Walk to the front of the line at the Boulder location of WoodGrain Bagel & Deli, and you’ll find a newly minted notice by the register. The note informs customers of a 6.5% service charge that will be added to all orders, “to offset the rise in food, paper, and labor costs.”
WoodGrain isn’t alone. Food retailers across the country are taking a hit from an absent workforce, a volatile supply chain and the rapidly rising costs of products and ingredients. And like this local bagel shop and deli, several other Boulder food retailers have posted signs informing customers about how these issues may affect their experience. You’ll find similar announcements at Motomaki, Modern Market, Deli Zone and Snarf’s Sandwiches, to name just a few.
Ranging from homemade signs to engraved wooden placards, these notices all share a theme: Customers should expect longer service times, higher menu prices and out-of-stock items. But in addition to communicating with customers about their impacted dining experience, these notices may also prompt us to recognize the complexities of our supply chain and the hidden economic forces shaping the production of our food.
The difficulty and rising costs of staffing the shop is one of the main reasons WoodGrain implemented a service charge in late October of this year, according to owner David Bowen. “People went on unemployment last year and a lot of people didn’t come back to work,” he says. “It has been a big problem, finding people.”
WoodGrain has been comparatively aggressive with wages to fill its staffing gap. “Restaurants in Boulder are paying $20 to $23 per hour for a line cook. We’ll pay $24,” Bowen says. On top of competitive wages, WoodGrain also offers health insurance to any staff member who works a minimum of 30 hours per week — a new benefit that took effect on Dec. 1.
Offering higher wages might be essential to attracting more workers to these food service jobs during a volatile period, but it’s not so straightforward. Bowen says he was constantly reviewing payroll over the summer to ensure pay equity across the team. At times, staff wages were outpacing the managers’ wages, leading to more spending across the board.
“There were days where I was just giving increases almost every day,” says Bowen. “We were like, ‘Well, we just had to hire somebody in Boulder at this wage, so this is good for you, because you get a raise now.’”
Nearby, Motomaki, a fast-casual sushi restaurant on 28th Street, has also had a hard time with staffing. Since August of 2020, they’ve raised wages by $3 per hour in attempts to find employees willing and able to work a tough job on the frontlines of a constantly evolving public health crisis. But, Assistant General Manager Spencer Sotillo says raising wages hasn’t made much of a difference in retaining workers.
Bowen and Sotillo’s accounts align with current data in the industry. From May to September of this year, food and accommodation services experienced the highest job opening rate of any sector in the economy, according to the Bureau of Labor Statistics (BLS). Quit rates are the highest of any industry as well, trending at nearly double the rates of many other sectors.
Economists are referring to this record number of unfilled jobs as the Great Resignation, and even experts are at a loss to fully explain it. Possible explanations include federal assistance programs during the pandemic, ongoing health or mental wellness issues, and workers demanding better pay and working arrangements in an industry with historically low wages, high public contact and sometimes unpredictable schedules.
Gregg Macaluso, a professor at the University of Colorado Boulder Leeds School of Business, questions how long individuals will be able to abstain from the workforce. In the meantime, the labor shortage is having a strong effect on the capacity of the economy to produce goods, he explains. This brings us to another subset of the economy that is significantly affecting retailers like WoodGrain and Motomaki: the supply chain.
Getting the Goods
With 25 years of experience under his belt in supply chain consulting, Macaluso sometimes thinks of the delivery of goods and services as a large-scale game of telephone.
In a simplified example of a food supply chain, the buyer tells the sandwich shop what they want, the shop orders the bread and the meat and the cheese from their suppliers, and the suppliers obtain these products from farmers and food processors. These entities operate independently of one another, each protecting their own economic interest.
When a supply chain is working well, according to Macaluso, it’s quite efficient at conveying demand up the chain, and the chain remains relatively stable as a result. But throw in a wrench like Covid-19 and suddenly the system behaves quite differently.
The pandemic has made it hard to know where consumers want their goods. For instance, the market demand for chicken likely hasn’t changed much, but the demand may have shifted from restaurants to grocers.
As a result of this unpredictability, businesses started speculating. Business owners remembered the losses taken in the 2008 Great Recession and quickly began shedding resources, capacities and employees in anticipation of a significant economic downturn.
On top of that, the regulations, the packaging, and even the way people go to work changed almost overnight, Macaluso says. He points to JBS, a meat packaging plant in Greely, where 12 people used to be able to work side by side until Covid health restrictions were put in place.
