DMA is 'On-Stage' Representing Chain Distribution!

DMA members Justin Erickson (CEO, Harbor Foodservice) and John Reisigl (President, Cheney Brothers) joined DMA VP of Customer Solutions Jamie Thielman for IFMA’s "Futurescape of Distribution" panel at their virtual Marketing & Sales Conference Aug. 3. The panel discussed strategies for the future of distribution and distribution partnerships with a focus on best practices for national chains.

The primary topics of inflation and labor shortages were addressed – including solutions currently offered by Harbor Foodservice and Cheney Brothers. The increasing roles of technology and warehouse automation were covered along with the growing importance of "exclusive" brands. Learn more about DMA distributors’ innovative approaches to the future of supply chain by watching the recording (registration required).

Gordon Food Service’s own Brian Larsen will represent DMA at Kinetic 12’s final Collaborative Innovation session Sept. 13-14 in Chicago. The Team-to-Team Collaboration panel will showcase best practices for chain operators, distributors and suppliers to work together to deliver top quality service to their patrons. 2022’s event is full – but opportunities to attend or participate in 2023 are still available. Contact Bruce Reinstein for more information.


Middle-Tier Restaurants Threatened as Industry Bifurcates

While statistics from the National Restaurant Association show restaurant spending is still increasing, middle-tier restaurants would be wise to alter their business models if they expect to survive amid raging inflation and a possible recession later this year, experts told The Food Institute.

Restaurant Business reported (June 27) the restaurant business is splitting into two – QSRs that concentrate on production and fast delivery at affordable prices and pricier experiential dining, leaving little room for the middle tier.

Fast-food establishments have been busily rolling out apps and revamped drive-thrus to speed customers through. Restaurant Business cites the changes made by Chick-fil-A and Taco Bell as examples of these efficiencies while other chains are incorporating more robot technology, both for cooking and order-taking.

On the experiential side, you have eateries like Punch Bowl and Sweetgreen for a fresh take on salads and steak houses like STK presenting an enhanced dining experience.

Where does that leave restaurants like Denny's and Olive Garden and independent operators?

Rob Crews, restaurant and diner behavior expert at Vericast, said middle-tier restaurants can be described as "fine-dining for the masses," and warned tough economic times are likely to take their toll on them.

"Lower income customers stop celebrating birthdays, anniversaries, and other events/milestones at these establishments," he said. "However, they still need to eat. As a result, you see their dollars going to grocery and QSR.

"Restaurants featuring experiential dining appeal to consumers for whom their dining-out dollars are a much lower percentage of their discretionary spending, so they tend to be impacted less," he added.

The NRA reported that restaurant expenditures in May rose to $85 billion, up 0.7% from April, the fourth consecutive monthly increase. From February through May, sales were up 12.5% while menu prices during the same period rose 2%. That followed sizable dips in December and January.

"Eating and drinking places are the primary component of the U.S. restaurant and foodservice industry, which prior to the coronavirus outbreak generated approximately 75 percent of total restaurant and foodservice sales," the NRA said.

Americans spend an average $1,200 on fast food annually, Barbecue Lab estimated, averaging one to three meals a week. The USDA estimated Americans spend between $4,100 and $12,200 annually on food, depending on income level, in 2020.

"I think that after two years of missing milestone events like birthdays, weddings, graduations and more, people are wanting to make up for lost time with experiences," said Liv Vasquez, chef, event planner and restauranteur currently working in experiential dining. "I think that also the threat of a pandemic gave people bucket list items that they want to do in their lifetime and enjoying a dining experience was on that list for a lot of people."

The lingering threat of COVID, she said, makes people less likely to risk missing a week's worth of work just to eat at Denny's or Olive Garden. Couple that with such establishments' decision to set up ghost kitchens for take-out orders contributing to an overworked staff, and you have a deteriorating experience for the customer.

"So, it's a bit of a perfect storm of not getting the experience that they used to get in these places, not feeling like it's worth the risk during COVID, and guests not wanting to deal with staff that is spread too thin," Vasquez said. Food Institute Focus

Restaurants Grow More Concerned About Economy

Despite some positive indicators, an increasing number of restaurant operators are growing more concerned about inflation and the prospects for the economy.

Employment in the restaurant industry and overall economy continued to rise at a steady pace in June, with eating and drinking places adding a net 40,800 jobs in June on a seasonally-adjusted basis, according to the Bureau of Labor Statistics, roughly on par with the previous three months.

Yet, the National Restaurant Association says operators are not entirely convinced that the positive economic trajectory will continue in the months ahead. In fact, in each of the last four iterations of the National Restaurant Association's monthly Tracking Survey, restaurant operators had a net negative outlook for the economy six months out.

