Why vegetable oil prices are on the rise, and what restaurant chains can do about it
The cost of cooking oils are at multi-year highs, with The Food and Agriculture Organization (FAO) publishing a report this month announcing the “price index for oilseeds remained on an upward trajectory...to its highest level since October 2012.” Rising restaurant commodity costs and crushing demand, compounded by supply chain issues and labor shortages from the COVID-19 pandemic, have left restaurants reeling. If that wasn’t enough, state and local government biodiesel mandates to lower carbon emissions are now creating even more
Source: Chicago Board of Trade (CBOT)
demand on the edible oil industry, and there doesn’t seem to be an end in sight. However, while the news seems dire, there are things restaurant operators can and should be doing to mitigate these challenges of the new normal.
The situation: Vegetable oil prices rising
The Bureau of Labor Statistics indicates food prices in general have jumped 3.9% and are expected to continue to rise - check out this infographic. Going into 2020, oil prices in specific were the lowest they had been in years, but a confluence of new biodiesel laws and the COVID-19 pandemic has seemingly caused a quagmire for the cooking oil industry.
The cause
In the U.S., the largest share of vegetable oil is soybean oil - making up more than 70% of the market share, followed distantly by canola oil, corn oil, then palm oil.
If we focus just on the U.S. soybean oil industry, a 26 billion pound industry, about half (13.5 to 14 billion pounds) of that would be used for food. However, in recent years states including California, Oregon, Washington, Colorado, Illinois, Minnesota, and North Dakota have all issued biodiesel blend or renewable mandates requiring an increasing percentage of biodiesel to be made with cooking oil. Since soybean oil is the largest share of the U.S. oil industry, most of the demand falls on the same oil. Currently, if you were to convert every single pound of vegetable oil to biodiesel, it would only cover 7% of the US requirement. So there is no way that enough vegetable based biodiesel can be produced to fulfill existing biodiesel needs.
While a handful of new biodiesel facilities are being created across the country, the demand for food cooking oil and the increasing biodiesel mandates continue to require more oil production.
Two additional challenges restaurants are facing are simply factors of the pandemic: a labor shortage and biodiesel getting first dibs on oil buying.
Before the pandemic, oil producers would reach out first to the restaurant industry to sell their products since biodiesel can be created from used cooking oil. However, during Q2 of 2021, producers sold to biodiesel first, not expecting the restaurant industry to bounce back as strongly or quickly as it has. The impact this has had on smaller restaurants has been tremendous.
The impact
In order to survive, restaurants have gotten creative with their approach. Many places slimmed down their menus, stopped offering limited-time menu items, and switched from more fresh ingredients to prepackaged foods that travel better for takeout and delivery. Part of this was to remain afloat during the pandemic, but it was also due to rising food costs resulting from meat processors reducing output or distributors running short on products further.
Some restaurants are authorizing significant price increases to offset these food prices, which will ultimately trickle down to the consumer.
The (non) solution: Switching Oils
Unfortunately, the knee-jerk reaction may be to switch oil types, but that isn’t a solution for a variety of reasons:
- Lack of supply - Even if a small percentage of QSR or fast casual restaurants wanted to switch oils, there isn’t enough canola or palm oil to accommodate the switch. Additionally, those oils are also facing the same price increases and rise in demands.
- Changes in flavor profile - Soybean oil is known for its neutral or even bland flavor profile. In America, our palates have been trained to prefer the clean flavor offered by clearer oils as opposed to globally, where palm oil is enjoyed for its strong flavor. If a well-known restaurant chain were to switch oils, chances are, their clientele would notice.
- Oil mixing is a bad idea - All oils are not equal. There are obvious flavor profile differences which would be a problem for large chains that rely on consistent flavor across hundreds or thousands of locations. For everyone else there are also differences in smoke points to consider. Different oils can start to smoke or catch fire at different temperatures. This creates a possible safety situation, can alter the taste of the food, and may even release unhealthy chemical combinations into your food.
