Food industry strategies emerge for navigating cost inflation

Facing cost increases of double-digit percentages to 100%, metro Milwaukee food businesses are implementing strategies including negotiating with suppliers not just on price but packaging, reformulating products including smaller sizes and running their own trucks to suppliers rather than awaiting deliveries.

On the upside, the challenges of navigating the financial squeeze of the pandemic and inflation led businesses to innovate in ways they never would have considered. That includes accelerated implementation of e-commerce sales and updating long-running supplier relationships.

“We can’t just have price increases go through (to customers),” said Katie Wessel, co-owner of Milwaukee Pretzel Co. “I need to fight as hard as I possibly can and be as efficient as possible.”

Katie Wessel, Milwaukee Pretzel Co. ... "We can’t just have price increases go through (to customers). I need to fight as hard as I possibly can and be as efficient as possible.”
Katie Wessel, Milwaukee Pretzel Co. … “We can’t just have price increases go through (to customers). I need to fight as hard as I possibly can and be as efficient as possible.” (KENNY YOO/MBJ)

Wessel was one of six panelists at the Milwaukee Business Journal’s Business of Food luncheon at The Pfister hotel. The panel included executives from multiple sectors of the food industry — manufacturing, grocery, restaurants and logistics — who discussed the impact of inflation and how they’re tackling the headaches of ever-increasing costs, supply-chain slowdowns and passing along price increases to customers.

For Milwaukee Pretzel, one of the largest price increases was for flour, which has nearly doubled from pre-pandemic levels, Wessel said. The company has been able to procure lower price increases by acquiring mass quantities and adjusting packaging, she said.

There also have been in-depth discussions with suppliers, Wessel said.

“I sat down with my yeast company for two hours a week ago and said ‘I can’t have a dollar per-pound price increase — we’ve got to figure this out,’” she said. “And we were able to talk through it. At the end of the day, I got a lower price increase.”

At O&H Danish Bakery in Racine, executives re-engaged with all suppliers to explore how to change order patterns and increase lead times as a way of mitigating cost increases, said chief operating officer Glenn Gazzalo. Still, the company has passed along only 10% to 20% of higher costs to customers, he said.

“It’s a fraction of what we’re seeing on our side,” Gazzalo said.

For Monterrey Market in Milwaukee, one of the higher cost increases has been diesel fuel for suppliers’ trucks and the retailer’s own vehicles, said owner Roberto Montemayor. The retailer also is buying larger quantities, which takes the edge off cost increases, he said.

One strategy for Monterrey Market involves sending its own trucks to out-of-town produce suppliers.

“If I can go down to Chicago and have my driver with my truck, it’s going to save me — compared with charging $1.29 or $1.59 for a tomato, I can sell them for 99 cents per pound,” he said.

While most panelists were reluctant to implement price increases for customers, Giacomo Fallucca of Palermo’s Pizza supports passing along higher costs.

“My thing is costs are increasing, but raise your prices because it’s the only way to get past it,” he said.

Giacomo Fallucca of Palermo’s Pizza
Giacomo Fallucca of Palermo’s Pizza (KENNY YOO/MBJ)

Meanwhile, Palermo’s approach to maintaining profits includes reformulating products in terms of sizes, Fallucca said.

“If you look at a bag of chips, it used to be 12 ounces, now it’s 8,” he said. “There are things that can be done.”

Both Milwaukee Pretzel and O&H Danish Bakery developed new online revenue streams during the pandemic. Milwaukee Pretzel advanced plans for e-commerce by a year after success with home deliveries. The company also started selling to retailers rather than just the previous base of food-service customers, Wessel said.

O&H discovered that many customers preferred ordering via an app, and now the company has streamlined the process, Gazzalo said.

“It’s something we probably never would’ve ventured into,” he said.

Rich Kirchen, Milwaukee Business Journal

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