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Weak Foodservice Capacity Lifts Restaurant Costs · Choppin’ It Up by Bloomberg Intelligence

• 0:22
  Speaker 1: Welcome to Chopping It Up. I'm your host Mike Hanlon,
• 0:25
  Speaker 1: the senior Restaurant and Food Service analyst at Bloomberg Intelligence.
• 0:28
  Speaker 1: Today we're joined by David Maloney. David is the founder
• 0:31
  Speaker 1: of datam Fs, a supply chain consultancy. He's the host
• 0:35
  Speaker 1: of the Farm to Fork podcast and partner in the
• 0:38
  Speaker 1: Pastry Art Cafe in Sarasota. So thanks for taking time
• 0:42
  Speaker 1: away from your many jobs to do this, David.
• 0:45
  Speaker 2: Thanks for having me.
• 0:46
  Speaker 1: Mike. Sure thing and we were just catching up quick
• 0:49
  Speaker 1: before the podcast, and he told me you gave up
• 0:51
  Speaker 1: beer for lent. So you're an IPA guy, right. Do
• 0:54
  Speaker 1: you have any I pas right now that well prior
• 0:59
  Speaker 1: to Lent that you were especially enjoying. Sure?
• 1:01
  Speaker 3: Yeah, I prefer the locals. So Sarasota, we have two
• 1:04
  Speaker 3: big breweries. Matter of fact, there's a one of them,
• 1:07
  Speaker 3: Big Top. There's a big circus. The Ringling Brothers wintered
• 1:13
  Speaker 3: here and so there's a lot of circus. There's a
• 1:17
  Speaker 3: circus museum, there's all kinds of stuff in here.
• 1:19
  Speaker 2: So Big Top is the main one of the big breweries.
• 1:22
  Speaker 3: And actually they're opening up a beer garden about ten
• 1:24
  Speaker 3: minutes down the road this month. So it's a celebration
• 1:28
  Speaker 3: of being over and me giving up beer, I guess.
• 1:31
  Speaker 3: And there's another one that's one National War Award. It's
• 1:38
  Speaker 3: a small brewery called Caloosa, which was the Indians that
• 1:43
  Speaker 3: were here settled in this area of Florida named after them,
• 1:47
  Speaker 3: and they have a zote that is pretty good. As
• 1:50
  Speaker 3: matter of fact, I'm pretty sure that's my Easter basket
• 1:53
  Speaker 3: is for sixteen ounce zots for Sunday.
• 1:56
  Speaker 1: Nice man. You know those sixteen ounce IPAs will get
• 1:59
  Speaker 1: you too, man.
• 2:00
  Speaker 3: Oh, I know, they're too big. That's why I never
• 2:03
  Speaker 3: buy them. They're just too big.
• 2:05
  Speaker 1: Yeah. There's one of the New York Industrial arts. They're
• 2:08
  Speaker 1: excellent and super strong. And the first time I drank them,
• 2:11
  Speaker 1: it was like a real hot summer day. It was
• 2:12
  Speaker 1: like pre gaming for a Metallica concert, and they went
• 2:15
  Speaker 1: down really really fast, and I was like, well, I
• 2:17
  Speaker 1: got to slow down here, you know. And I've been
• 2:20
  Speaker 1: introduced to Zombie Dust recently. It's a Midwest brewery maybe
• 2:24
  Speaker 1: Zombie ducks Dust. Zombie Dust all right, cool artwork too, Yeah,
• 2:29
  Speaker 1: check them out. And so you were mentioning you substituted
• 2:33
  Speaker 1: with a different alcohol.
• 2:37
  Speaker 2: Yeah, I did.
• 2:39
  Speaker 3: I'm not much of a liquor fan, but I am
• 2:42
  Speaker 3: a more garita fan, and.
• 2:44
  Speaker 2: So I decided, well, I'll buy a bottle.
• 2:47
  Speaker 3: Tequila, a good bottle tequila, and I dog this the
• 2:52
  Speaker 3: length of tequila. I think I've not that I drink
• 2:55
  Speaker 3: that much, folks, but I really don't. I have a
• 2:58
  Speaker 3: couple of beers or I wondered who drinks. I love
• 3:00
  Speaker 3: a nice glass of wine when I'm cooking. But it's uh,
• 3:05
  Speaker 3: I've probably drank more tequila this this Lent than I've
• 3:09
  Speaker 3: drinking in the last decade, at least, that's what I've
• 3:12
  Speaker 3: followed my friends.
• 3:13
  Speaker 1: Well, I'm a tequila fan.
• 3:15
  Speaker 3: Uh.
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  Speaker 1: You know, there's plenty of brands I like, but I'm
• 3:18
  Speaker 1: big on G four.
• 3:19
  Speaker 3: So if you come four, all right, I'm gonna need
• 3:22
  Speaker 3: to detox from tequila for a while.
• 3:24
  Speaker 1: So well, you know, probiotics, it's supposed to be the
• 3:29
  Speaker 1: best alcohol for you. So okay, cool, all right, let's
• 3:33
  Speaker 1: let's jump in. How's business at the cafe?
• 3:36
  Speaker 2: You know, it's good.
• 3:38
  Speaker 3: It's good, you know, generally Sarasota, and we're located on
• 3:42
  Speaker 3: Main Street downtown Sarasota. We bought it two and a
• 3:44
  Speaker 3: half years ago. It's been there for thirty years. We
• 3:49
  Speaker 3: have probably the best patio in downtown historic Sarasota. I
• 3:53
  Speaker 3: mean it's a great spot. You know, everybody comes in there,
• 3:56
  Speaker 3: the mayor comes in there. I mean, it is the community.
• 3:59
  Speaker 3: It's the heartbeat of downtown Sarasota, you know, Sarah. Florida
• 4:05
  Speaker 3: in general, I think struggling with when I say struggling,
• 4:09
  Speaker 3: tourist business isn't quite what it was the last couple
• 4:13
  Speaker 3: of years. And I think part of that is we
• 4:14
  Speaker 3: have a lot more competition now. We were kind of
• 4:17
  Speaker 3: the destination of choices. We were one of the only
• 4:19
  Speaker 3: ones that were fully open, So you know, I think that,
• 4:25
  Speaker 3: and you know, let's face it, as an industry, we've
• 4:28
  Speaker 3: raised our prices. I mean, we at the Cafe haven't
• 4:31
  Speaker 3: raised our prices in over fifteen months, but you know,
• 4:35
  Speaker 3: we probably had fifteen percent price increases since we bought
• 4:38
  Speaker 3: it two and a half years ago.
