Mark Rossi, CEO of Avanti Restaurant Solutions, joins this week’s episode of the RB podcast “A Deeper Dive” to talk about the supply chain backlog. Listen to the full podcast on Spotify below.
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Intro: This episode of A Deeper Dive is brought to you by Softtek. As a leading nearshore digital services provider, Softtek helps the hospitality industry scale digital operations through their product centric Agile PODS and offers a low-fee omni-channel white-labeled online ordering platform. Learn more about how Softtek creates value through technology at softtek.com/deeperdive.
Jonathan Maze: When will the supply chain problems clear up? Hello this is Jonathan Maze, editor in chief of restaurant business, and in this week’s episode of A Deeper Dive I speak with Mark Rossi C.E.O. of Avanti restaurant solutions to talk about issues related to the supply chain. Anyone who operates a restaurant these days knows how tough it is to get stuff into restaurants. You can take several months just to get a piece of equipment delivered which can cause all sorts of problems including steep cost increases and new opening delays. Avanti works with restaurants to deliver their food service options and has been paying close attention to the problem. What marks me specifically about the equipment challenges, many of these same issues, including the driver shortage, are affecting all kinds of industries that supply products to restaurants. Mark helps us understand the reasons behind the supply chain challenges and the problems it is causing for operators. He talks about how long we can expect this problem to last (don’t get too hopeful) and what operators should do to get the equipment they need to get the job done. Please have a listen.
Jonathan Maze: Okay I am here with Mark Rossi. Mark, welcome to the podcast.
Mark Rossi: Thank you Jonathan, good to see you.
Jonathan Maze: All right super so like I guess one of the things that maybe it should not surprise me, but it did, which is that over the past several months we’ve run into a number of different supply chain issues. I guess I want to start the beginning: What’s been the cause of the supply chain concerns that restaurants have been feeling. What’s happening?
Mark Rossi: Well, I think if we go there we got to back just a touch. So when the China US tariff thing started, right, I think everybody kind of jumped in and went “okay we gotta get raw materials now because we don’t know where pricing is going to go” and everybody bought a bunch. And that created some strain on the supply chain, I think in the first place. Then COVID hits, right, then you’ve got know locked down factories, plants, mines, ports you know, everything’s shuttered, labor shortage, you know, subsidies for labor rights of people are often. And then also you’ve got maybe discovery of other work. You know I heard a lot of people like left, for example, Uber to go do Uber Eats because they didn’t have to deal with people and they’re getting better tips and so they found a better, you know, occupation. So they moved on to that and I think it’s tough getting people back once you lose them. You know, material shortage, obviously, you know, out there and then the whole Suez traffic jam with the freighter Ever Given which is the gift that keeps on giving, sorry had to, couldn’t resist. It’s interesting because I live on the west coast and I can see the ocean and I’ve never seen as many freighters this side of Catalina as I’ve seen in the last year. And I mean coming down the highway yesterday and looking out there, probably about thirty-two ships sitting out there waiting.
Jonathan Maze: Just sitting there?
Mark Rossi: Just sitting out there.
Jonathan Maze: Yeah.
Mark Rossi: They’re all loaded. So it’s crazy. So there’s a couple things. I was going “what’s going on, you know, what’s going on at the ports? Why aren’t they working twenty-four hours? What’s happening? What’s going on?” but I don’t think that’s the case.
I think the issue is, there’s a couple issues, there’s a big container shortage A. we know that, but that’s not the issue getting them off. The issue getting them off is: there’s a shortage of truckers. So for a lot of us who hire truckers, there’s a huge shortage, so they can get – and by the way those ships hold like twenty thousand containers. These large ships. So they get those into port, then they start working on it, right, they get them loaded on, they don’t have enough trucks to take them, so stuff sits there and waits and you have this traffic jam that’s clearly evident. So then these guys going “ all right we’re gonna go get moving, they get their trucks going, they head toward the rail stations, and the rail stations are a little backed up because at some point the rail stations all went to something similar to what I would call the “just-in-time manufacturing” which is called Precision Logistics, right. And so they cut down the number of locomotives, they made a smaller number of trains that were a little bit longer and just focused on being super on time and now we got a labor issue there too and so these guys can’t get everything where it needs to go as well. So it just kind of keeps compounding.