In the group's June 2022 tracking survey, only 18% of restaurant operators said they expect economic conditions to improve in six months – the lowest reading since March 2020 (15%). Forty-three percent of operators said they think conditions will worsen in six months, while the other 39% expect conditions to be about the same as they are now.

Also, a recent Alignable Research Center survey found that 72% of restaurateurs say they will be out of business if inflation doesn't moderate. Roughly half said inflationary pressures could force them to close their businesses within the next several months, according to Talk Business (May 26)

And there's other concerns.

According to a new survey by global intelligence company Morning Consult, more than half of consumers say they have changed their eating and drinking habits to manage the rising cost of living, with roughly eight in 10 people saying they cut back on trips to restaurants and bars.

New Strategies

Consumer cutbacks have translated to traffic declines, especially at full-service restaurants, which tend to have higher check averages than quick-service places. According to Placer.AI, visits to FSRs fell 4% year over year in June, while fast-food traffic was up 7.3%.

Now, some sit-down operations are trying to defend against those traffic declines by courting price-conscious consumers with discounts and value meals, often for a limited time.

The deals stand in contrast to fast-food brands, where some franchisees have been resistant to discounts in the current inflationary environment, reported Restaurant Business (July 5).

State Actions

Restaurants, bars and food service contractors across Colorado can keep what they'd normally pay in sales taxes during the next three month, thanks to recent legislation.

The law, passed last month, is expected to save establishments up to $40 million through the end of September and allows them to deduct sales up to $70,000 in net taxable sales for each month, according to Montrose Press (July 12). Food Institute Focus

Concerns About Discretionary Spending Jolt Coffee Chains

Consumer concerns about discretionary spending pushed Dunkin' Donuts and Starbucks traffic lower in June, data indicated.

Coffee visits outpaced QSR visits every month between July 2020 and May 2022, noted. In June, however, coffee visits dropped below QSR levels, as a combination of inflation, high gas prices, and the rise in COVID cases kept some consumers away.

At the same time, drive-thru coffee chain Dutch Bros. visits continue to grow as the brand expands with more locations. The company is currently offering half-off cold drinks every Tuesday in July to Starbucks Rewards members.

With that, other chains are keeping up with summer offers: Dunkin' discounted its medium cold brew to $3 this month after debuting a new cold brew flavor. McDonald's is offering free iced coffees with at least a $1 purchase on three days of its July deals. The Coffee Bean & Tea Leaf's promoting a $2 croissant with any beverage purchase and a 30% off Christmas in July online sale.

In other coffee news:

  • Coca-Cola is bringing the world's second-largest coffee chain, Costa, to the U.S. this year with pilots currently in select markets. The powerhouse plans to "disrupt" and "reimagine" the category with sophisticated vending machines called Smart Cafes, fair prices for premium coffee, and personalization for customers, Costa Coffee US GM Tim Warner told Beverage Daily.
  • Major chains are turning to menu innovation. Eater and Bon Appetit have both reported on boba tea influences seeping into coffee chains, like jelly at Peet's Coffee and an iced brown sugar drink at Starbucks. And each chain has expanded matcha offerings as the lower-caffeine tea gives the coffee category a run for its money, according to The Street.
  • Brewing at home — or the office as one consumer told CNBC — appears to be a quick fix for inflation-weary consumers , and retailers are ready with surplus. Amazon discounted more than two dozen coffee makers on its annual Prime Day, Target and Walmart have Keurig's on sale, and Costco has deals on Starbucks K-Cups and whole beans. Food Institute Focus

Store News:

  • Grubhub's partnership with Amazon will likely lead to new Prime subscribers, for a time. About three quarters of Prime subscribers in the U.S. live outside of urban areas and Grubhub is known for its strength in cities, reported The Wall Street Journal (July 16). Full Story
  • QSR Brands, the Malaysian operator of KFC and Pizza Hut restaurants in Southeast Asia, has again delayed its domestic IPO of up to $500 million on worries that poor macroeconomic conditions could hurt its valuation, reported Reuters (July 19). Full Story
  • KFC began a limited test of chicken nuggets in Charlotte, North Carolina. The white meat nuggets come in servings of eight, 12, or 36 pieces, reported CNN Business (July 18). Full Story
  • Fazoli's signed seven area franchise development agreements in the second quarter for 22 new locations. Full Story
  • Virtual pizza chain Milano Vice raised $6 million in funding. The Berlin-based company operates a virtual pizza franchise concept that works with professional kitchens to deliver pizzas to consumers, reported EU Startups (July 13). Full Story
  • Kitchen United announced $100 million in Series C funding from investors Kroger, Circle K parent Couche-Tard, Restaurant Brands International, B. Riley Venture Capital, shopping center behemoth Simon, Phillips Edison & Co. and The HAVI Group, reported Supermarket News (July 25). Full Story
  • Starbucks will unveil its web3-based rewards program in September. The web3 initiative will include coffee-themed NFTs that the company says won't only be digital collectibles, but will also provide access to exclusive content and perks, reported TechCrunch (Aug. 3). Full Story
  • Restaurant Brands International CEO Jose Cil says more customers are redeeming coupons and loyalty rewards, but the company hasn't seen any significant change in what diners are buying, reported CNBC (Aug. 4). Full Story
  • Wendy's announced plans to pare back its sizable ghost kitchen deal with Reef Kitchens after U.S. units underperformed. The burger chain announced last year that it planned to open 700 locations in Reef Kitchens; it now plans to open as few as 100, reported Restaurant Business (Aug. 10). Full Story

