Happy Hour? Inflation, labor, supply chains still challenging bars, breweries, distilleries

Becky Harris and Tom Kuntz are in different parts of the country. They also work in different links in supply chains related to bars and restaurants, and the producers and wholesalers key to their inventories and menus.

Like many business owners and managers across the country, Harris and Kuntz are seeing some continued challenges with high inflation and supply chain delays, despite some improvements on other fronts in the post-pandemic economy.

“Some items that we haven’t had issues with (previously), we are starting to have issues. Other things are starting to let up, and we are able to get them earlier,” said Kuntz, president of Red Lodge Restaurants in Red Lodge, Montana.

The company operates restaurants and bars near Yellowstone National Park. “In the food business, in the bar business, we are kind of used to that.”

Kuntz said some of his most recent supply chain challenges have been more in the kitchen, rather than behind the bar.

“We’ve had trouble getting mushrooms recently. Tomatoes are starting to become a little more challenging,” said Kuntz, adding that higher prices and inflation are taking an estimated 3% bite out of his bottom line.

Kuntz said he’s also previously had some challenges getting in some specialty liquors, such as whiskey, that are key to cocktail menus.

“We literally couldn’t get it. It’s frustrating. It’s frustrating for our bartenders,” he said.

At another end of the industry, Harris is president and chief distiller at Catoctin Creek Distilling Co. in Virginia and president of the American Craft Spirits Association.

Her business produces rye whiskey, along with gin and brandy products.

Harris said access to barrels and glassware, and increased freight prices are challenges for many craft distillers.

“My barrel costs have increased 20% or more, and that is if you can get them. I know people have been really scrambling,” Harris said.

For her business, Harris said she’s taken to ordering more materials in order to maintain inventories and avoid supply chain delays.

“I’ve been going at least to double,” Harris said of her supplies and ingredients orders, compared to previous levels.

She’s also seen other distillers and alcohol-related firms struggle to get needed glassware and bottles. Some of those problems stem from continued COVID-19-related shutdowns of Chinese ports and manufacturing hubs where glassware is produced, as well as increased energy costs for glassmakers.

“Most people I know are getting Chinese glass,” said Harris, whose Virginia distillery sources its glass from an Anchor Hocking Glass Co. plant in Pennsylvania. Anchor Hocking is owned by Austria’s Stoelzle Glass Group.

Startups struggle

Supply-chain issues and inflation are particularly impactful to businesses just getting their footing, according to Jason Meloche, owner of Boise-based Meloche Distillery Consulting LLC. His business helps build and commission new distilleries around the country, and he said inflation is causing much higher upfront costs for necessary equipment and raw materials, such as grain and bottles.

“This is making it harder to start a new business,” Meloche said via text. “And once you make it past the initial stages, the cost of goods and and raw materials is high so these new businesses are having to find a balance between making their margins on their products and keeping the cost down for their customers.”

This is stretching out the timelines to open these businesses, he said. The new distilleries he works with are also facing challenges finding technical work.

“We are constantly having to find new sources for the parts we need to build our equipment. And when we find new stock, the price is significantly higher.”

Hotter than expected

Their stories are a common refrain among bar and restaurant owners, and the distilleries, breweries and wineries that supply their operations.

The latest US inflation rate is 8.3% (which was down from 8.5% the previous month, but was hotter than economists had hoped), according to the Consumer Price Index for August.

Inflation rates for beer, wine and alcohol are being felt by bars and other establishments, but in a number of instances, their price hikes are not as intense as on the food side of their businesses and the grocery side of the economy.

Prices for beer, wine and spirits at bars and restaurants are up 6.4%, 7.1% and 4.2%, respectively, compared to a year ago, according to the US Bureau of Labor Statistics. By comparison, food prices at restaurants are up 9%.

At the grocery store, inflation has been higher for food (up 13.5% from a year ago) than alcoholic beverages (up 3.2% from a year ago), according to BLS.

Anne Alexander, an economist and vice provost at the University of Wyoming, said breweries, in particular, may have found some improved paths related to inflation and supply chain glitches that have confronted the broader economy.

“In 2021, there was quite a lot of concern among brewers that they would experience a lot of supply chain issues (and they did),” Alexander said. “They reacted as you would expect – diversifying their suppliers, over-ordering supplies, the things you do when you are worried you’ll run out of crucial supplies.”

Still, higher prices, logistics problems and labor shortages are being felt up and down multiple industries related to food and beverages.

“It’s still pretty tough,” said Todd O’Hair, president and CEO of the Montana Chamber of Commerce, of the impacts on its members, including in hospitality spaces.

He notes the frustrations of new inflation and supply chain problems popping up just as other stresses ease. “It changes from week to week and month to month,” O’Hair said.

The changing landscape results in a mixed operational bag for bar and brewery owners.