Then, this is great, you get the containers to where they need to go. If you have the truckers, they get the container put on a chassis, and that chassis goes the warehouse. Well now the warehouses are all impacted because of all the e-commerce, and how crazy that’s going, so they sit there and those chassis don’t come back as fast as they used to at the rail station. So now you just have like this compounded issue that just kind of keeps going in circles. You know, further on, mother nature, right, you know it’s typhoon season coming.
Jonathan Maze: Right, right.
Mark Rossi: And then [Hurricane] Ida took its toll on some of the southern ports. So I think all of that stuff cooks up into this perfect storm, so to speak and that’s where we get to now.
Jonathan Maze: Right, so when I was in, I was in Los Angeles about a month ago and we pop by the Long Beach port – so you’re saying that all of those dang container ships that I saw, that was unusual? Because there were a million of them. I mean it was like, wow, look at all the container ships.
Mark Rossi: Yeah, it’s unusual for them to be out, that many of them out, just kind of floating around in in the ocean. Typically you don’t them. You might see them going to port, but you don’t see that many of them anchored at one time and you certainly don’t see them inside of Catalina. So Catalina is twenty-six miles offshore and you know when you see ships you can read the side of those container ships inside Catalina, you’re like “what what’s going on here?” and that’s just kind of persisted and continued. It’s not normal.
Jonathan Maze: Right. Do we have any sense, I get a million questions about this, but like do we have any sense as to how long this is gonna take? Because I mean we are how many months now into a recovery, supposedly people are allegedly back to work, but like how long is this going to be continuing to be a problem? I mean it’s, you know, September now.
Mark Rossi: Yeah, so what I just, I just had a meeting in my company yesterday with a bunch of people and you know we talked about it and – by the way, everybody is getting shelled right now. It is so far out there, everybody’s on edge, every Christmas you know, I’m like “can you reattach the bungee cord you know looking over the cliff yet or are you gonna leave it off?” But I think we’re mile 11 in a marathon. I think 26.2 miles or 11 miles, maybe we hit the wall and we need to kind of reframe our thinking and kind of reposition ourselves and get ready for the long haul, get out of that fast gear whatever that gear was that you’ve kind of went out too fast, and you need to now settle in and keep going because everyone I’ve talked to, and I went, you know, from a macro level reading, you know just all kinds of different business journals, all the way to speaking to all these different factory heads. And you know, I’ve been in this business for, I mean I grew up in it, but I’ve been doing it professionally for twenty-five plus years. And so I have a lot of relationships around the industry and I called each individual one that I felt was a really good spokesperson or person who understood, you know, the industry, from a manufacturing perspective, from a manufacturer’s rep perspective, and they all will tell you, it’s gonna be 2022 this time next year and I just want to add January 2023 and I’m hoping that means February because January I’m hoping is slow because it’s gonna be, it’s gonna be all of that, just because it always typically it’s, you know, better.
Jonathan Maze: Wow. So you’re saying basically that restaurant operators can probably expect supply chain headaches and challenges throughout not only the rest of this year but into next year?
Mark Rossi: 100% I mean, we are taking orders right now for the second quarter of 2022. My understanding from the factories is they’re ordering raw, what I’m gonna call raw materials, but you know, the materials they need to do their thing, already into the first quarter of 2022. So if they’re already ordering back that means we’re still not far behind I mean it’s just my take. It’s not ending in a quarter and it’s not going to end middle next year.
Jonathan Maze: What kind of things, I mean, I guess the thing is I see shortages of all sorts of things right now. So you hear like, you know, shortages of things like chicken two major pieces of equipment. I talked operators and they say that they have to, like if McDonald’s operator wants to order an ice cream machines for instance to throw one out completely at random could take several months. It seems like it’s having an effect up and down the supply chain but especially everything, anything, that is potentially important.
Mark Rossi: For sure. I mean, actually, it’s interesting, it’s not, so you would think you’re safe in North America right? I’ll buy what’s in North America, you know, and I’m safe. It doesn’t have to travel across Europe. But I think what’s happened is, competitive pricing pressures all those things in the world right? Everybody’s got to be super tight, just-in-time, lean manufacturing, you know. Everybody left kind of this vertical integrated model of being able to do everything in one place. So now the supply chain has been you know disintegrated which, I read that, it’s a great term disintegrated. And so what happens is it creates multi-tiers of suppliers to manufacturers. So I think I’m good because I’m gonna buy a griddle from a company that is based in California, for example. Well that company gets its thermostat, second-tier supplier, from Mexico. That thermostat has a subcomponent that comes from Asia. And so they can’t ship the thermostat to the griddle guy that’s based in America. So it’s just kind of anywhere you turn yeah there’s a little bit of that going on.