• 4:41
  Speaker 2: So we have that.
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  Speaker 3: We have more competition as Florida gets more crowded to
• 4:45
  Speaker 3: you know, as far as so, but our traffic is down.
• 4:48
  Speaker 3: And I'm hearing this consistently downtown, from high end restaurants
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  Speaker 3: to to QSR is down ten percent or so year
• 4:58
  Speaker 3: on year, which is tough, but you know, it also
• 5:02
  Speaker 3: forces you to get smarter about your business. And we
• 5:05
  Speaker 3: have and we're making money. And if you can say
• 5:08
  Speaker 3: that in this business, you're doing pretty well.
• 5:11
  Speaker 1: Yeah for sure. All right, good stuff. So let's get
• 5:14
  Speaker 1: into datam fs. Who's the typical customer and what services
• 5:18
  Speaker 1: are you providing them?
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  Speaker 3: Yeah, so we're a consultancy of actually a group of
• 5:23
  Speaker 3: fifteen mostly retired or near retired supply chain executives or consultants,
• 5:33
  Speaker 3: some in food service distribution, some in food manufacturing, you know,
• 5:40
  Speaker 3: for big brands like Procter and Gamble, And you know,
• 5:45
  Speaker 3: we all have different talents. You know, mine in particular
• 5:47
  Speaker 3: is more in the data supply chain commodities, which we're
• 5:50
  Speaker 3: going to talk about today. You know a lot of
• 5:53
  Speaker 3: the other partners have obviously different expertise, but we all
• 6:00
  Speaker 3: one passion and that that passion is to see the
• 6:03
  Speaker 3: food service supply chain evolve. And I think you know
• 6:07
  Speaker 3: what what COVID did to the food service supply chain
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  Speaker 3: is that one it exposed it that that it needs
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  Speaker 3: some help, but it also raised raised the the expectation
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  Speaker 3: and performance and the food service supply chain and the
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  Speaker 3: importance within the organizations. So I I I think this.
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  Speaker 3: You know, we all want to see this, this food
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  Speaker 3: service supply chain evolve at least a little bit faster
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  Speaker 3: than it is. And you know, we think that the
• 6:46
  Speaker 3: that you know, we have a passion for that and
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  Speaker 3: all this compounded knowledge that we've have, we can help
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  Speaker 3: it get there and that's our goal.
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  Speaker 1: Great, all right, So my mentor always taught me to
• 6:57
  Speaker 1: start from the very beginning. Uh, when I'm doing my research,
• 7:00
  Speaker 1: So how our feed and fertilizer costs tracking versus last year?
• 7:05
  Speaker 1: And what's your outlook?
• 7:06
  Speaker 3: Yeah, so we have good news there, right, So corn,
• 7:12
  Speaker 3: the corn and soybean crops domestically were much better than
• 7:15
  Speaker 3: the last couple of years. You know, weather was much better,
• 7:20
  Speaker 3: acres acres, particularly for corn, we're very strong. So we've
• 7:26
  Speaker 3: got historically adequate to almost ample corn supplies domestically. Soybean
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  Speaker 3: supplies you could make the argument that they're borderline tight
• 7:37
  Speaker 3: to adequate. Well, we're going to see bigger soybean acres
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  Speaker 3: this year in the United States, and so I'm optimistic
• 7:44
  Speaker 3: if these cop crops can perform that we're going to
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  Speaker 3: see even better supplies as we get into twenty twenty five.
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  Speaker 3: So the trend and feed, which is extremely important for
• 7:53
  Speaker 3: the food service industry and retailers for costs, particularly for
• 7:58
  Speaker 3: proteins and dairy, the trend and is down. We are
• 8:03
  Speaker 3: seeing that across the board with soybean meal, corn, even
• 8:08
  Speaker 3: soybean oil, wheat supplies are down. So that's a very
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  Speaker 3: good sign at least for commodity prices over the next
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  Speaker 3: couple of years.
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  Speaker 1: Great, and then is there a lag in how long
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  Speaker 1: we might see that kind of yeah.
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  Speaker 3: So, so you know, for restaurants, restaurants don't really buy feed,
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  Speaker 3: right they buy they buy the proteins and the dairy
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  Speaker 3: from from where feed can be a major cost component
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  Speaker 3: in that production.
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  Speaker 2: So it differs.
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  Speaker 3: So typically the poultry industry, of the chicken industry will
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  Speaker 3: react much faster, right, that lag will be much shorter.
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  Speaker 3: And we can talk about that more in a minute.
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  Speaker 3: I mean, but you're kind of seeing that dynamic right
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  Speaker 3: now where where we've seen poultry producers, at least on
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  Speaker 3: the spot markets, their margins are some of the best
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  Speaker 3: we've seen in almost two years. So and chicken producers
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  Speaker 3: typically aren't very disciplined with production and so you know,
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  Speaker 3: it wouldn't surprise me if we see much better chicken
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  Speaker 3: supplies this fall. Then a lot of anticipating right now
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  Speaker 3: or we expected, you know, just a couple months ago,
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  Speaker 3: so you have that kind of kind of quick lag.
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  Speaker 2: And then if you if you kind of take it.
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  Speaker 3: To the next stretched step, which would be hogs or pork,
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  Speaker 3: which is not really that big of an item for restaurants,
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  Speaker 3: all right, but you're going to go into so if
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  Speaker 3: you kind of think about chickens would be quarters, you know,
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  Speaker 3: a couple I'm sorry, a couple months reaction, three or
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  Speaker 3: four depending on how many what the layer, the broiler
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  Speaker 3: layer situation is. Then you would have hogs, which might
• 9:53
  Speaker 3: be quarters. It takes a couple of quarters or so
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  Speaker 3: two or three quarters. And then you get into cattle,
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  Speaker 3: which is extremely important for the restaurant industry. Now we're
• 10:02
  Speaker 3: talking years, right, and we have a particularly historic situation
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  Speaker 3: going on right now in cattle.
