Of single malts, supply woes and inflation

A man goes into a bar and orders a glass of Whisky Sour, that perfectly blended velvety cocktail. He wants a single malt, the king of whiskeys, in his mixed drink, but it’s not available, says the bartender apologetically.

Instead, the bartender offers the blended kind, Double Black.

It is Saturday night in Poblacion and everyone cooped up for 20 months at home because of the pandemic is painting this bustling district red.

But while night owls have returned, supplies haven’t normalized.

Multiply the situation in this bar a thousand fold and you’ll pretty much get a picture of the supply problems many companies are grappling with now, a problem that started when COVID-19 struck.

It’s the reason you don’t see the usual finds when you shop in the supermarkets, drug stores, and even in the wet markets these days.

So don’t raise a howl if some items in the menu aren’t available when you dine in your favorite restaurant. For now, it’s good enough you get to eat out, if you love doing that.

Supply chain disruptions

At the 47th Philippine Business Conference, top company executives, including Jollibee president and CEO Ernesto Tanmantiong and LT Group president and COO Michael Tan shared how their respective conglomerates have had to deal with supply chain disruptions.

Food giant Jollibee Group is one such group that was not spared from this problem.

“A key challenge is supply chain,” Tanmantiong said in a virtual panel, noting that there were a lot of disruptions because some materials were not readily available and the flow of supply drastically changed.

Tan, for his part, said COVID-19 indeed posed a major challenge for businesses.

“We’re prepared for earthquakes, typhoons, but this one is unexpected...no matter how much you plan, somebody’s going to throw a curveball at you,” he said.

Jollibee addressed the supply challenges by strengthening relationships with suppliers, increasing the company’s demand forecasting frequency, and optimizing inventory to create long-term solutions, Tanmantiong said.

WIth these initiatives and digitization efforts, the Jollibee Group is now slowly recovering and getting closer to pre-COVID-19 levels of 2019, he said.

Learning from the pandemic-related disruptions, Tan said it is important to increase inventory levels.

Asked about the advice he can give to smaller companies, Tan said they have to look at their logistics supply chain, establish relations with banks so they can have access to credit, and be more adaptive and move with whatever crisis they encounter.

Inflationary pressures, rising business costs

Along with the supply problems come rising costs of raw materials, which are causing inflationary pressures.

I also recently had a chat with some of the biggest players in the country’s infrastructure industry, including D.M. Consunji Inc. (DMCI) president Jorge Consunji, EEI president and CEO Roberto Jose Castillo, and Philippine Constructors Association program director Anthony Mariano. They all said that prices of construction materials have been going up, with demand now returning to pre COVID-19 levels.

Concrete aggregates, for instance, now cost P1,200 per cubic meter from P950 per cm before the pandemic; steel billets, used for making steel bars, now cost P60 per kilo from P32 per kilo pre-COVID-19.

Ayala president and CEO Fernando Zobel de Ayala, in his engaging interview with Bloomberg TV last week, said the country’s oldest conglomerate is, likewise, feeling the pinch of rising business costs, but expressed hopes it will be transitory.

“It has happened, and it has happened in the Philippines, too. It’s politically sensitive because of the food costs, but the government is doing everything it can to try and control it, to try and bring it down. We’re feeling it in construction prices and in many other areas, so we’re hoping it’s temporary in nature as a result of some of the supply chain problems. We hope these prices will go down,” Zobel said.

Inflation, indeed, is a major concern now and it’s sure to affect growth next year.

Monetary authorities are, likewise, saying that elevated inflation, which remains up even as it inched down to 4.6 percent in October from 4.8 percent in September, is transitory.

The Bangko Sentral ng Pilipinas kept policy rates unchanged and adjusted its latest inflation forecast for the year to 4.3 percent for 2021, slightly lower than the previous estimate of 4.4 percent.

But with inflation largely driven by supply-side factors, we will need more than monetary measures. We need to keep the local food supply stable to ease food prices. We could also use some additional stimulus, but we’re already facing constraints. It’s good to know that deliberations for next year’s budget are already moving.

Inflation is no doubt still elevated with the average inflation of 4.5 percent from January to October still above the two percent to four percent target of the BSP.

Indeed, while everyone’s excited and it seems we’re all confident that the economy has reopened, the problems I discussed here are all big threats to growth next year.

The result is that Filipinos will have to shell out more to put food on the table and to be able to afford basic commodities.

The lack of one’s choice of poison in one’s favorite bar is the least troubling effect of this alarming situation, if any. Besides, with these looming threats, it would really be too early to pop the champagne bottles just yet.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com