Jonathan Maze: So just like the computer chip problem right now. Your piece of equipment might be made North America but it still depends on computer chips that come from Asia and of course we all know what the computer chip problem is.
Mark Rossi: Correct. And I think on the food chain, you know, I think the auto makers are gonna be ahead of us, right. And so those chips are all very similar. They have to go to these different computers that’s needed. All this work to create this energy-efficient equipment that requires chips to understand it, you know, modulate it and everything. And now, you know, we’re suffering a little bit, you know, from that piece. Not to say it wasn’t the right thing to do just, it just is.
Jonathan Maze: Right. So a lot of this goes back to, a lot of this is falls under the driver shortage that we obviously – and in the restaurant space we hear a lot of all over the place about the driver shortage –and what you’re saying seems to me that the problem we have, a huge percentage of it is the simple fact that we just don’t have enough people willing to drive trucks.
Mark Rossi: I believe that is an issue for industry for sure but there’s also, that is one. Another thing is that if you can’t get all of those subcomponents, and even if you can, there’s always something that seems to be missing. So I think that the driver shortage is an issue. And then I heard, or read it, Walmart for example, they’re looking at you creating, they want to hire five hundred drivers.
Jonathan Maze: Right.
Mark Rossi: It’s in an article in Forbes so you know, just to be clear but those guys are putting out you know offers to five hundred for-hire drivers that they’re gonna give a $12,000 bonus to and an $87,000 salary, you know, which is double the typical, you know, program there, and that’s gonna put it even more, you know, on the line. So the driver issue major. And you know what? We heard the same thing about the driver issue in this kind of last-mile situation, right, from the Uber Eats and all that, you know, kind of stuff with the ghost kitchens where it’s like, all these guys, like we have to get the last-mile logistics all but we don’t have enough drivers to solve for that. And you know and those guys don’t need, you know, don’t require any specific certification or whatever else so yeah, the driver shortage is a major issue. And that industry is very fragmented. So a lot of these guys are independents and, you know, it’s tough.
Jonathan Maze: Right. Yeah, I mean I guess it’s good if you’re willing and you like driving for a living, you’re probably in pretty good shape. But I mean, it seems to me like the challenge that I see is like A. it’s not just the fact that you’re gonna have a tough time getting things into your door but also like, you know, when you have shortages like this it ends up driving up costs. And, you know, that restaurants obviously are focused pretty intently on their only urgent challenges which are pretty acute but you know we also have a cost problem on the food side and on the equipment side and if we see increases in cost of, you know. If the food that they have shipped in or anything that they have shipped in is going to cost me, you know, the distributors or the vendors, money to pay for those drivers. And not only that, but they’re also paying more for gas by the way. You know, that also contributes to a problematic inflationary environment as well.
Mark Rossi: Yeah. I don’t know how the inflation part doesn’t come into play, even if it is transitory. I mean, even though that means it’s not permanent, it is pretty permanent through 2022 when you’re dealing with, you know, metal going from, you know, a $1.45 a pound to $3.60, stainless steel. We do a lot.
Jonathan Maze: Stainless steel is more expensive?
Mark Rossi: Stainless steel is more expensive. Cold rolled steel apparently went up 285% and stainless steel, I was just talking to a local provider, and you know, that’s cold rolled steel. Stainless steel? Sheets right, depending on what the sizes, and per pound, a $1.45 a pound to $3.85 a pound. So, I mean, now that’s just the material, you got the labor, and you need the labor to do it, obviously, but I mean that’s a big deal and then, you know, I think we’re getting back on track with some things.
Insulation seems like it was coming back together, so walk-in panels you know we’re starting to get. I mean did anybody see the irony in the fact that the insulation, you know the fire-retardant insulation place burned down in Texas, you know. All those factors are there.
The big issue that’s going to come though is copper. Copper mines have been shut down, there’s a copper shortage that’s on the way and now you talk about refrigeration, that’s a big issue, because a lot of copper refrigeration, not to mention all the electrical, you know, everywhere I. Then there’s also brass fittings for thermal expansion valves for refrigeration. There’s a few things going on, and again, we did a great job of saving the environment by outlawing R22 and R404 but if anybody wants to go back and buy some used refrigeration just to get themselves by, technically they can’t do it.
Jonathan Maze: Really?