Executives on the Move:

  • Industry veteran G.J. Hart is coming out of retirement to become Red Robin's next CEO and president, replacing Paul Murphy, who is set to retire at year's end, reported Restaurant Business (July 14). Full Story
  • Chili's Grill & Bar named George Felix chief marketing officer. Full Story
  • Bruno Marini joined Tavistock Restaurant Collection as area director of New England restaurants. Full Story
  • Southern Proper Hospitality announced Christopher Harter as new chief operations officer. Full Story
  • Church's Texas Chicken and Texas Chicken named Joe Guith as CEO, reported Meat & Poultry (Aug. 3). Full Story
  • Performance Food Group CFO Jim Hope will retire later this year and COO of PFG's Vistar business Patrick Hatcher will take over, reported MarketWatch (Aug. 10). Full Story
  • Del Taco CEO John Cappasola has stepped down and will be replaced by COO Chad Gretzema, reported QSR Magazine (Aug. 5). Full Story


How ‘Heatflation' Is Pushing Up Food Prices

The twin crop production enemies, drought and excessive heat, are putting unprecedented pressure on the global food supply, sending grocery prices soaring in what's being labeled "heatflation."

"The current heatwave is the latest in a series of punches hitting retailers and food manufacturers – from COVID shortages to the war in Ukraine. In the short-term, retailers will scramble to replace missing supply, looking to alternative sources of supply where possible," Randall Sargent, principal at Oliver Wyman's Retail and Consumer Goods practice, told The Food Institute.

"This heat wave is yet more fodder for retailers and CPGs to rethink their supply chains and look for more sustainable sources of supply," he added.

Impact on Produce

The greatest impact is likely to be felt first in the produce section while reduced supplies of wheat will take longer to make their way through the supply chain.

The June Consumer Price Index showed food prices up 10.4% from last year, the largest increase since 1981, with food at home prices up 12.2%, the largest increase since 1979.

The worst drought in 70 years in northern Italy is threatening olive oil, risotto rice and processed tomatoes. Kyle Holland, an analyst for the market research group Mintec, told The Guardian (July 13) Italian olive oil production could be down as much as 30% from last year while Spanish production could be reduced by 15%.

"We are already seeing some olive trees producing no fruit, which only happens when soil moisture levels are critically low," Holland said. "According to industry contacts, the lower production and, therefore, limited supply of olive oil is likely to cause prices to increase in the coming months."

Heatwaves Roll On

Jennifer Molidor of the Center For Biological Diversity told KCBS, Los Angeles (July 19) that heatwaves, which are fueling wild fires that destroy crops, are forcing farmers and ranchers to send their cows to market early, meaning they're skinnier than usual.

Jacob Keszey, farm and land director at Earthkeep Farmcommon, told The Food Institute that heatwaves and drought are likely to cause food disruptions, but it might be possible to mitigate the impact by investing in local and regional food economies, which, in turn, reduce transportation costs.

"With a changing climate as the new normal, extreme weather like the recent heat waves and drought conditions will continue to decrease yields," he said.

As a result of rising prices, consumers are increasingly turning to discount grocers, according to data from Klover, which tracks consumer spending. The data indicate overall spending and transaction volume is down, with Aldi the only discount grocer showing an uptick in transaction frequency.

Restaurant Impact

Rising prices are being felt at restaurants too, which are already being squeezed by increase labor costs and shortages.

"For restaurants, margins are eroding due to limitations in the ability to pass on all food and labor cost increases," Oliver Wyman partner Julien Boulenger said.