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  Speaker 1: Yeah, and we'll talk about that in a second. But
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  Speaker 1: and is that mainly a function of how long it
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  Speaker 1: takes to grow those animals to full size?
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  Speaker 2: Sure? Yeah, for sure, yep.
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  Speaker 1: Okay, great, So yeah, beef inflation, man, to your point
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  Speaker 1: continues to be a big talking point for all the
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  Speaker 1: restaurant companies we cover. Talk to us about the current
• 10:31
  Speaker 1: dynamics in that market and how long you think it
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  Speaker 1: will take for supply to catch up with demand.
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  Speaker 3: Yeah, so it's going to the answer the last part
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  Speaker 3: of your question.
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  Speaker 2: It's going to take a while. Right.
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  Speaker 3: We are in a downward cycle and the cattle herd
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  Speaker 3: and you know, and that downward cycle takes years, and
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  Speaker 3: it takes years to recover, so.
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  Speaker 2: You know, and what drives that.
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  Speaker 3: There's several issues that can drive, but high feed prices
• 11:03
  Speaker 3: the feed lots.
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  Speaker 2: Can dampen demand for the animals.
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  Speaker 3: You've particularly got drought in the southern planes, which we've
• 11:11
  Speaker 3: had over the last couple of years. Very hard for
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  Speaker 3: the ranchers to expand if they don't have grass, right,
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  Speaker 3: very hard, I mean possible.
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  Speaker 1: Right.
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  Speaker 3: So we've had that cycle, and yes, the drought has improved,
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  Speaker 3: and we can talk about that more in a minute, but.
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  Speaker 2: Just to give you.
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  Speaker 3: Perspective, the last time we went through this cycle, beef
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  Speaker 3: production peaked in two thousand and eight. We did not
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  Speaker 3: return to two thousand and eight beef production levels until
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  Speaker 3: twenty and eighteen. Wow, I'm not saying it's going to
• 11:47
  Speaker 3: take a decade, but this is not going to be
• 11:50
  Speaker 3: fixed next year or the year after. And yeah, we
• 11:52
  Speaker 3: may see better beef supplies. I think we're going to
• 11:56
  Speaker 3: see smaller beef supplies in twenty five. We may ac
• 12:00
  Speaker 3: better beef supplies than twenty six, But if we look
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  Speaker 3: at our peak level, which would be twenty twenty two,
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  Speaker 3: it's gonna be at least twenty twenty eight. As a
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  Speaker 3: matter of fact, the USDA, I think and their long
• 12:12
  Speaker 3: term projections doesn't have beef production returning to twenty twenty
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  Speaker 3: two levels until two thousand and thirty two.
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  Speaker 1: Wow. And so they're building, and they're in the process
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  Speaker 1: of building the herd, and that's part of the.
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  Speaker 2: Well, we haven't seen that yet, right.
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  Speaker 3: So we get a semi annual report from from the
• 12:29
  Speaker 3: USDA on the cattle herd, the size of the cattle herd,
• 12:33
  Speaker 3: and we got one at the end of January, and
• 12:35
  Speaker 3: that was for January.
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  Speaker 2: One, and the cattle herd was down.
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  Speaker 3: Now there are things that I look for when we
• 12:42
  Speaker 3: get our next report in the end of July. The
• 12:47
  Speaker 3: conditions are there for them to expand. So certainly, let's
• 12:51
  Speaker 3: just say, the watch is on, right, But.
• 12:56
  Speaker 2: What I'm looking for is is.
• 13:02
  Speaker 3: Less female animals in the slaughter mix or less female
• 13:06
  Speaker 3: animals in the feed lots. And the idea is is
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  Speaker 3: there will be less at least as a percentage of
• 13:16
  Speaker 3: a share of the total animals. There will be less
• 13:18
  Speaker 3: because they're being retained to expand the hurt. And I
• 13:23
  Speaker 3: haven't really seen that yet. Now, I will say, if
• 13:26
  Speaker 3: you look at kind of you think of it this way,
• 13:28
  Speaker 3: And this is probably one of the most important markets
• 13:31
  Speaker 3: for a lot of the restaurants you cover. But it's
• 13:35
  Speaker 3: the beef trim markets, which typically go into Hamburger.
• 13:38
  Speaker 1: Right.
• 13:39
  Speaker 3: The beef, the leaner beef trim, meaning not as much fat,
• 13:43
  Speaker 3: typically comes from your working cows. Okay, so your mama cows,
• 13:48
  Speaker 3: your dairy cows, et cetera. Those prices right now are
• 13:53
  Speaker 3: at record highs and seasonally they should continue to go higher,
• 14:00
  Speaker 3: and they're a full eight percent above the peak last
• 14:03
  Speaker 3: year already. That suggests to me that, hey, maybe some
• 14:09
  Speaker 3: of these cows are being.
• 14:11
  Speaker 1: Retained, gotcha, And so that's going to hurt near term
• 14:14
  Speaker 1: supply if that happens. Got it? Very interesting? All right? Uh?
• 14:21
  Speaker 1: You know we you touched on pork a little bit.
• 14:24
  Speaker 1: But yeah, breakfast is important for me. I I fast intermittently,
• 14:29
  Speaker 1: so I don't need too during breakfast time. But ye,
• 14:32
  Speaker 1: all day breakfast is great man. That's how I love
• 14:34
  Speaker 1: New Jersey diners, you know. Yeah, so is avion flu
• 14:39
  Speaker 1: still impacting the egg market? And and what's happening in
• 14:42
  Speaker 1: pork bellies and sALS? Are my bacon and sausa's price
• 14:45
  Speaker 1: is going to go up this year?
• 14:47
  Speaker 3: Okay, well let's start with the pork. The pork one
• 14:49
  Speaker 3: is easier, so they will start there. So, yeah, pork
• 14:54
  Speaker 3: prices might be a little bit more expensive this year.
• 14:56
  Speaker 3: But but but we got some data from the USDA
• 14:59
  Speaker 3: the in December. The hog herd is is we get
• 15:04
  Speaker 3: that data quarterly instead of semi annual.