“When you cut the capacity by two thirds, suddenly that link in the supply chain is not able to put out what they were able to before, no matter what you do,” Macaluso says.
With unpredictable demand and erratic supply patterns, the giant game of telephone no longer dictates production — so the supply chain seizes up. We’re now seeing the results firsthand. “Your ability to get almost anything has slowed down significantly since spring of this year,” says Macaluso. “There are very, very few commodities I talk to anybody about [that] are not constrained.”
Sotillo corroborates Macaluso’s story about limited goods. For months, Motomaki has been unable to stock Ramune, a Japanese-style soda, and recently they’ve also had a hard time procuring popular Japanese desserts Pocky and mochi. Complaints from customers are what prompted Motomaki to put up their own sign a couple months ago, explaining to customers that they are unable to stock some of their usual items due to “supply chain snarls, labor shortages and congestion at shipping ports.”
WoodGrain has also had a tough time getting its hands on product, and the cost of the goods they can find are skyrocketing. For the last few years, the bagel shop has sourced all its takeout boxes from a supplier in Boulder called Tundra. But suddenly, Tundra is having problems getting fiberboard.
“What was costing us $29 or $30 for a case of takeout boxes, suddenly went to $45,” Bowen says. “When they run out, we’ll try to get it from Costco, and if we can’t get it there, then we’ll go to Amazon.” Bowen is constantly jumping from place to place looking for the best deals on all the products WoodGrain needs.
Bowen says dairy prices have shot up 80% in the last year, and meat prices have increased significantly as well. “A lot of this is due to labor shortage and a lot is due to shipping and trucking,” Bowen says, underscoring the complexity and interconnectedness of these supply chain issues.
Motomaki has also faced rising costs of goods. The market price for most fish they serve recently increased by about 5 to 10%. However, the highest increase in cost has come from hamachi, a yellowtail jack fish that often comes from Indonesia or off the coasts of Japan. “Hamachi went from being about $10 a pound to … about $20 a pound,” Sotillo says.
As a result, Motomaki has had to increase the price of their food, too. Customers can expect to pay anywhere from 25 cents to 75 cents more per bowl or roll.
“This is unique,” Bowen says of the price hikes. “We’ve never seen this kind of inflation before, so it’s kind of unknown territory for us.”
Annual inflation hit 6.8% last month, marking the highest rate the U.S. has seen since 1982. Supply chain backlogs play a large role in this phenomenon. The BLS reports that food and beverages have seen an inflation rate of 6.1% in the last year. Meanwhile, the energy sector has risen a whopping 33.3% over the same period, with some commodities such as fuel and gasoline topping out at rates over 50%.
Why are we seeing inflation skyrocket now, 21 months after the beginning of Covid-related lockdowns? Put simply, as people emerge from the initial shock and fear of the pandemic, demand for goods has returned, but the ability of the supply chain to meet that demand hasn’t.
Even though both Motomaki and WoodGrain have raised prices, neither business has seen a significant drop in sales. Some customers complain, but otherwise business seems to be going well. Motomaki, which relies heavily on business from the CU Boulder community, even saw its best month of business in August.
Even so, the price increases are a temporary Band-Aid on a much larger problem. Bowen says the 6.5% service fee does not nearly cover the rising costs of WoodGrain’s products and labor. But he recognizes that passing along even more of the added costs to customers isn’t a viable business strategy.
“The 6.5% is a much smaller amount than we’d actually like to go, but it’s kind of an emergency relief for us,” Bowen says. While WoodGrain did receive federal benefits in 2020 through the Paycheck Protection Program and payroll tax credits, the business hasn’t had any additional government help since last year.
As for what the future holds, Sotillo feels optimistic about the supply chain but is uncertain about the labor market. When it comes to products coming in on time, he thinks things will be back to normal by this time next year. “As far as employees,” he says, “I honestly have no idea if that’s going to get better or not.”
Emphasizing the inextricable connection between employees and the supply chain,
Macaluso sees the situation differently. He says if the workforce doesn’t return to its original capacity, then the steady supply of goods won’t be returning any time soon either. “Which probably means inflation is here for — your guess is as good as mine — but I would guess one to three years.”
Based on Macaluso’s assessment, it’s too soon to know when the notices will come down at WoodGrain Bagel & Deli. But in the meantime, these challenges underscore the complexities that go into putting a quick-serve breakfast on customers’ plates. That seemingly simple bagel and schmear represents a complicated web of labor, materials and pricing strategy. Maybe it’s a supply chain miracle to even have arrived at all.