"Limitations include declining consumer sentiment as well as contract limitations in the case of B2B foodservices players." Food Institute Focus


Restaurant Sales Increase as Traffic Slows in June

Comparable sales were up 1.6% on a dollar basis in June, but total restaurant traffic fell 4.8% during the month, according to Black Box Intelligence. The sales growth was the lowest since February 2021 and was well below the 4.9% increase reported in May. Full Story

Of note, Black Box found the fine dining and upscale casual segments saw steep declines when compared to the prior months, with quick service representing the only segment to experience positive sales growth month-over-month.

Meanwhile, feeling the impact of inflation and rising menu prices, U.S. consumers cut back on their restaurant visits in the second calendar quarter of 2022, The NPD Group said. Physical and online restaurant traffic declined by 2% in the quarter versus a year ago, -6% below the pre-pandemic level in the same quarter in 2019. Full Story

Amid the economic upheaval, more than a third of the nation's restaurants are putting their recruitment efforts on hold to protect margins from soaring wage rates, according to a new survey from the Alignable Research Center. The inflationary pressure is so intense that 4% of establishments are even laying off workers, reported Restaurant Business (July 22). Full Story

Selected Results:

  • Domino's Pizza reported mixed quarterly results as the pizza chain struggled with higher costs and an ongoing shortage of delivery drivers. Net income in the three-month period ended June 19 was $102.5 million, or $2.82 per share, down from $116.6 million, or $3.06 per share, a year earlier. Net sales rose 3.2% to $1.07 billion, reported CNBC (July 21). Full Story
  • McDonald's reported better-than-expected quarterly earnings as price hikes helped offset higher costs and restaurant closures in Ukraine and Russia. Net sales fell 3% to $5.72 billion, hurt in part by the closure of McDonald's Russian and Ukrainian restaurants, reported CNBC (July 26). Full Story
  • Chipotle Mexican Grill beat Wall Street estimates for quarterly profits as multiple rounds of price hikes helped the burrito chain cushion the blow from soaring costs. Net sales climbed 17% to $2.21 billion, reported Reuters (July 26). Full Story
  • Yum Brands reported mixed quarterly results but said Taco Bell had stronger sales. The company had second-quarter net income of $224 million, or 77 cents per share, down from $391 million, or $1.29 per share, a year earlier. Net sales rose 2% to $1.64 billion, reported CNBC (Aug. 3). Full Story
  • Starbucks reported better-than-expected quarterly results, fueled by demand in the U.S. for its cold coffee drinks. Net sales rose 9% to $8.15 billion, reported CNBC (Aug. 2). Full Story
  • Restaurant Brands International posted a 9% same-store sales growth rate in second quarter 2022, with increases posted across Tim Horton's (+12.2%), Burger King (10%), and Popeyes Louisiana Kitchen (1.4%). Its system restaurant count reached 29,747 during the quarter, with 1,233 of those restaurants Firehouse Subs locations it added as part of its acquisition of the company. Full Story
  • Salad chain Sweetgreen lowered its full-year outlook and said it would lay off 5% of its workforce and downgrade its office space. For the quarter ended June 26, the company met earnings expectations, reporting 36 cents per share, but fell short on revenue, reporting $124.9 million versus $130.2 million expected, reported CNBC (Aug. 9). Full Story
  • The Wendy's Co. missed Wall Street estimates for quarterly U.S. same-store sales growth as Americans reined in their spending on burgers and fries in the face of decades-high inflation. Revenue rose 9% to $537.8 million, but missed Wall Street expectations of nearly $540 million, reported Yahoo! Finance (Aug. 10). Full Story
  • Jollibee Foods, the largest Philippine restaurant operator, saw its profit jump by nearly 200% in the second quarter as diners returned with the easing of Covid restrictions. The company reported a net income of 2.8 billion pesos ($50.5 million) in the three months to June, nearly triple its 976 million-peso profit a year ago, reported Bloomberg (Aug. 11). Full Story


Tillamook – the fastest growing premium ice cream brand in the USA - has inked an exclusive partnership with Dot Foods making Tillamook Ice Cream now available to foodservice operators and distributors in all 50 states! 

Tillamook has been making its premium ice cream since 1947, using rBST-free milk, cage-free eggs, and no artificial flavors or preservatives. Packaged in plastic three-gallon tubs, there are eight taste-tempting flavors currently stocked at Dot including Vanilla Bean, Chocolate, Mint Chocolate Chip, Oregon Strawberry, Chocolate Chip Cookie Dough, Cookies & Cream, Rocky Road, and Butter Pecan, with another 20 flavors available for special order. Tillamook products have tremendous loyalty, with nearly one in four households currently buying the brand. This new distribution is poised to appeal to that fan base while they are away from home, once delicious scoop at a time. Reach out to your distributor today to arrange a sample.

For regional chains looking to grow quickly and selectively across the US, DMA Offers the one national network that can be customized specifically to your needs to serve your long term expansion plans.

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