• 15:08
  Speaker 2: The hog herd is bigger than we anticipated.
• 15:11
  Speaker 3: Pork production is going to be up pretty strong, particularly
• 15:13
  Speaker 3: the back half of this year, so we may see
• 15:18
  Speaker 3: some stronger retail feature activity for pork, which should lift those.
• 15:21
  Speaker 2: Markets at times.
• 15:23
  Speaker 3: Right, But I don't really don't think they're going to
• 15:25
  Speaker 3: run away from US, and I think pork is going
• 15:29
  Speaker 3: to be just fine, So you'll be good on your bacon.
• 15:34
  Speaker 2: As far as avian flu.
• 15:36
  Speaker 3: So the good news with avian flu and table legs
• 15:40
  Speaker 3: is we haven't really had any cases for about two
• 15:43
  Speaker 3: months or a little bit over two months, but we
• 15:47
  Speaker 3: had quite a few cases in that migratory period where
• 15:51
  Speaker 3: the birds were migrating there during the fall and into
• 15:55
  Speaker 3: the winter into the early winter. The number of broiler
• 16:01
  Speaker 3: i'm sorry, table egg layers. When I say layers, I
• 16:04
  Speaker 3: mean like a hen who's laying the eggs, right, Those
• 16:08
  Speaker 3: were down on the latest USDA report, So that would
• 16:11
  Speaker 3: be the March one number about one percent year on year,
• 16:15
  Speaker 3: So that's the first time we've fallen below year ago levels.
• 16:18
  Speaker 3: As a matter of fact, it's the first time that
• 16:20
  Speaker 3: March has been below i'm sorry, only the third time
• 16:23
  Speaker 3: in the last seven years that March has been below February.
• 16:26
  Speaker 3: So it's definitely impacting the number of layers we have.
• 16:31
  Speaker 3: The egg prices are much more expensive than we anticipated
• 16:35
  Speaker 3: anticipated them to be probably six months ago or before
• 16:39
  Speaker 3: that avian flew. And even if we don't have any
• 16:42
  Speaker 3: other cases, this is likely the impact the table eggs
• 16:47
  Speaker 3: supply markets for probably at least into the summer. And
• 16:52
  Speaker 3: so you know, we got through Easter already that's our
• 16:55
  Speaker 3: big demand, right, I mean, the pool for Easter is done,
• 17:00
  Speaker 3: so it's not that we I expect them to run
• 17:04
  Speaker 3: significantly higher. But but the down seasonal downside could be tempered.
• 17:09
  Speaker 1: Interesting, And is there any concern that you know, uh,
• 17:12
  Speaker 1: the like my spring migration could spread.
• 17:15
  Speaker 2: A for sure?
• 17:17
  Speaker 3: Yeah, yeah, sure, sure, So it's certainly something we have
• 17:20
  Speaker 3: to watch. But you know, I mean there's always avian
• 17:24
  Speaker 3: flu every year, right.
• 17:27
  Speaker 2: You know, we had a.
• 17:28
  Speaker 3: Couple of years ago we had really bad for table leggs.
• 17:33
  Speaker 3: We're always going to have it, you know, I would
• 17:35
  Speaker 3: say that, you know, the the US poultry industry is
• 17:43
  Speaker 3: very good and becoming better and better at insulating itself
• 17:48
  Speaker 3: from it. So you know, my hope is it won't
• 17:51
  Speaker 3: be as bad.
• 17:53
  Speaker 1: Okay, cool?
• 17:54
  Speaker 3: Uh?
• 17:54
  Speaker 1: And finishing up on breakfast coffee prices, they're up year
• 17:58
  Speaker 1: over year. What's your twenty twenty four outlook?
• 18:01
  Speaker 3: Yeah, so, I mean we've had some challenges in Brazil.
• 18:06
  Speaker 3: You have some challenges with robust to crops, you know,
• 18:10
  Speaker 3: not quite honestly not my area of great area of expertise,
• 18:14
  Speaker 3: but you know, fairly inflated prices are.
• 18:16
  Speaker 2: Likely to persist for coffee.
• 18:18
  Speaker 3: But but not expected to run away from where we're
• 18:21
  Speaker 3: at today.
• 18:23
  Speaker 1: But that's a pretty delicate crop, right and something that
• 18:28
  Speaker 1: you know, one bad frost or oh for.
• 18:31
  Speaker 3: Sure, yeah, for sure, and it could it can then
• 18:35
  Speaker 3: it can impact supplies for a couple of years.
• 18:39
  Speaker 1: Right, Okay, yep, yeah, so uh it being volatile, it's
• 18:43
  Speaker 1: definitely something we watch closely for Starbucks Tim Horton's coffee chains.
• 18:50
  Speaker 1: Milk and cheese prices are way down year over year.
• 18:52
  Speaker 1: Do you expect that to continue?
• 18:54
  Speaker 2: Well, I'll tell you so.
• 18:56
  Speaker 3: Uh. It's interesting that the the milk milk production has
• 19:03
  Speaker 3: been tracking below year ago levels and typically when you
• 19:06
  Speaker 3: see that, you would see much higher cheese prices, and
• 19:10
  Speaker 3: we're not seeing it this year.
• 19:12
  Speaker 2: And let me step back.
• 19:13
  Speaker 3: One of the reasons that milk production is tracking below
• 19:15
  Speaker 3: ye ago levels relates.
• 19:17
  Speaker 2: Back to the cattle situation.
• 19:20
  Speaker 3: So what happens is when cow supplies, remember those working cows,
• 19:25
  Speaker 3: get very tight, prices go up for them, and so
• 19:29
  Speaker 3: the dairy farmers kind of have these low milk prices.
• 19:32
  Speaker 3: In the last couple of years, they've had high feed prices,
• 19:34
  Speaker 3: including high alfalfa hay prices. There's an incentive for them
• 19:40
  Speaker 3: to liquidate some of their lesser performing cows, right, and
• 19:45
  Speaker 3: so those cow prices are high, and so they liquidate them.
• 19:49
  Speaker 3: So the cattle herd, that dairy cow herd is declining,
• 19:53
  Speaker 3: and milk production is declining in part because what's going on.
• 19:56
  Speaker 2: With cattle right now.
