Thriving in Food Service through Sourcing and Procurement

Posted by Brian Miller on Apr 23, 2015 8:00:00 AM

Food service is a tough industry to navigate. It’s difficult for even the most popular chains to grow and profit amidst a constant state of new and evolving market pressures. With the onset of volatile food and commodity prices, unpredictable consumer spending, more regulations, new entrants (did someone say food trucks?) andconsumer empowerment, the fight for consumer dollars has never been more intense.

For the first time in four months, U.S. consumer spending rose in March, but this tiny gain wasn’t enough to offset the winter slump. Sales at retailers and restaurants increased only 0.9% last month to $441.4 billion, which is disappointing considering economists projected that the industry would need at least a 1.1% increase to offset three months of decline.

So, in the face of all this pressure, how do restaurants thrive? The answer lies in incorporating a strategic approach to sourcing as a part of the overall procurement strategy. Here are six strategies restaurants need to leverage to hedge against these market challenges and improve overall business outcomes:

1. Expand Sourcing GoalsWith more consumers prioritizing high-quality, healthy, fresh and responsibly-sourced ingredients and products, it’s critical for restaurants to look beyond just cost and contract terms when evaluating suppliers. Developing relationships with suppliers will aid in finding new and higher quality sources of supply which will ultimately deliver the right value. Being more transparent – and having the means to show customers where the ingredients you source come from – is also becoming more important.
   
2. Strategically AssessIt’s critical for restaurants to have a clear picture of the most profitable locations and categories, and then use that data to make more informed sourcing and marketing decisions. For example, if shrimp prices continue to rise, does it make sense to continue to invest in shrimp as a featured menu item? If it’s in high demand at your restaurant, than the answer is easy.  But if it’s not a popular item, it could be more profitable to rethink the menu. The same goes for retail space – which locations are producing, and which ones are setting you back, relative to the costs of that specific location? Decisions like this can’t be made in a vacuum – restaurant executives need to gather and weigh data on consumer demand, category sentiment, market costs and profitability.
   
3. Revaluate RelationshipsWhen a category is taken to auction through e-sourcing, restaurants will typically find that there’s a better deal available than what they had originally. This might mean switching suppliers, but more often than not, the incumbent ends up lowering its own price to keep your business. The savings can be substantial.
   
4. Uncover New Categories With the volatility in food and commodity prices expected to continue, running auctions on only a handful of categories is not wise. Knowing where to look for savings beyond typical categories, such as on the operational side, will help you source more effectively and efficiently with the right suppliers.
   
5. Diversify to Mitigate RiskRisk should be one of the first factors sourcing professionals consider when evaluating a supplier, as it often has a larger financial impact than the initial terms or cost. A diversified supply base is vital to mitigating risk, and having visibility into the locations of supplier manufacturing plants and where the ingredients are actually produced will help predict risky situations before disruptions occur. 
   
6. Collaborate with StakeholdersThe business outcomes of boosting internal collaboration are substantial. For example, teaming up with marketing to gain a better understanding of what’s important to consumers should not be overlooked. External collaboration with strategic suppliers and customers also has potential to drive significant results.