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Bird Flu: What restaurants can do to overcome its impact

While financials for publicly traded restaurants remain positive remain positive overall, helped by lower cheese and wheat costs, many operators must still contend the impact of Avian Influenza.

June 9, 2015 by Nicole Troxell — Associate Editor, Networld Media Group

Avian Influenza is stretching the budgets of restaurant operators across the country, with a recorded 39 million bird deaths this year, according to a market report from FoodBuy, a foodservice procurement organization for North America. Iowa, a major egg-producing state, has lost 40 percent of its egg-laying hens, with 10 percent suffering nationwide.  

Consolidated Concepts Inc., a purchasing partner for more than 170 restaurant brands in the U.S., expects egg supplies to be limited for up to 18 months due to the impact of bird flu. According to the company, the egg market will be unable to compensate for its losses, all of which have caused a contraction in supply, leading to shortages and higher prices. Midwest egg prices rose in May, FoodBuy said, at more than 40 percent for shelled eggs and nearly 100 percent in the liquid egg market. Due to a tightening supply, egg manufacturers have announced production suspensions and price increases across the board, Consolidated Concepts said.

Despite the impact of Avian Influenza, research on the restaurant industry by BDO, an international network of public accounting, tax and advisory firms that perform professional services, shows positive results for publicly traded restaurants in Q1 2015. The company's Benchmarking Update found that same-store sales increased for fast casuals, pizzerias and QSRs. BDO said sales were bolstered by strong economic fundamentals and better weather conditions than in Q1 2014. Fast casual and pizza segments in particular experienced the most growth, at 8 percent and 6.6 percent, respectively in Q1 2015, while the pizza segment saw a dip in cost of sales. The company attributed the decrease in costs in part to the decrease in cheese and wheat prices. Cost of sales across other segments remained consistent, the company said.

The infographic below of BDO's research outlines segment averages for Q1 2015, focusing on commodities price indices fluctuations, the costs of sales and labor and prime costs:

Strategies for dealing with commodities constraints

While financials for publicly traded restaurants remain positive overall, helped by lower cheese and wheat costs, many operators must still contend with the impact of Avian Influenza on commodities. One restaurant, PizzaRev, a Los Angeles-based fast casual pizza chain, strategized to beat commodities price increases by establishing partnerships, including one with Buffalo Wild Wings. In turn, the company saw strong Q1 financials, said COO Nicholas Eckerman.

"Although many protein prices increased, we saw a reduction in prices because of the relationship Buffalo Wild Wings helped us form with Tyson. We also took advantage of a cheese hedge to successfully lock in cheese pricing for the first half of 2015. Overall, we were able to leverage economies of scale and our relationship with Buffalo Wild Wings to realize a reduction in cost of goods across our system," Eckerman said.

Consolidated Concepts suggests several ways restaurants can mitigate supply shortages. The company works with customers to prepare menus and recipes that reduce our dependency on eggs. In the event that liquid eggs are unavailable or no longer cost effective, operators can purchase shell eggs through their approved Broadliner or Produce House.

The company also recommends restaurant operators:

• Adjust menu pricing to reflect price increases;
• Substitute liquid eggs with shell eggs where appropriate, cage-free where available;
• De-emphasize or completely remove omelet bars from your menus;
• Remove egg-based dishes, such as frittatas and quiches, from your menus;
• Substitute smoothies, hot cereals, grain bars, fruit and granola for egg stations; and
• Shift to summertime continental breakfast menus where feasible.

Avian Influenza will have the largest impact on restaurant operators, bakeries and other foodservice producers, Consolidated Concepts said, with liquid eggs affected the most, while conventional shell eggs will remain largely unaffected.

Consolidated Concepts COO Bruce Reinstein recommended 10 best practices for mitigating the reduction in supply and working with supply chain vendors:

1. Do not procrastinate. The market is not coming down soon.
2. Adjust menu pricing to reflect price increases.
3. Substitute liquid eggs with shell eggs where appropriate, cage free where available.
4. De-emphasize eggs on menus and pull them from LTOs.
5. Adjust buffets where eggs are not positioned first.
6. Substitute smoothies, hot cereals, grain bars, fruit and granola for egg stations.
7. Shift to summertime continental breakfast menus where feasible.
8. Be flexible on the egg brand and size of package in order to have supply.
9. Be open to specification changes. Frozen or liquid eggs may be the only option.
10. Look at options outside your current distributor.

"There is a lot of panic about the shortage, but I believe restaurants will adjust where necessary and will ride out the storm," said Wade Winters, vice president of supply chain for Consolidated Concepts. "Menu options will get adjusted and menu prices will get adjusted. Customers will understand if the all-you-can-eat omelet station isn’t going to be available for a few months.

"Due to the geography of where the virus has been identified, only the egg-laying chicken flocks have been affected since they are predominately located in the Midwest. Fresh eggs and liquid eggs will be impacted for an estimated eight months until facilities can be prepared, inventories can be replenished and production can ramp up again," Winters said. "The virus cannot survive in the warmer temperatures and more intense UV light so the recent number of cases has stopped. However, there are fears that another outbreak could surface again in the fall when the waterfowl migrate again, but the industry will be better prepared by then."

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