The supply chain backlog may not clear anytime soon

Delays in equipment deliveries continue to cause headaches for new-unit development. And the problems could persist for a while.
supply chain shortages
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While much of the restaurant industry’s focus at the moment has been on a shortage of labor and rising food costs, one issue continues to persist and could be here for some time: The inability to get equipment.

Operators have to wait several months to a year to get certain pieces of equipment into their restaurants. The problem has created headaches and conspired with other issues, like permitting delays and a lack of construction workers, that is making it harder to build new locations.

“It’s equipment, it’s not the building,” Dan Accordino, CEO of big Burger King franchisee Carrols Restaurant Group told the ICR Conference last month. “We’re having a devil of a time getting equipment.” He noted that fryers for Popeyes take seven to nine months.

Such problems could last for a lot longer. In a report last month, RBC Capital Markets said that the supply backlog “will never clear” unless something drastic happens with consumer demand.

“Personal expenditures would have to decrease 15% every month for 10 months in order to untangle the congestion,” the report said. “Given the strength of the average U.S. household balance sheet, it is difficult to see near-term reprieve unless the consumer shifts significantly and cannibalizes goods spending with services.”

There have been some reports that the supply chain backlog has improved recently. RBC noted that such “green shoots have turned out to be red herrings.” Demand remains too strong, and if that continues the ports of Los Angeles and Long Beach “will never fully clear the logistical hurdles required to de-bottleneck the supply chain.”

The supply chain problem, affecting goods ranging from bicycle parts to cars and trucks, has several factors. Most fundamental, however, is a lack of employees coupled with intense demand from consumers for goods.

One of the biggest problems is a lack of truck drivers. RBC estimates that there is a shortage of 85,000 truck drivers in the U.S. Another factor is the zero COVID policy in China, which among other things is leading to intermittent shutdowns of ports there.

The latest surge of omicron is likely exacerbating many of the problems factoring into the supply chain problem. Starbucks this week, for instance, said one of its biggest problems recently has been related to a lack of drivers to get products into its stores.

For many restaurants, the equipment delays are resulting in delays in new unit openings, conspiring with permitting delays to thwart remodels and openings. The chicken chain El Pollo Loco cut back its expectations for remodels and new unit openings last year in part due to equipment delays.

Kevin Ozan, CFO of McDonald’s, told investors late last month that getting supplies—and dealing with construction companies’ own labor issues—is delaying projects. “My sense is it’s starting to get a little better,” he said. “It’s still not back to where things were pre-pandemic. Everything is still taking a bit longer from permitting to construction to getting all of the equipment and technology that we need for opening and remodeling restaurants.”

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