Mark Rossi: Yeah. It’s illegal as of January 2020 on R22 and as of January 2021 on R404. So that’s totally changed, you know, some of the two.
Jonathan Maze: So how long are people waiting for some of the stuff?
Mark Rossi: I mean, Jon, it’s incredible. You’ve got, in some cases, twenty-six weeks, six months on orders and everybody’s got to get in line and so, you know, my commentary to everyone is get in line sooner than later, right, so you can be in line. But I just don’t see it going away, you know, anytime soon until these guys, you know, catch up.
Jonathan Maze: But as it takes, I mean, that probably thwarts some remodel and expansion plans or kind of forces some delays, I would imagine, it means you have to wait six months for equipment.
Mark Rossi: Yep.
Jonathan Maze: You better get on the stick right now, yeah.
Mark Rossi: Yep, yeah it’s 100% true and not only that, I think people got to have a backup plan, and look at, right, I know they like their, you know, fancy fryer system or whatever but I think that the more simple equipment is going to be more readily available because, you know, I mean if you can’t get a thermostat maybe need a manually controlled griddle to get you by. The question becomes “is it gonna be more expensive for you to sit there and eat rent and not, you know, be able to bring the register or to get yourself open, you know, and get by and get moving and then at some point, you know, get that piece of equipment.
Jonathan Maze: You have any other strategies, like if I’m a restaurant operator, what can I do to start dealing with some of this stuff?
Mark Rossi: Yeah, right, the other thing I think you have to do, well it depends on the situation, but, you know, the first thing I would say is, you know, get in line as early as possible. You know, understand it, listen to what your vendors are telling you because I think everyone has this thing like “Oh I could find it, I can get it” and I assure you it’s getting very, very scarce out there for equipment. I do think it’s critical to understand the construction process. So if people are building, I think people should ask “why?” a few more times because if a contractor is building out a space and you understand construction and they say “we need our walk-ins tomorrow” but there’s no refrigeration parts and we can’t get the condensing units maybe we can get the walking panels out there so they can finish the floors and everybody can keep moving and then we can scramble to try to find a refrigeration system to put on it. So I think it’s, you know, trying to understand a little bit more of what’s happening on a job site and then continuing to, you know, try to move that job site forward while you scrambling to get the pieces of equipment that you need to put out there. I mean, there’s a ton of restaurants that have shuttered to so used equipment is not a bad option here. I mean, that’s the reality.
Jonathan Maze: Right.
Mark Rossi: That’s where we’re at.
Jonathan Maze: Yeah, I know a guy who deals in used equipment, he’s like his business is just, his phone is basically ringing off the hook. And you know for good reason. It was kind of ringing off the hook actually even before and you know basically business has just taken off now because the thing is, like, the expansion demands right now in the industry are actually pretty extraordinary. It’s not, you know, we had what I would consider a relatively brief slowdown in expansion strategies during a pandemic but a lot of companies really jumped in very quickly and so to me it seems like demand for building new units and expansion and that sort of stuff picked up a lot quicker and now we see a lot of companies that are looking at expanding and building new units and I can only imagine that demand. You know like if I’m looking forward, it has to be you know, I would be concerned at least from the restaurant equipment side that some of these supply chain challenges will only be exacerbated by some of these demand concerns. Do you see what I’m saying?
Mark Rossi: Yeah. 100%. There is no question about it and I think the only way that you can get ahead of it is, I mean, if you think you’re going to get something in October you should have ordered it in May. If you want something in February, you need to order now. I mean, that is just the facts of the matter so everybody’s got to kind of get in line and, you know, get in there and then leverage relationships with, you know, factories or whoever you can to, you know, get that equipment that you need – or have a backup plan and find another piece of equipment that may not be optimal piece of equipment that you love to use because it has, you know, certain bells and whistles, but it will get you open and ringing the register and then down the road you can come back and make that swap – or you may find out you didn’t need that bell and whistle to begin with because you never used it.
One thing I’ll tell you is that specification has gone out the window. Nobody cares.
Jonathan Maze: Really?