• 19:58
  Speaker 3: Back to cheese, but cheese just doesn't seem want to
• 20:01
  Speaker 3: go up. And what's interesting with cheese right now is
• 20:05
  Speaker 3: I run a rough disappearance model on it, and disappearance
• 20:08
  Speaker 3: meaning you know, we kind of relate that to consumption,
• 20:11
  Speaker 3: but we don't really know what.
• 20:12
  Speaker 2: Happens to it.
• 20:13
  Speaker 3: Right The disappearance model on cheese here in the United States,
• 20:20
  Speaker 3: the growth is the twelve month average of that growth
• 20:23
  Speaker 3: is just zero point three percent.
• 20:25
  Speaker 2: To give you some.
• 20:26
  Speaker 3: Perspective, that is the smallest growth that we've seen, not
• 20:33
  Speaker 3: including COVID, in over a decade. So something's going on
• 20:38
  Speaker 3: there that I haven't been able to point my finger
• 20:40
  Speaker 3: on yet.
• 20:41
  Speaker 2: Could be prior high prices.
• 20:44
  Speaker 3: You know, I know, I eat less cheese probably than
• 20:47
  Speaker 3: I did ten or I love cheese right like my
• 20:50
  Speaker 3: IPA's all right, So.
• 20:53
  Speaker 1: But I drink less IPAs and I eat less cheese.
• 20:56
  Speaker 1: The older I get, you know, exactly.
• 20:58
  Speaker 3: So what I'm trying to you know, remember when we
• 21:00
  Speaker 3: were young and you would say, oh, yeah, but but
• 21:04
  Speaker 3: they're old, And now I kind of look at myself
• 21:06
  Speaker 3: and well I have to try to try to go
• 21:08
  Speaker 3: back and say, well, I don't understand what my kids
• 21:10
  Speaker 3: are doing, but I'm old.
• 21:13
  Speaker 2: So what's the difference?
• 21:14
  Speaker 1: Right? So, for sure, and wet it's been on sale,
• 21:22
  Speaker 1: should we expect continued weakness in that market?
• 21:25
  Speaker 2: So you've got probably not right now.
• 21:29
  Speaker 3: I don't expect it to run away from this, but
• 21:31
  Speaker 3: you've got some challenges with the winter wheat crop here
• 21:34
  Speaker 3: in the United States, but which is not abnormal, you know,
• 21:38
  Speaker 3: And from the February weather numbers showed that the winter
• 21:44
  Speaker 3: week country was still in drought and over fifty percent
• 21:47
  Speaker 3: of the of the US crop is is winter week
• 21:50
  Speaker 3: and so is it dire? No?
• 21:53
  Speaker 2: But is it? Uh? You know, we've been in whek.
• 21:56
  Speaker 3: This will be the third consecutive winter that winter wheat's
• 21:59
  Speaker 3: been in a drought, and it'll be the and it's
• 22:02
  Speaker 3: not as bad as the prior to winters. So I
• 22:05
  Speaker 3: think what we're going to see is very similar supplies
• 22:07
  Speaker 3: and similar prices. Now will if we do if those
• 22:11
  Speaker 3: corn and soybean crops perform this summer. Uh, then that
• 22:17
  Speaker 3: could pull wheat down into twenty five some and it could,
• 22:21
  Speaker 3: but then eventually it might also encourage some acreage. So
• 22:25
  Speaker 3: we'llhaps see, you know, if we're going to see weakness,
• 22:29
  Speaker 3: maybe we see if we get if we get a
• 22:31
  Speaker 3: bumper spring wheat crop, and that's that's more important for
• 22:35
  Speaker 3: the restaurant industry because that's your higher protein weeks. That's
• 22:38
  Speaker 3: your Durham wheat. That's your hard red spring wheat, Durham
• 22:42
  Speaker 3: wheat going into pasta's hard red spring going into typically bagels,
• 22:47
  Speaker 3: pizza doughs, et cetera. I mean, maybe if we get
• 22:49
  Speaker 3: a bumper, but there is drought developing in the northern
• 22:53
  Speaker 3: plains typically where those crops are.
• 22:57
  Speaker 2: Make a home.
• 22:58
  Speaker 1: Okay, but it seems like generally good news for the
• 23:03
  Speaker 1: pizza chains. The last couple of points, you know, between
• 23:06
  Speaker 1: cheese and wheat.
• 23:08
  Speaker 3: Yeah, I will say this about cheese. The risk in
• 23:12
  Speaker 3: the cheese markets is likely not to the downside from here,
• 23:16
  Speaker 3: God right, And look, I would say the cure for
• 23:19
  Speaker 3: low prices is always low prices, just like the cure
• 23:23
  Speaker 3: for high high prices.
• 23:24
  Speaker 2: So so.
• 23:28
  Speaker 3: I would be surprised if cheese prices aren't higher later
• 23:33
  Speaker 3: this year or twenty twenty five.
• 23:36
  Speaker 1: Gotcha, Okay, And just to kind of put a wrap
• 23:39
  Speaker 1: a bow around you know, this whole segment. What about
• 23:43
  Speaker 1: the other input costs like distribution and labor.
• 23:46
  Speaker 3: Yeah, so, so you know, I model a commodity index
• 23:51
  Speaker 3: generally for the industry, and then I kind of break
• 23:53
  Speaker 3: that out and actually can break it out per brand
• 23:57
  Speaker 3: if that brand is interested. That commodity index has been
• 24:02
  Speaker 3: tracking below prior year now for several months, but it
• 24:08
  Speaker 3: is on the rise, and it is expected to climb
• 24:11
  Speaker 3: above prior year next month at least per my forecast,
• 24:15
  Speaker 3: and then trend above it pretty much for most of
• 24:17
  Speaker 3: the rest of the year. Not to be over alarming,
• 24:20
  Speaker 3: we have some pretty good comps compared to last year,
• 24:23
  Speaker 3: so but it is projected climb above prior year. But
• 24:28
  Speaker 3: even with those lower input costs as a whole, obviously,
• 24:32
  Speaker 3: beef is higher right right now, Chicken is higher than.
• 24:35
  Speaker 2: A year ago.
• 24:37
  Speaker 3: But even with these lower input costs, there's still a
• 24:40
  Speaker 3: lot of cost within the supply chain that are going up.