Michael Stiglitz, co-owner and director of operations for Two Stones Pub and 2SP Brewing Co. in Delaware and the Philadelphia area, has seen improvements with prices for poultry and cans (the latter of which surged during early stages of the pandemic), but continued high prices for beef and grain confronting the industry.

Stiglitz said items such as plastic gloves are also still up, costing as much as three or four times pre-COVID levels. He doesn’t expect some prices to ever drop back to pre-pandemic levels.

“I’m really shocked it’s continuing to barrel forward,” Stiglitz said of high prices, even after multiple interest rate hikes.

He said he worries about consumer spending after the Christmas holidays, when credit card debt will pile up along with higher interest rates.

“I think that’s when the brakes come on for this,” Stiglitz said, looking at a potential full-fledged recessionary climate in the second quarter of 2023.

Reluctant to raise prices

O’Hair said there is a hesitancy to raise prices by hometown businesses in smaller and rural markets, despite inflationary costs.

“In a smaller community, you are under a lot more pressure, and it’s difficult to raise your prices,” he said. “A lot of these smaller communities and rural communities, customers just make the decision ‘We are not going to eat out.’”

Still, many business operators continue to try to figure the right path for wages and prices as inflation continues its high tide.

Mike Schey, a taproom manager and co-founder of Hubbleton Brewing Co. in Waterloo, Wisconsin, said his craft brewing costs, including for grains, are up 10% to 15% over the last two years.

“It’s just across the board,” Schey said of higher prices for the Wisconsin craft brewery and tap room.

He said one of his latest price challenges is for bluegill, a popular seafood item.

But he is reluctant to hike prices too much.

“We just don’t want to shoehorn our customers,” Schey said of his efforts not to increase prices, including trying to keep menu items at $20 or under, even with inflation related to seafood and other items.

Back in Montana, Kuntz has similar sentiments.

“We have been reluctant to raise prices. We’ve been eating much of the increase in costs. I don’t know how much longer we will be able to do it,” he said.

On the kitchen and groceries side, Alexander’s inflation radar includes higher prices for flour and fuel oil, as well as for poultry and eggs voting from bird flu impacts and cullings of infected flocks.

“Flour prices and lots of goods made from flour rose in excess of 16%. This is likely related to the war in Ukraine, the drought in the US and in Europe, and bad harvests worldwide this year due to both extreme heat and extreme flooding.”

Harris said the impacts of Russia’s invasion of Ukraine and US and European sanctions will be felt more by larger alcohol conglomerates that dominated market shares and grocery store shelves.

A number of large and international alcohol companies did not respond to requests for comment on how their popular American and international brands are navigating higher prices, logistics and labor challenges.

Harris said craft distillers and brewers almost always source their key ingredients locally, making them more in tune with their communities, and less impacted by the war in Eastern Europe or draconian Chinese COVID-19 shutdowns.

“Most craft producers try to source their ingredients locally,” she said. “Their brand story is local.”

Help wanted

Labor shortages also continue to confront bars, restaurants and related businesses, with upward pressure on labor costs, even as Federal Reserve interest rate hikes aim to curtail wage growth, according to Jerome Powell, chairman of the US central bank.

There are 11.2 million job opening nationwide – including 1.5 million in the leisure and hospitality industry, according to BLS. Low-wage jobs – including at bars and eateries – are hard to fill, with workers’ earnings in frontline and entry-level jobs not high enough to keep up with housing costs across the country, ranging from rural areas such as Montana, Wyoming and southern Oregon to more suburban and urban regions across Florida.

O’Hair said increased housing costs and limited affordable options make it harder for workers, and for employers to retain and hire staff up and down wage scales.

“They are under a lot of pressure from inflation, and there are still pretty serious workforce shortages,” the Montana chamber CEO said.

In Delaware, Stiglitz said his brewery, bars and restaurants employ approximately 300 workers, with staffing challenges more serious for managerial and skilled brewing positions.

“We could hire 50 people right now,” he said.

Michael Snipes, an economics professor at the University of South Florida’s Sarasota-Manatee campus, said housing squeezes and high food prices still need to be solved to ease economic pains.

“Housing is still a mess. Food supply chains are still a mess,” Snipes said.

Snipes added that the tourism industry in places such as southwestern Florida continues to see sustained spending, especially from wealthier tourists who are less impacted by inflation.

“Upper-income individuals can afford the higher prices,” Snipes said of how wealthy visitors and snowbird temporary residents help sustain tourism in areas such as Naples, Venice, Sarasota and Sanibel Island.

That is also in contrast to the lower wages earned by some service industry workers and the challenges their households face with inflation, especially increased housing costs.

“We’ve got rich people coming down here, and the economy is really not slowing down,” Snipes said of the situation in Florida.

Idaho Press staff contributed to this report.

FOX28 Spokane©


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