Consumers are returning to restaurants in droves, but continued demand for takeout is exacerbating shortages of items like plastic straws, coffee cups and to-go containers.
Snarls in the global supply chain have been rippling across the economy for months as the health crisis has created bottlenecks and other new challenges for companies. Integral components like semiconductors have been in short supply, sending shockwaves through a number of industries.
For the restaurant business, supply chain challenges have resulted in rising food costs and shortages of key ingredients like chicken. And as consumers shift back to ordering from restaurants more often, many still aren’t eating their meals inside dining rooms. Off-premise restaurant orders were up 20% in September compared with the same time two years ago, according to the NPD Group. Higher demand for takeout containers, napkins and to-go cups are putting even more pressure on restaurants’ supply chains.
“It’s more than just food. It’s paper products, it’s plastics, it’s just everything — the packaging for the products that we get,” Penn Station East Coast Subs President Craig Dunaway said.
Packaging companies that manufacture takeout containers, straws and to-go cups for restaurants have had to deal with soaring costs for shipping containers, a nationwide labor crunch and spending more on key materials, like resin and paper.
No quick fix
For example, International Paper said in late October that it absorbed an additional $50 million of supply chain costs for its export operations in its latest quarter. The company no longer makes food service containers but does manufacture corrugated packaging and absorbent pulp, which can both be used for takeout packaging. CEO Mark Sutton told investors he is unsure when the supply chain will normalize, suggesting potentially the second half of 2022.
David Pokorny, a food packaging expert for Imperial Dade, counts Eataly, Bluestone Lane and Bareburger as customers. The sharp declines in restaurant demand and wave of closures hit orders, particularly for Manhattan eateries, but he said demand is now back to about 70% of pre-pandemic levels. Even with fewer orders, Pokorny still spends most of his day sourcing enough products for his customers.
“There’s literally no straws and very, very few clear, iced coffee drink cups,” he said. “There was such a shortage that people said, ‘I don’t care about the price, just send it to me.'”
Those shortages can be, in part, attributed to February’s ice storm in Texas. Petrochemical plants in the state shut down, triggering a plastics shortage that hasn’t been entirely resolved months later. And while petrochemicals are a key component of plastic straws and iced coffee cups, they are also used in making pizza and cake boxes for the latex that binds the layers of the packaging.
Pokorny said Imperial Dade’s size has helped the company source alternatives for restaurants, although some items can’t be replaced. The company has also stopped selling key products to other distributors, choosing to focus on filling orders for its primary restaurant clients. He said a big issue is that the company imports its private label products, so delays at ports have been a challenge. And many manufacturers have offshored production, so it’s not possible to just add more capacity domestically.
“It’s been a soul-sucking time, for lack of a better way to put it,” Pokorny said.
Managing inventory
For some restaurants, takeout containers have been harder to source because of the broader supply issues. U.S. Foods limited the number of cases that some Penn Station Subs’ franchisees could order due to labor challenges, putting pressure on operators to decide how they should manage their inventory. Dunaway said he is encouraging franchisees to stock up on nonperishable goods like branded napkins and cups before supplies run out.
“We have taken aggressive steps to minimize the impact of labor and supplier challenges on our customers. … To further mitigate potential impacts, we may also work closely with some customers in specific markets to temporarily adjust their orders while we manage through local challenges,” a spokesperson for U.S. Foods said in a statement to CNBC.
Rival food service supplier Sysco declined to comment on the supply chain challenges it is facing. However, it said it would update investors when it releases its fiscal first-quarter results Thursday.
And it isn’t just regional chains like Penn Station Subs that are facing challenges finding enough cups and containers. The Wall Street Journal reported this summer that coffee giant Starbucks was running low on cups in some cafes, although CEO Kevin Johnson denied the report on CNBC’s “Mad Money with Jim Cramer.”
But the shortages can lead to opportunities. Sara Burnett, who heads Panera Bread’s sustainability efforts, said its troubles finding packaging for its hot sandwiches prompted the chain to find an alternative that was more readily available and had less of an impact on the environment.
“We transitioned to a thermal wrap that is compostable, uses 60% less material, is easier to transport and has a significantly smaller footprint when it comes to how it is shipped,” she said. “It is one of those things that is really truly sustainable, meaning that it benefits both the business and it is better for the environment.”