• 24:44
  Speaker 3: First and foremost is distribution capacity. And we talked about
• 24:48
  Speaker 3: that when I interviewed you right on farm to fork
• 24:51
  Speaker 3: distribution capacity is tight, very tight. You know, prior to five, six,
• 24:57
  Speaker 3: seven years ago, distribution capacity was much better compared to
• 25:04
  Speaker 3: the number of restaurants. And what the restaurant industry did, uh,
• 25:09
  Speaker 3: and and they're paying the price for it now is
• 25:11
  Speaker 3: a lot of them they could find margin or savings
• 25:14
  Speaker 3: by doing an RFP on distribution and switching and really
• 25:19
  Speaker 3: kind of hammering these these distributors. Not saying everybody did it,
• 25:24
  Speaker 3: but a lot of people did. Right now that situations
• 25:28
  Speaker 3: kind of flipped and in some cases we've heard of
• 25:31
  Speaker 3: distributors firing restaurants and restaurant chains. Yeah and so, yeah,
• 25:39
  Speaker 3: and so the restaurant the distributors rates have gone up
• 25:46
  Speaker 3: about thirty percent over the last thirty forty three or
• 25:50
  Speaker 3: four years.
• 25:50
  Speaker 2: So that's a cost that's added to it.
• 25:52
  Speaker 3: And let's face it, they have rising costs too, like
• 25:56
  Speaker 3: warehousing labor, dry all that labor is way up and
• 26:02
  Speaker 3: as a matter of fact, warehousing labor that the supply
• 26:06
  Speaker 3: is extremely tight, and warehousing labor is outpacing overall labor
• 26:13
  Speaker 3: inflation and any other part in the food service supply chain.
• 26:17
  Speaker 2: So they have rising costs too, and you know.
• 26:19
  Speaker 1: They're investing in their sales teams too. Yeah.
• 26:21
  Speaker 2: Yeah.
• 26:21
  Speaker 1: The larger chains that we're covering, Cisco and US Foods, Yeah,
• 26:24
  Speaker 1: continue to.
• 26:26
  Speaker 3: So there's those costs going up there. Food manufacturing costs
• 26:29
  Speaker 3: are up, you have, and obviously labor into food manufacturing
• 26:35
  Speaker 3: is going up as well, and that's outpacing overall labor
• 26:38
  Speaker 3: inflation too. We've had some freight weakness here in the
• 26:44
  Speaker 3: United States, but ocean freight typically what's going on, particularly
• 26:48
  Speaker 3: with red Sea et cetera, is up substantially. So there
• 26:52
  Speaker 3: are a lot of costs in there that that are
• 26:54
  Speaker 3: are impacting the cost of goods for these restaurants. So
• 26:59
  Speaker 3: even though the command of these in some cases may
• 27:01
  Speaker 3: be down, their product prices are up because of these
• 27:04
  Speaker 3: other costs.
• 27:05
  Speaker 1: Yeah. Yeah, it's interesting and you know, we spoke on
• 27:10
  Speaker 1: your podcast. Is part of the reason why I watched
• 27:13
  Speaker 1: gasoline and oil prices so closely. Got to ship this
• 27:17
  Speaker 1: stuff all over the country, right, all right? Required compliance
• 27:22
  Speaker 1: with the Food Safety Modernization Act Rule two oh four
• 27:25
  Speaker 1: will be here before we know it. What is it
• 27:28
  Speaker 1: and what does it mean for food service companies?
• 27:30
  Speaker 3: Okay, so a lot of people will refer to it
• 27:32
  Speaker 3: a THISMA two o four. Like Mike just said, it's
• 27:35
  Speaker 3: the Food Safety Modernization Act, and it's Rule two zero four,
• 27:40
  Speaker 3: which basically puts the onus on recalls and traceabilities to
• 27:45
  Speaker 3: the parties within the supply chain, and that actually went
• 27:50
  Speaker 3: into law in January of two thousand and twenty three.
• 27:55
  Speaker 3: But there's a grace period until for a three year
• 27:58
  Speaker 3: grace period, so really everybody's expected to be to fully
• 28:02
  Speaker 3: comply by January twenty twenty six. I think it's January
• 28:08
  Speaker 3: twenty if there's a data in there somewhere. So basically, restaurants,
• 28:14
  Speaker 3: and again I'm not a full expert in this, but
• 28:16
  Speaker 3: restaurants do have some responsibility on their receiving records if
• 28:22
  Speaker 3: there is a recall or a whole event that the
• 28:25
  Speaker 3: FDA comes calling, and they have to be able to
• 28:28
  Speaker 3: produce those records within twenty four hours, which seems kind
• 28:32
  Speaker 3: of simple, but it's not.
• 28:35
  Speaker 2: The distribution.
• 28:36
  Speaker 3: The food manufacturing, distribution restaurant industry as a whole has
• 28:41
  Speaker 3: not done a very good job of collaborating.
• 28:46
  Speaker 2: With data.
• 28:51
  Speaker 1: At all.
• 28:51
  Speaker 3: Really, in a way, has driven a lot of inefficiencies
• 28:56
  Speaker 3: for the industry, and it has been a major challenge,
• 29:02
  Speaker 3: so you know it FISMATUO four.
• 29:08
  Speaker 2: My hope is is that.
• 29:10
  Speaker 3: It will be kind of tipping point for the industry
• 29:12
  Speaker 3: towards more collaboration.
• 29:13
  Speaker 2: But I have my doubts because.
• 29:16
  Speaker 3: As I mentioned earlier, you know, the distributors really are
• 29:19
  Speaker 3: kind of to me that the gatekeeper of all that information.
• 29:23
  Speaker 3: Right They're the minimum, They're the ones dealing with the
• 29:25
  Speaker 3: food manufacturers, and they're the ones going to the stores.
• 29:28
  Speaker 3: They're the one negotiating with the corporate entities. Right now,
• 29:32
  Speaker 3: the food distributors have all the leverage in this and
• 29:36
  Speaker 3: because distribution capacity is so tight, and probably a lot
• 29:40
  Speaker 3: of them or remember pre COVID when they were beat
• 29:43
  Speaker 3: up pretty good by a lot of these restaurant companies,
• 29:45
  Speaker 3: and you know, the tendency is is maybe to not
• 29:50
  Speaker 3: be as friendly back when they have the leverage, right.