Mark Rossi: Just if it keeps it cold, get it here. You know what I mean? That has totally changed. And I think that’s going to change the game for some manufacturers, too, who had position and spent a lot of time getting their products, you know, into certain places and now you know somebody got something else and they’re like “Oh, maybe this isn’t so bad” and then they keep going without, so. A lot of things, you know, I feel like change here, but you know, most importantly too, I think it’s gonna be important for the future too. I don’t know if it’s transitory, that people are going to want their partners to have inventory going forward, because after they get hit with this one, you know, and how much inventory is enough? How much safety stock is right? And how competitive can you be as you have to do all that work. I read this commentary, “everyone’s going from just-in-time to just-in-case.” I mean, it’s a great comment, you know, because it kind of all works until it doesn’t. So, yeah, my comment would be you’re going to see more people kind of getting back to that vertical integration, at least in our industry, and having more inventory on-hand, more safety stock, and maybe even some components that they know could be a problem downstream.
Jonathan Maze: Right. So you think it’s going to be a situation like toilet paper? Everybody’s gonna start hoarding cool stuff?
Mark Rossi: Absolutely! People are hoarding condensing units! Yeah, I mean, yeah, yes. They’re hoarding fryers and condensing units. And by the way, that’s also creating a huge boost. So, one other thing that’s happening along with all this shortage, it’s a great point, with all this shortage going on these factories are up 70%, 80%, 150% over last year because everyone’s ordering inventory to bring in, so they have it. This just-in-case situation. Right? So that is really inflating numbers for all of these guys. Again, you know, transitory? Probably. But it’s definitely there.
Jonathan Maze: Right, but they’re gonna be hurting in a couple years once this stuff starts easing and, you know, companies start drawing down on their excess inventory on some of this.
Mark Rossi: Right. This has been a dream for some guys. Right, all those guys who, you know, had what I used to call the “hall of shame” in their back rooms. You know, like some weird fryer or griddle or braising pan. All those things are gone. They’re going out in the field, they’re getting installed. “Oh, you don’t have the electrical? Change it.” I think they’ll work through those inventories. They’re gonna have to because it’s nonstop.
Jonathan Maze: Right, but it seems like one of the biggest lessons here is that you have to be flexible. You have to prepare early and also be flexible in terms of what you want because you basically just have to get whatever you can in the door.
Mark Rossi: Yeah, that’s a great comment. The comment used to be “what’s the price?” Somebody said “Oh okay how much is it going to cost?” I’m like that’s not your question. Your question is “can I get it?”. How available is it? It’s tough. Everybody, I mean monthly we’re seeing price increases from every factory. I mean, they’re to the tune of 7%-12% monthly. Month over month. Quarter over quarter. It’s unbelievable. And so, that will not last – some people are calling it surcharges, but some people are going to take it. You know, because they’ve been getting beaten down for however many years so they’re gonna take this opportunity to get back to level. And then, you know, that’s going to be the new normal.
Jonathan Maze: Right, so I mean, we haven’t even gotten to this – all this equipment basically is a lot more expensive than it was before all this started.
Mark Rossi: For sur. I mean if your metal is times as expensive, just right there, there’s an issue there. But the great story that I heard about it that I love it is like people, customers, everyone they don’t understand why things happen. It’s like the factory says okay, they get a call, the parts coming in Tuesday. So they rip the line down, they take all the fryers that are sitting there waiting for one component, I’m using one of our fryers as an example. They rip the whole line down, they put all the fryers there, they’re ready to go. The truck shows up on Tuesday and that part’s not there. They have to rip the entire line down, put the other braising pan or kettle on that line again and so these guys are operating at 50% efficiency of what they used to. And that goes downline because all of our customer service reps are calling everybody and saying “Do you have it? Have you shipped it?” And what used to take two calls, maybe three, is now nine calls, and “It’s gonna ship on August 30th” You get to August 30th, actually you get to August 29th, and you get a call “that doesn’t ship until September 20th” You get a call on September 20th, it’s not going to ship until November 16th. And it is, for a company that prides itself on service and going above and beyond and seeing it through and making everything happen for our customer, it’s really difficult to not have that kind of control, or at least, be able to control – you can control your effort, right, but you can’t control what’s happening out there to a degree.
Jonathan Maze: Mark this was fantastic. Really appreciate you joining me this week on the podcast.
Mark Rossi: Yeah, thank you so much for having me, this was awesome.
Jonathan Maze: And that should do it for this week’s episode of A Deeper Dive. You can find this, and other episodes of the podcast, at our restaurantbusinessonline.com/article/deeper-dive/ You may also find them on Apple Podcasts or Spotify and anywhere else you get your podcasts. I’m Jonathan Maze, your host, podcast producer, and the editor in chief of restaurant business. Thank you for listening.
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