The price of wheat has been rising again
Just over the past 2 years or so, we have been facing several uncertainties and challenges from the pandemic to crisis in dining business to disrupted global logistics to a war, which has now been causing the global price of wheat to rise. We have been hearing the news that the already-increasing price of wheat among other things has been again on the rise due to the war in Ukraine.
The price of wheat has been rising across the world, and a lot of things have been rising in cost to the point that it is scary, especially for restaurant and other food businesses.
As a manufacturer of commercial noodle machines, designed for restaurants, we are also concerned over the news and what’s been going on in the world and how this is going to affect our customers. Because wheat flour is the main part of noodles, depending on the effects, this could have large impacts on our customers’ businesses. So, we really want to know how much impact this is going to bring. And if it is very big, we may want to start looking for alternatives or some kinds of solutions to this emerging problem.
Noodle restaurants are having hard time finding their noodles
For restaurants to offer noodle menus, there are basically two ways to source noodles. They can either buy them from a noodle factory or make them on their own. To buy noodles from a local noodle factory, we would have to do Internet search to find reliable noodle suppliers. If we can find them in our neighborhood, that’d be good because the shipping cost may be small. If we need to get them from somewhere far, the shipping cost would be high because the noodles may need to be frozen, etc.
The pandemic contributed to increasingly high shipping costs due to a few reasons. There’s fewer flights due to travel restrictions (Commercial flights are used also to transport goods, and with fewer flights, the cost of a commercial flight is higher.)
For ocean shipments, there’s less workers available at seaports for unloading and onloading containers on cargo ships, slowing down ocean shipping and resulting in fewer available shipments between ports. This slow global shipping has been disrupting global supply chains and affecting many food suppliers, especially ones that import and distribute food items.
Global logistics have been disrupted
Because of this, many restaurants that have been relying on their local food suppliers for certain food items have been finding some of their good selling menus are not impossible to serve because certain food items are now unavailable or unstable in supply.
Many of what these restaurants relied on global distribution to produce, and offer have been affected. For example, some restaurants found frozen noodles they were buying from a local food supplier are now unavailable due to delayed shipments from overseas. Some are realizing a 30% increase in the cost of noodles they buy from a noodle factory that produces the noodles overseas.
These incidents are very challenging for many restaurants. Some have been facing disappointed patrons who frequented their restaurants for the dishes, using those noodles. Others are facing the needs to raise the prices of the menus that use the noodles. Some may have to be forced to find alternative ways to cope with these challenges, such as making their own noodles.
And we now face this increase in the wheat price we are all facing globally. The problem is that we do not know how much the wheat price is still going to increase. We can only estimate it. For example, Nisshin Seifun Group announced the price increase of their wheat flour products on April 8th, 2022. Among them, they raised their hard wheat products (25kg) by JPY370 or about USD3.50. One such product was priced at JPY4,200. So, it is about 9% increase in price or JPY4,570 (about USD40) per 25kg bag. Please note that wheat flours in Japan are probably one of the most expensive flours in the world.
And we can’t avoid asking ourselves this question. How much more would the wheat price increase from now? If the war or any other events that cause the price increase continue, we may see a further rise in price. But we cannot really say for sure. Would the price further increase as much as by 20% or 30%? For example, it took the price of wheat flour (all-purpose) in Japan about 7 years to increase 23%.
The price of wheat flours has been on a rise globally
And there is a 40-year historical chart on wheat prices indicate that the wheat price may be at the highest and still on a rise. But it still does not tell us how much more. What would be the worst-case scenario? Would we be facing a 50% increase? It’d simply mean that the 25kg-bag we are now buying for USD40 is going to be USD60. How would this affect our business if we are buying our noodles or making them?
40-year Historical chart (wheat prices)
Analyze how this price increase is going to affect noodle businesses
To analyze how this is going to impact our customers, many of whom are noodle specialty restaurants, we have done some calculations. To see the impact, we would need to consider the following points.
1. How much would it cost us to make one portion of fresh noodles from scratch?
2. How much could the price of wheat rise, impacting our production cost?
3. How much would it impact the bottom line, the profit?
First, we want to address this question. What is the cost of making one serving of fresh noodles?
How much does the price increase really affect homemade noodle businesses?
To make ramen noodles, we need ingredients. The main ingredients are wheat flours, water, kansui (60% potassium carbonate, 40% sodium carbonate), salt, etc. Then, there is a labor cost. How much we pay people who do all the tasks to make the noodles. Then, the utility fees like electricity, water, etc.
For example, if we make 300 portions of tonkotsu ramen noodles (hydration 28% and serving size 110 grams) in one day, taking into account the cost of wheat flour (USD20 for 25kg), gluten (USD20 for 1kg), salt (USD for 1kg), kansui (USD80 for 12kg), labor (USD12.00/hour), and utility fees, the cost of making one portion of this noodle costs us USD0.25. To make 300 portions of these noodles, it costs us USD75.
Now, how much do you think the price of wheat will rise? And, how much more would we have to pay to buy the same amount of wheat flour for our tonkotsu ramen noodles? Are we looking at a 50% rise? Or, if this drags on, is it possible that we would be experiencing 100% price increase? They would mean we would have to pay USD30 or USD40 for the same bag of flours.
This sounds crazy. Something as commodity as wheat flours double in price? But we cannot dismiss it as nonsense. Let’s say that the cost of wheat flour, the same bag we currently but for USD20 will jump to USD40 a bag in 6 months, how would that affect the cost of making one portion of the same noodles?
Everything else remain the same, the cost of producing one portion of the same noodles is now USD0.32. It is a USD0.07 increase. To make the 300 servings, it would now cost us USD96.00 or USD21.00 more.
What about the restaurants that purchase their noodles from suppliers? How much more would they have to pay to get and serve the same noodles? How much price increase would a noodle factory have to reflect the 50% or even 100% increase in the wheat flour costs or other ingredients into their pricing? Major noodle manufacturers have announced price increases in their products from April 2022. We do not know how much they are going to increase, but they would have to take the cost increases into their pricing to stay profitable.
Depending on which the price increase affects more, bought noodles or homemade noodles, you’d want to make a choice of going homemade or buying noodles from a noodle factory. There are several factors that affect your decisions, such as the daily sales volume, type(s)/size(s) of noodles you want to serve, the level of quality you want for your noodles, etc.
What do you think about this increase in cost? Would the impact be as big as life-threatening to your business if you are running one? Is this analysis just as you expected? Or is it worse than you thought?
Please let us know your thoughts, and if you are interested in getting this calculation done for your business, please let us know. We can do it for free, based on your numbers.
For those who are interested in knowing how much you could save by making your noodles by yourself, you can spend a few minutes to take this quiz.
And if you are interested in checking how Yamato noodle machines work and talk to our noodle experts, please contact us to arrange private demos/meetings.
We do not know how this event is going to turn into and affect noodle restaurant businesses in the coming days and near future. But one thing that’s certain is that we are here to help our customers make the best of this and ride this out together. If interested in discussing your needs in more detail, please feel free to contact us.