• 29:53
  Speaker 3: But I think that when push comes to shove, those
• 29:58
  Speaker 3: who can think the most strategically and can see the benefits,
• 30:03
  Speaker 3: and the benefits really are if that data and collaboration
• 30:07
  Speaker 3: can occur throughout the supply chain, which seems extremely simple
• 30:11
  Speaker 3: but it's not because the data is really messy, it
• 30:15
  Speaker 3: will benefit all parties, whether that is an inventory, whether
• 30:20
  Speaker 3: that's the freshness ingredient going to the customer, whether that's
• 30:23
  Speaker 3: leaner inventories and fresher turns at the restaurant, whether that's
• 30:26
  Speaker 3: leaner inventories, fresher turns and more efficient deliveries for the distributor,
• 30:32
  Speaker 3: whether that's better production at the food manufacturer and better
• 30:36
  Speaker 3: inventory levels.
• 30:37
  Speaker 2: It should benefit all parties.
• 30:39
  Speaker 1: Yeah, it's interesting. So I don't know if there's any link,
• 30:43
  Speaker 1: but I'm going to ask it anyway. Chick fil A
• 30:46
  Speaker 1: and Panero both moved away from serving no antibiotics ever
• 30:50
  Speaker 1: chicken to no antibiotics important to human medicine. I don't
• 30:55
  Speaker 1: know if that has any link to FISMA, whether it
• 30:58
  Speaker 1: does or it doesn't. What do you think is the
• 31:00
  Speaker 1: motivation for these moves?
• 31:02
  Speaker 3: Well, I think it's really although it sounds again it
• 31:08
  Speaker 3: sounds very simple to do no antibiotics or whatever it
• 31:12
  Speaker 3: may be.
• 31:13
  Speaker 2: Okay, whether that's.
• 31:15
  Speaker 3: Grass fed, local, whatever it may be. Right, it sounds
• 31:19
  Speaker 3: very simple, but again it's not. And I'll take for example,
• 31:26
  Speaker 3: I'll use example of cattle because it's probably the easiest example,
• 31:32
  Speaker 3: but even a chicken, we can go there, even a chicken.
• 31:35
  Speaker 3: Chick fil A doesn't really well, I don't know for sure,
• 31:38
  Speaker 3: but my guess is they don't buy the whole chicken, right.
• 31:42
  Speaker 3: They're not in the chicken wing business, right, They're not
• 31:45
  Speaker 3: in the chicken thigh business, right. And so they can say, yeah,
• 31:50
  Speaker 3: I'm willing to pay extra for ana or never ever,
• 31:55
  Speaker 3: whatever it may be, right on the products I buy.
• 31:58
  Speaker 3: But then can the manufacture get that value on the
• 32:01
  Speaker 3: rest of the products. And historically the answer has been no,
• 32:06
  Speaker 3: they really challenge to get it, whether that's chicken, hogs,
• 32:10
  Speaker 3: table eggs, whatever it may be. Right now, there is
• 32:16
  Speaker 3: some interesting things and I just interviewed Jeff Olmoscato, who's
• 32:21
  Speaker 3: the head of supply chain of Shakeshack in which we're
• 32:23
  Speaker 3: air in a couple weeks, and he was talking about
• 32:26
  Speaker 3: how there's an outfit in San Francisco who is bringing
• 32:31
  Speaker 3: restaurants together that can buy different parts of the cow
• 32:35
  Speaker 3: so they can fund that. So there are some things
• 32:38
  Speaker 3: going on, but it's difficult to do. It's very difficult
• 32:42
  Speaker 3: to do. And let's face it, the environment with the
• 32:47
  Speaker 3: consumers the consumers to say yes, they want this, but
• 32:50
  Speaker 3: the environment from the consumers right now is not very
• 32:53
  Speaker 3: favorable towards price increases. Or menu price increases, so you know,
• 32:57
  Speaker 3: the consumers say they want this, but they may want it,
• 33:00
  Speaker 3: but are they willing to pay for it is a
• 33:01
  Speaker 3: totally different question.
• 33:04
  Speaker 1: Yeah, that's a great point. And Panera it's interesting especially
• 33:08
  Speaker 1: Panera was the first one to mention it because recently
• 33:10
  Speaker 1: a survey came out and I think they got more
• 33:14
  Speaker 1: credit for their antibiotic free proteins than any other chain
• 33:20
  Speaker 1: except for Chipotle if I remember correctly, So they get
• 33:23
  Speaker 1: a lot of credit in terms of surveys. But you
• 33:26
  Speaker 1: can't always trust surveys. People act one way, and you know,
• 33:29
  Speaker 1: say one thing and act in another, and you know,
• 33:32
  Speaker 1: and and to your point, you know, people's wallets are
• 33:35
  Speaker 1: being pinched. So it's an interesting move saying that they're
• 33:37
  Speaker 1: going to cut prices in this environment and increase portions.
• 33:42
  Speaker 1: The only one that's mentioned that so far.
• 33:45
  Speaker 3: Well, I look, I think that there's no doubt that
• 33:48
  Speaker 3: consumers are frustrated with the menu price increases. You hear
• 33:52
  Speaker 3: the stories, and now you're starting to hear exaggerated stories, right,
• 33:57
  Speaker 3: and that's just not good for the indus. And you know,
• 34:01
  Speaker 3: you could make the argument that that there's numerous given
• 34:04
  Speaker 3: the tight labor situation, and yes it's better, but it's
• 34:07
  Speaker 3: not what it was pre COVID. But you could get
• 34:11
  Speaker 3: you could make the argument that given the tight labor
• 34:13
  Speaker 3: situation that at we as an industry aren't executing as
• 34:17
  Speaker 3: well as we did. So here we are raising prices
• 34:19
  Speaker 3: potentially not executing as well. And that's a tough that's
• 34:23
  Speaker 3: that's a tough formula for success.
