Bay Area's Food System Faces Rising Costs As It Reels From Global Supply Chain Issues

The global supply chain issues that have wreaked havoc on the U.S. and California during the pandemic continue to this day.

Although many of the massive port backlogs over the past year in Northern and Southern California have eased, there are still major problems getting goods to businesses and, in turn, consumers. Because of omicron surges in other countries, residents and businesses have faced new COVID-19 restrictions. In fact, Shanghai just ended a strict two-month lockdown on June 1.

For the Bay Area's food and beverage industry, problems get compounded by the struggles brought on by the pandemic, as businesses try to remain open. According to the most recent Producer Price Index released by the Bureau of Labor Statistics, food prices in the U.S. have jumped nearly 13% over the past year. Even though restaurants and bars across the country continue to add thousands of jobs each month, the number of workers in the industry is still well behind where the U.S. was pre-pandemic.

Many food businesses in the Bay Area have been so short-staffed they’ve been forced to limit their hours.

“Places are less staffed in Japan, which has led to higher pricing,” said Marc Zimmerman, chef and owner of Gozu restaurant in San Francisco. “Now we’ve got beef showing up from Japan that was delayed a week and a half. We’ve already found it somewhere else. Now we have twice as much.”

During much of the omicron surge in the first quarter of this year, most areas of Japan reimplemented COVID-19 restrictions. Those restrictions have since been lifted, and the country’s most recent economic report shows employment numbers finally starting to pick up, with more jobs becoming available, particularly in the manufacturing and hospitality industries.

However, it’s not just the shipping industry that’s disrupted the flow of goods. Trucking also continues to be a major problem.

There’s a shortage of drivers and containers to transport cargo, which has led to massive delays in getting goods off-loaded and onto their next destination. According to the American Trucking Associations, last year the United States suffered a record deficit of 80,000 drivers.

But many other trucking analysts said this is all a matter of turnover, as truck drivers are either retiring or leaving the industry too quickly, mainly because of poor pay and working conditions. And those issues don’t seem to be getting any better.

Gozu focuses on wagyu beef out of Japan. It’s some of the highest-quality beef in the world. So, with the shipping delays, Zimmerman has had to adjust his thinking.

"We're doing some extensive aging on things," said Zimmerman. "In some ways, it’s really helped to push creativity [in the kitchen]."

Gozu is the perfect example of one of the biggest problems faced by U.S. businesses: Many countries across the globe still have COVID restrictions in place, and that means production in those countries is still nowhere near the level it was pre-pandemic. So, for restaurants or food manufacturers that rely on foreign ingredients or other goods, they are left with a void in trying to figure out how to get certain items, and not break the bank in doing so.

Zimmerman has been fortunate in that he hasn’t had to raise prices at his restaurant. But that’s not the case at most other businesses.

“It’s a double-edged sword, and raising prices for us is really the last thing we want to do,” said Tony Marcell, director of operations at Wayfare Tavern and Luna restaurants in San Francisco. “We are increasing prices based on all the circumstances of labor or lack thereof, and the increased value of all the people working. With the increased pricing of products, I don’t know if everyone can sustain it, but we are going to have to change our pricing models and the way we do business to stay alive. And whether the community wraps their arms around that, we think they will, but that’s where we’re at to survive.”

The issue of raising prices has long been a sticky one for restaurant owners, in large part because they’re afraid customers will balk.

“For an independent operator, it creates a real dilemma,” said Michael Kaufman, senior lecturer at the Harvard Business School, who teaches a course called “Challenges and Opportunities in the Restaurant Industry.”

"They don't want to raise prices to their consumers. They want their consumers to come and enjoy the benefit of what they offer and not feel like it’s now that much more expensive and maybe the restaurant is somehow profiting more," he said. "But that's not happening."

Kaufman says most restaurants operate on a 3%-5% profit margin, and the challenges brought on by the pandemic — staffing shortages, higher prices, shipping delays, and health restrictions — have made those margins even more minuscule.

Food businesses adjusting to new challenges

Delays aren’t the only problem food businesses are facing. With the shipping industry upheaval, many distributors are catering to larger businesses when it comes to orders. Karla Rosales-Barrios is owner of Pass the Sauced in San Francisco. She makes her salsa at La Cocina’s kitchen in San Francisco’s Mission District, primarily as a one-woman operation.

La Cocina gives food entrepreneurs the tools to start their own businesses. Most are women of color who have immigrated from other countries. Rosales-Barrios said her biggest issue during the pandemic has been changes in how she has to order items, such as the glass jars for her salsa.

“The company I was working with changed their protocol,” she said. “They wanted you to order a pallet. So I had to increase the amount of my orders. Suddenly will-call was not an option anymore. So I had to pay freight charges and shipping and handling. And that could add anywhere from $100 to $300 on top of the cost I was used to paying.”

Many of these small businesses also don’t have the space for these types of large shipments.

“My first big order was 75 cases and then I thought, 'Well, where am I going to put them?' So, storage is another issue,” said Rosales-Barrios. “La Cocina helps a lot with it but it meant I had to go outside of my network and find space — free space.”

Because she does most of the cooking herself, and orders have dropped during the pandemic, Rosales-Barrios said it’s put a real strain on her business model and forced her to adjust pricing and shipping costs for customers who order her sauces online.

Lahmees Dabour also works with La Cocina to help operate her catering company, Mama Lamees, which serves traditional Palestinian food. She’s had similar problems with shipping, but says other issues have been at play.

"We struggled a lot in finding the ingredients to make our traditional, authentic dishes, she said." "There's a wholesaler who deals with most of the Middle Eastern items. So we got stuck for most of the menu items where we couldn't find the ingredients."

Most of the items Dabour needs to cook her food can’t be found at typical U.S. grocery stores, so she’s had to adjust her business.

“It wasn’t easy to keep up your food business,” said Dabour. “It limited our production, where we had to start thinking more creatively to keep our customers satisfied.” Even so, Dabour said, she’s heard from people who complain about dishes not being available and the new prices she’s had to implement.

"It's not about, 'Oh, I want to be rich,' or saving a million dollars," said Dabour. "It's nothing like that. We're doing something we like, we love. And even with all of these challenges, we are still working."

Danny Stoller, co-founder of Square Pie Guys in Oakland and San Francisco, said he's had to raise the price of pizzas across the board. He’s not particularly optimistic about costs going down anytime soon.

“I know people say supply chain issues will loosen up, and prices will drop again, but I don’t think they will,” Stoller said. “I think what we’ve seen is, inflation can slow, but it rarely ever reverses itself, especially in the restaurant world. Once a vendor can charge a certain amount for a food, they’re going to [continue to] charge that much.”

He said he understands customers' frustrations, but hopes they realize that restaurant owners are just trying to stay open and run a successful business during these challenging times.

With no end in sight for the conflict in Ukraine, gas prices rising at a feverish pace, and inflation showing no signs of slowing down, most economists believe supply chain issues likely will last the rest of 2022 and into 2023. That has many food businesses in the Bay Area wondering whether they’ll be able to survive.