Over the recent years, the eating-out-of-home sector has evolved tremendously, and of course, had more than its fair share of challenges. Never has this been truer than today, and with cost pressures and uncertainty facing businesses, coupled with consumers feeling the squeeze on their finances, we predict even more challenging times are ahead.
Competition across the casual dining space is fierce, the emergence of pop-ups and street food is continuing, and we are seeing more and more people challenging the traditional model of casual dining, by staying at home and ordering their favourite foods to their door using their smart phones. We expect these technologies to develop further in this arena going forward, which will of course require investment, and at a time when businesses are already seeking to cut costs, we believe that there are many commercial opportunities to enhance your EBITDA, and your procurement and supply chain team will play a central role.
What role should procurement play in this?
Traditionally, procurement professionals are experts in extracting commercial value through sourcing great suppliers and negotiating deals. To many, procurement is simply the gatekeeper of the supply chain. In order to realise even greater success, procurement needs to play a much larger role.
Seasoned procurement people are skilled in affecting change and bringing cross-functional teams together, farm to fork, to deliver improved EBITDA to reduce cost of goods, optimise cost to serve and improve sales. In this vein, we see the role of procurement as the party organiser, the agent for change in a sector where a holistic approach is the crucial ingredient for success.
This may sound simplistic, but we know from experience that businesses find this difficult to achieve. Little wonder when they have to balance the need for supply chain agility in responding quickly to consumer trends, with the need to be an attractive customer to suppliers, along with maintaining a robust and transparent supply chain that meets all of your social and ethical sourcing principles, all against the backdrop of rising costs. Oh, and cheaper than ever before too!
So, what issues are organisations in this sector facing?
Organisations in this sector are facing many issues which can be addressed when working collaboratively farm to fork:
- Rising COGS
- Spiraling of costs to serve
- Dwindling sales
To address these issues, we support our clients to manage and improve margin, end to end, with the joint objective of improving EBITDA. Procurement and supply chain can’t do this alone, nor can Operations, Marketing or Product Development; we all have a role to play.
But how? We believe organisations should be addressing the following:
- Menu analytics and optimisation – do you know how your menu is performing, which products are contributing, and which products aren’t pulling their weight? Menu and basket analysis calculate margin across your range, enabling you to make decision to de-list, re-engineer or just take the margin hit.
- Cost of Goods Sold (COGS) management – the bulk of your cost base, but are you getting value from your supply base? Reviewing levers such as specification, pack size, QUIDs and packaging requirements can improve leverage in the supply market.
- Manage the often-unloved goods not for resale (GNFR) – these costs can account for up to 20% of your cost base and often have no, or little professional procurement attention; with savings potential of between 8-15% this leaves untapped EBITDA improvement on the table.
- Supply chain strategy – is your range limited by your current distributor? Are products often unavailable? Is your distributor bringing innovation to your business, continuously improving service to reduce cost and improve operational efficiency?
- Sales improvement – understanding how your range performs, the role of halo products and what customers buy together can help optimise your menu and drive increase sales. In addition, simplifying in-restaurant prep will reduce labour costs, simplify operations and improve table turn.
At 4C Associates, we regularly carry out reviews and assessments of the effectiveness of our clients’ commercial operation and understand how we can help them unlock value through the development and implementation of creative and transformative delivery models. Central to our method is instilling a holistic approach to procurement and taking a forensic review of the end-to-end value chain to ensure that commercial value is unlocked wherever possible. Considering the challenges currently being experienced by across the casual dining industry, the opportunity to benefit from our support, technology and expertise is more significant than ever. If you would like to know more about how we can support you with this, we would be delighted to hear from you.