• 34:26
  Speaker 1: Right, Yeah, for sure. And you know, to your point,
• 34:27
  Speaker 1: it seems like the news stories are accelerating. First, it
• 34:30
  Speaker 1: started with the eighteen dollars big macmeal. Then it was
• 34:32
  Speaker 1: a twenty three dollars five guys, and now it's like
• 34:34
  Speaker 1: almost every day I see one or two stories hitting
• 34:37
  Speaker 1: the wire about just people being fed up with price increases.
• 34:40
  Speaker 1: So it's going to be very interesting to see how,
• 34:44
  Speaker 1: you know, which way, you know, how the low income
• 34:46
  Speaker 1: consumer does this year. In your previous answer, you you know,
• 34:51
  Speaker 1: we were talking about chicken wings. You mentioned chicken wings,
• 34:55
  Speaker 1: and I remembered that I forgot to ask you about
• 34:59
  Speaker 1: this earlier. So, yeah, what's going on in the chicken
• 35:02
  Speaker 1: wing market versus chicken breast?
• 35:05
  Speaker 3: Yeah, so great question. So you know, chicken wings, So
• 35:09
  Speaker 3: I mentioned that chicken supplies might be a heck of
• 35:11
  Speaker 3: a lot better than this fall than they are today.
• 35:15
  Speaker 3: So what happened leading up to today is chicken producer
• 35:18
  Speaker 3: margins generally were not very good over the last year
• 35:21
  Speaker 3: and a half, particularly let's just say twelve eighteen months ago,
• 35:25
  Speaker 3: where chicken prices were very low and you had feed
• 35:30
  Speaker 3: prices that were much higher than where we're at today.
• 35:33
  Speaker 3: And so what happens is, you know, like I said,
• 35:35
  Speaker 3: the cure for low prices is always low prices. Chicken
• 35:38
  Speaker 3: producers weren't making any money or we're struggling, and so
• 35:42
  Speaker 3: what they do is they tap the brakes on production, right.
• 35:46
  Speaker 2: And typically when they tap.
• 35:47
  Speaker 3: The brakes on production, in part because chicken wings are
• 35:51
  Speaker 3: typically I mean they're sold wholesale by the pound, but
• 35:55
  Speaker 3: to the consumer they're typically sold by the.
• 35:57
  Speaker 2: Piece, Right, you can see a.
• 36:04
  Speaker 3: Rise in chicken wing prices that may outpace the other markets,
• 36:10
  Speaker 3: so that might be a small part of it. You
• 36:12
  Speaker 3: also see saw very low chicken prices six months ago,
• 36:16
  Speaker 3: which has been spurring some significant feature activity bone in.
• 36:21
  Speaker 3: Now now we have chicken wing prices at multi year highs.
• 36:25
  Speaker 2: Right, And actually the spread.
• 36:27
  Speaker 3: Between chicken wings and chicken breast to your question is
• 36:31
  Speaker 3: very very high, meaning chicken wings are much much more
• 36:34
  Speaker 3: expensive than historically than the boneless skinless chicken breast markets,
• 36:39
  Speaker 3: which typically would shift some feature activity into boneless wings.
• 36:43
  Speaker 3: And my guess is we'll see that, and you know,
• 36:46
  Speaker 3: so the risk likely in the coming months in the
• 36:50
  Speaker 3: wing market and seasonally, it's kind of easy to say
• 36:52
  Speaker 3: as to the downside, whereas the breast markets likely to
• 36:54
  Speaker 3: they upside.
• 36:57
  Speaker 1: Interesting. Yeah, So a little side note. I had the
• 37:01
  Speaker 1: best wings of my life last week, this little spot
• 37:04
  Speaker 1: called Blue forty two in Elmwood Park, New Jersey. Found
• 37:09
  Speaker 1: it on Instagram and a cousin and my son and
• 37:11
  Speaker 1: I went and they were absolutely phenomenal.
• 37:14
  Speaker 2: So are you a bone in or a boneless guy?
• 37:17
  Speaker 1: I'm a bone in guy.
• 37:19
  Speaker 2: Yeah.
• 37:20
  Speaker 1: We went to town Man. We took down like five
• 37:23
  Speaker 1: dozen wings between the three of us and they were
• 37:25
  Speaker 1: great because we were chrispy, krispy and meaty and all of
• 37:29
  Speaker 1: the sauces were awesome. So wow, Blue two listeners live
• 37:33
  Speaker 1: in Jersey, I highly recommend Blue forty two.
• 37:37
  Speaker 2: All right, they have ip as.
• 37:40
  Speaker 1: Yeah, they have a full bar. It's a big Green
• 37:42
  Speaker 1: Bay Packers bar.
• 37:43
  Speaker 3: During full say, I'll be there Monday, but I'm a
• 37:46
  Speaker 3: Steelers fan.
• 37:49
  Speaker 1: Well you can go, just don't wear your Steelers gear,
• 37:51
  Speaker 1: you know, right, right right, David, Thanks that was awesome.
• 37:55
  Speaker 1: I'm actually really looking forward to listening to this again
• 37:59
  Speaker 1: with a pen and notepad, because you know, there's so
• 38:03
  Speaker 1: much good stuff you shared. Where can the audience go
• 38:06
  Speaker 1: to find out more about datam fs and where can
• 38:11
  Speaker 1: they listen to the form to fork podcasts?
• 38:13
  Speaker 3: Yeah, sure, so I'll start the easier Well, they're both easy.
• 38:17
  Speaker 3: Farm to fork farm to Fork. The Innovator's podcast is
• 38:20
  Speaker 3: on all your favorite players. It also has a LinkedIn
• 38:23
  Speaker 3: page which you can search as far as myself and
• 38:28
  Speaker 3: datam fs. I'm also on LinkedIn, as is datam fs,
• 38:31
  Speaker 3: and our website is datum d A t U M
• 38:34
  Speaker 3: F S F as in food s as in service
• 38:37
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• 38:39
  Speaker 1: Great man, and I highly recommend you following David on LinkedIn.
• 38:45
  Speaker 1: You know I subscribe to your weekly newsletter, which is fantastic.
• 38:49
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• 38:51
  Speaker 1: tuning in. If you like the episode, please leave us
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• 38:57
  Speaker 1: Next week we'll have a conversation with Joe rankin a
• 39:01
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• 39:06
  Speaker 3: M hm hm hm