5 ways procurement can beef up value in the food service sector
With the objective of improving profitability, operators in the food service sector often deploy strategies to expand and grow market share. However, better management of the cost base can often have a more immediate and sustainable EBITDA impact. Gavin Bowen-Ashwin, a Director at procurement consulting firm 4C Associates, shares five tips.
Over the last few years, the eating-out-of-home sector has evolved at a rapid speed, changing the traditional perception of hospitality and bringing a fair share of challenges for businesses who are faced with cost pressures and uncertainty, coupled with consumers feeling the squeeze on their finances. Consumers are challenging the traditional model of casual dining by staying at home and ordering their favourite foods from their favourite restaurants to their doorstep using mobile devices. These technologies are expected to develop further, increasing the competition and cost levels in an already challenging environment where businesses are looking for opportunities to cut costs.
Businesses have to balance the need for supply chain agility in responding quickly to customer trends, remain attractive to suppliers, along with maintaining a robust and transparent supply chain that meets all of the social and ethical sourcing principles, all against the backdrop of rising costs. To maximise value, focus should be on the costs in the end-to-end value chain – cost saving won’t simply come from better deals on Cost of Goods Sold (COGS). Costs are incurred at every stage of the journey from field to fork, eating away EBITDA margin, and need to be managed.
Whilst to many procurement is simply a gatekeeper of the supply chain, the expert in extracting commercial value through sourcing great suppliers and negotiating deals, seasoned procurement teams are skilled in affecting change and bringing cross-functional teams together. There are five ways procurement can help improve EBITDA by reducing cost of goods, optimising cost to serve and improving sales.
1. Menu analysis
Do you know if your menu is delivering the maximum margin to your business or if your Halo products are working hard enough and which items need to be delisted or promoted? Many organisations are unaware of how their menus are performing, which products are contributing, and which products aren’t pulling their weight. Menu analytics and optimisation can calculate margin across various ranges, enabling businesses to make decisions to de-list, re-engineer or just to take a margin hit.
2. COGS management
Volume is one aspect of buying, but are you aware of the value of your suppliers and how you can reduce costs such as packaging, specification, portion or pack size and distribution? Reviewing these levers can improve leverage in the supply market, reduce costs and drive growth.
3. Indirect cost reduction
Often given little focus, goods not for resale (GNFR) can account for over 20% of your cost base and often have no or very little professional procurement attention, with savings potential of between 8% to 15%. Not reviewing and reducing cost to operate in areas such as property, store fitout, logistics, IT or head office costs can leave untapped EBITDA improvements on the table.
4. Supply chain strategy
Is your range limited by your current distributor or are the required products often unavailable? To drive maximum value, your distributors need to bring continuous innovation and improved service to reduce cost and improve operational efficiency.
5. Restaurant cost reduction
Is your labour model adding value or could preparation be done in your supply chain? Businesses are often unaware of adding unnecessary costs to restaurants and eroding net margins. A high-level benchmark scan of your costs can quickly pinpoint where the opportunities sit to optimise your cost, field to fork, and deliver maximum margin to your bottom line.
