry's current state. With a diverse portfolio of brands spanning various cuisines and service models, SPB's experiences reflect the broader challenges and opportunities facing the sector. Their brands include names like Logan's Roadhouse, Old Chicago Pizza & Taproom, and Gordon Biersch. Understanding SPB's approach to managing these brands during times of economic upheaval provides valuable insights for other restaurant operators.

SPB Hospitality's journey is also an interesting one. Formerly known as CraftWorks Holdings, SPB emerged from bankruptcy and reorganized its operations. This restructuring allowed the company to streamline its portfolio and focus on core brands with growth potential. This case study highlights the importance of adaptability and strategic portfolio management in navigating a dynamic market.

From Politics to Pizza: Josh Kern's Unique Career Trajectory

Josh Kern, CEO of SPB Hospitality, brings a unique perspective to the restaurant industry shaped by his diverse background in politics, marketing, and brand management. He shares his experiences from his time in politics to working in the marketing sector for high-profile brands like Quiznos, Outback, and American Blue Ribbon Holdings. His career path, from legislative aide to marketing executive and ultimately CEO, exemplifies the value of transferable skills and a willingness to embrace new challenges.

Josh's experience in politics provides him with a deep understanding of policy and regulation, critical in an industry heavily impacted by government oversight. His marketing background equips him with the tools to understand consumer behavior, build brand loyalty, and drive sales. This combination of skills enables him to lead SPB Hospitality effectively through today's complex and uncertain environment.

Leadership as a Game of Craps: Building a Winning Team

Josh Kern describes his leadership style as akin to playing craps, where everyone wins together. This analogy emphasizes the importance of teamwork, collaboration, and shared success. In a restaurant setting, where every employee plays a crucial role in the guest experience, fostering a culture of collaboration is essential. Josh believes that creating a positive and supportive work environment leads to higher employee engagement, reduced turnover, and ultimately, a better dining experience for guests.

Building a winning team also involves investing in employee training and development. Providing employees with the skills and knowledge they need to excel empowers them to deliver exceptional service. Additionally, recognizing and rewarding employee contributions can boost morale and motivation. By fostering a culture of shared success, restaurant leaders can create a team that is resilient, adaptable, and committed to achieving common goals.

The AI Drive-Thru Experiment: Innovation at Krystal

SPB Hospitality is exploring innovative technologies to enhance efficiency and improve the customer experience. One such experiment involves testing AI-powered drive-thru technology at Krystal. This technology aims to automate order taking, reduce wait times, and personalize the customer experience. While still in its early stages, the AI drive-thru experiment offers a glimpse into the future of restaurant operations.

However, Josh Kern notes that the technology is still somewhat "bleeding edge" and clunky. This highlights the challenges of implementing new technologies in a fast-paced restaurant environment. Careful planning, thorough testing, and ongoing optimization are necessary to ensure that technology delivers the desired results. The integration of AI and automation requires a strategic approach that aligns with the restaurant's overall goals and enhances, rather than detracts from, the guest experience.

Inflation and Supply Chain Volatility: The Major Challenges

Inflation and supply chain volatility are the most pressing challenges facing the restaurant industry today. Rising food costs, labor shortages, and transportation delays are squeezing profit margins and forcing restaurants to make difficult decisions about pricing and menu offerings. The industry is "tough," according to Josh. Successfully navigating these challenges requires a multifaceted approach.

To mitigate the impact of inflation, restaurants can explore strategies for cost optimization, such as menu engineering, waste reduction, and strategic sourcing. Menu engineering involves carefully analyzing the profitability of each menu item and adjusting pricing and ingredients accordingly. Reducing food waste can significantly lower costs and improve efficiency. Strategic sourcing involves diversifying suppliers and negotiating favorable contracts to secure the best possible prices.

Addressing supply chain volatility requires proactive planning and flexible operations. Restaurants should establish strong relationships with multiple suppliers to ensure a reliable source of ingredients. They should also be prepared to adapt their menus and adjust their operations in response to unexpected disruptions. Effective communication with suppliers and customers is essential for managing expectations and maintaining trust.

The Limits of Pricing Elasticity: Finding the Right Balance

One of the key challenges in managing inflation is determining how much of the increased cost to pass on to customers. Pricing elasticity, the degree to which demand changes in response to price changes, plays a crucial role in this decision. Restaurants must carefully consider their target market, competitive landscape, and brand positioning when setting prices. It appears that a tipping point has been reached, where customers are starting to resist further price increases.

Raising prices too much can alienate customers and drive them to competitors. On the other hand, failing to raise prices sufficiently can erode profit margins and threaten the restaurant's financial viability. Finding the right balance requires a data-driven approach that considers both customer behavior and financial performance. Restaurants can use customer surveys, sales data, and market research to inform their pricing decisions. They can also explore alternative pricing strategies, such as value menus, bundled offerings, and dynamic pricing, to attract price-sensitive customers.

Navigating the Future: Strategies for Resilience and Profitability

The future of the restaurant industry will be shaped by the ability to adapt to change, embrace innovation, and build strong relationships with customers and employees. Restaurants that prioritize resilience and profitability will be best positioned to succeed in the long term. Strategies for navigating the future include:

• Investing in technology: Embracing technology to improve efficiency, enhance the customer experience, and streamline operations.
• Building strong teams: Fostering a culture of collaboration, investing in employee training, and recognizing employee contributions.
• Adapting menus: Offering a diverse range of menu options, adjusting menus based on ingredient availability, and catering to changing customer preferences.
• Strengthening customer relationships: Building loyalty through personalized service, engaging with customers on social media, and offering loyalty programs.
• Managing costs effectively: Implementing cost optimization strategies, reducing waste, and diversifying suppliers.

By implementing these strategies, restaurants can mitigate the impact of inflation and supply chain volatility, enhance their competitiveness, and build a foundation for long-term success. The path forward requires agility, creativity, and a commitment to continuous improvement.

Conclusion

The restaurant industry faces a formidable set of challenges, but with strategic planning, innovative solutions, and a focus on customer and employee satisfaction, restaurants can navigate these turbulent times and emerge stronger than ever. The insights shared by Josh Kern on the Hospitality Hangout podcast episode "How One Restaurant Owner Approaches Leadership Like A Game Of Craps — Everyone Wins Together | Season 10, Vol. 11," offer valuable guidance for restaurant owners and operators looking to adapt and thrive. By embracing technology, building strong teams, and managing costs effectively, restaurants can weather the storm and position themselves for long-term success. The key is to remain flexible, stay informed, and never lose sight of the core values that define the hospitality industry: providing exceptional food, creating memorable experiences, and fostering a welcoming environment for all.