The temporary action
Since the U.S. cooking oil prices are the current reality, restaurants are coming up with clever ways to adjust. In talking with our many customers, even large QSR chains are limiting their portion sizes, offering only one size instead of the more common small, medium, and large. Those same chains are also receiving directives from corporate about managing their oil usage. Additionally, some of our mid-sized fast casual chains have started focusing on sourcing and using ingredients they know they can get vs. prioritizing what sells best in order to ensure they have items on their menus to sell.
The big questions and the actionable solutions
If you’re a cooking-oil supplier talking to a restaurant operator today, chances are, you’re going to get three specific questions:
- Is there any end in sight to the shortage?
- How can we guarantee our oil supply?
- Are there ways to mitigate future price increases?
Unfortunately, there aren’t any easy answers. But, there are some things restaurant operators can do now to help improve labor efficiency and oil efficiency going forward.
1. Extend your oil life
Did you know that well-managed, properly filtered oil, used in conjunction with regularly maintained equipment, helps reduce kitchen costs and waste while increasing operational efficiencies and productivity?
Here are a few things you can do right away to improve the life of your cooking oil.
- Filter oil twice a day - Proper filtration is the most important step in extending the life of fryer oil.
- Use Magnesol powder - MAGNESOL® is a safe, pure white compound that removes both solid and dissolved impurities from used oil to provide extended oil life. Your oil stays clear and clean so that you can provide the customer with consistent, crisp fried foods.
For every day you properly manage your oil, it gains two days in functional oil life. While many factors determine the life of your oil - including the oil type, quality, food you make, how often you use the fryer, etc. - a medium durability oil that is properly managed and filtered like premium soy can generally be used for 7-10 days.
2. Optimize and consolidate your menu
Instead of using a menu with many pages, focus on a handful of items instead. This can reduce food waste for items that aren’t selling, and narrow down ingredients in a time when supply-chains are impacted.
3. Increase labor productivity
While everyone is trying to adapt to this ongoing situation, the labor shortage is exacerbating and sometimes overshadowing the problem of rising oil costs. QSR workers are already responsible for managing many daily tasks, but now with less staff, their to-do lists have grown exponentially. That means oil management has moved down the list of priorities.
However, there is a solution. The lack of available workers requires fewer people to do more, and efficiency is critical. One way to do this is to automate back-of-house operations. For example, a total oil management solution eliminates the need for your workers to empty oil from your fryers, fill your fryers with new oil, order oil, and more. Additionally, an oil management solution removes the danger which comes with changing oil. Usually, only a few employees have the ability and willingness to deal with the oil, but our Total Oil Management solution allows anyone to do it with the push of a button. This is especially handy now as more and more QSRs are hiring younger employees who aren’t as experienced in the kitchen.
4. Ensure your oil supply with quality partners
In times when supply is so stretched, your vendors matter. Bigger vendors have significant buying power, and that means your likelihood of getting oil increases.
5. Offset your costs by selling used oil
One of the rays of hope is the exponential rise of the used cooking oil market. While it probably won’t fully offset the increasing vegetable oil prices, premium used oil is going for a pretty penny.
Not all used oil is created equal. For restaurants using an enclosed oil system, which prevents the oil from being exposed to the elements, they will receive a higher return because it is a better quality used oil. Since that oil can be used for biodiesel, it has now become a sought-after commodity.
6. Cut costs in other places
Another action restaurant owners can take is to eliminate different food sizes. Instead of offering small, medium, and large fries, it may be time to consider offering only one size. Not only will that lessen food costs, it also lessens packaging expenditures.
7. The last resort: Increase prices
No one wants to do this, but desperate times call for desperate measures.
We know these are challenging times for many reasons, but some of the greatest inventions have come from necessity. By making slight changes to restaurant menus, restaurant operators can have an immediate impact on the bottom line. Using smart and effective measures with cooking oil can extend its lifetime, and will pay off in dividends when selling used cooking oil. Partnering with a company who can help increase labor productivity by automating some of the less desirable jobs in the back of the house,, can also make a huge difference.
We’re all in this together, so let us help.