Via Forbes : Restaurant industry sales in the United States are expected to reach $799 billion in 2017. That’s a lot of burgers, chicken, fries, salads, burritos and milkshakes!
While top line revenue growth is moderate, the market research company NPD Group reports that U.S. foodservice traffic actually declined in 2016. One of the key factors is changing consumer tastes. Market research company Datassential found that America’s top 300 chain restaurants and convenience stores introduced a staggering 5,113 new menu items over the past 12 months in the effort to appeal to changing consumer tastes. “What is interesting is not the types of items that are new, what’s in them,” said Jack Li, who is a member of the Datassential research team. According to Datassential, chain restaurants have been betting on trendy ingredients including kale and quinoa, items you never would have found on a chain restaurant menu just a few years ago.
Larry Oberkfell, President and CEO of the International Foodservice Manufacturers Association (IFMA) sees this as a wake-up call for the industry. “The consumer votes with their feet and if we are to win their dollar then all players in the supply chain must work together to give them what they want. And there is a lot at stake to do so. The food service industry is the second largest private employer in the United States and counts nearly 15 million among its workforce (10% of the overall U.S. workforce).”
IFMA, together with HAVI, a supply chain management firm with deep expertise in food service, and Kinetic12, a food industry management consulting firm, are orchestrating a Supply Chain Optimization initiative. The initiative is the first of its kind in the foodservice industry and is bringing together the biggest brands and suppliers as part of the initiative. Their collective objective is to evaluate how to optimize supply chain practices across all of the key stakeholders and to address how the movement of foods from farm to fork can bring new offerings to meet changing consumer tastes.
So far, this mega-collaboration seems to be working. The first two industry summits had over 60 participants. All of the major food service industry associations, 15 chain operators, including Arby’s, Burger King, Chick-fil-A, Firehouse Subs, Sonic, Starbucks, Subway and Wendy’s, and leading food manufacturers and distributors came together to create a formal shared vision, set priorities for initiatives and identify areas of opportunity.
HAVI Senior Vice President Ken Shearer sees the start as very promising. “There’s real power in having operators, manufacturers, distributors and industry experts at the table together, working to pioneer solutions that will have a real impact on the challenges impacting foodservice supply chains.”
Shearer continues, “We are using a two-pronged approach for the initiative. First, we’re looking at how driving cost and inefficiency out of the supply chain can help businesses impact their bottom lines, freeing up resources to address changing consumer preferences. Second, we’re exploring how enhanced supply chains can broaden the range of fresh foods available. Both of these paths should encourage top-line growth for all players in the foodservice industry.”
IFMA’s Oberkfell, is excited about the potential: “Imagine the growth and cost savings an industry this size could achieve if all parties worked together to root out inefficiencies and improve communication along the supply chain.”
As part of the initiative, the participating organizations gather throughout the year to develop a collaborative, transparent process and toolkit that will enable foodservice supply chains to deliver the right product in the right quantity at the right price to the right place at the right time to ultimately delight the consumer.
I had the opportunity to attend the most recent collaboration summit. Three key areas have emerged as focus areas the group will likely tackle in future sessions.
Three Key Focus Areas
Data: Overwhelmingly, participants in the Supply Chain Optimization initiative cited a lack of quality, reliable data as limiting their ability to operate efficiently. Often, foodservice distributors, chain operators and manufacturers are utilizing different methods of data collection and dissemination. Some have fully integrated ERP and supplier relationship management systems (imagine a restaurant manager being able to quickly place an order via her mobile device) while others are less automated, accepting orders over the phone or via fax that must be manually entered into a system for processing. This takes time and increases the potential for error, which means a restaurant may suddenly find itself with too little or too much inventory.
Shearer explains that “without a single source of truth, proper data integration and solid standards for collecting/entering data into systems, there is significant risk for duplication errors, missed information and miscommunication that will hamper efficiency. Simply put, successful analytics and business intelligence are impossible without quality data.”
The group expects to see standardization of data and more efficient collection among recommended supply chain optimization best practices. And with that standardization consumers should see lower costs, less waste and an enhanced ability for the industry to better deliver fresh foods to the right places.
Forecasting and Planning: Participants noted a lack of process for sharing forecasting and planning information. There is a sense of not knowing what to share, when and with whom. This lack of collective visibility into what is happening at each point along the supply chain limits each partner’s ability to anticipate change and proactively respond to events.
For instance, when procurement managers and suppliers do not have a view of the marketing team’s planned promotions or distributors do not have visibility into inventory levels at restaurants, they cannot accurately forecast supply or preemptively redirect inventory to accommodate changes in demand. HAVI and Kinetic12 believe a key focus area that will emerge is improved collaboration in restaurant brand marketing and supply chain teams working downstream with suppliers to streamline the flow of goods for peak promotion and marketing events. Jeff Schroeder, Managing Partner, Kinetic12 adds, “There is a lot of costs and waste associated with inefficiencies in how promotions are handled today. With better collaboration, the industry should be able to optimize the supply chain. All good news if you are a consumer.”
Communication: The last – and not surprising focus area – that is emerging is communication. “The bedrock of any successful collaboration is communication along the supply chain. It’s essential. Manufacturers, distributors and restaurants cannot optimize efficiencies and curb costs when they operate in siloes independent of one another. Unfortunately, they often do work in silos because they lack the process and trust to effectively communicate with each other or share information up and down the chain,” says Oberkfell.
Typically, communication issues stem from disparate systems and a lack of process that facilitates transparency and information sharing. A key discussion topic at the meeting centered on what information they should share, and when and how to share the information that could help other players upstream or downstream in the supply chain.
Ambitious — But Doable
All admit the work this group has undertaken is ambitious. Oberkfell described the magnitude of the effort. “The sheer size of the U.S. foodservice industry is daunting to contemplate, especially when you consider there are more than one million restaurants in our country. Add to that total the various food manufacturers, distributors, restaurant operators and tangential industries and organizations that support them and the number is truly staggering. The prospective cost and time savings that this group could help the foodservice industry achieve through supply chain optimization is equally impressive.”
It’s too early to tell the results the group will have. But I’m excited about where the Supply Chain Optimization initiative is heading and I will be checking back on the initiative in the coming months to report their progress.
The bottom line: Consumer tastes are changing, marketing is changing and we need supply chains to catch up and propel us forward. This is going to be a game-changer for foodservice and a model for growth for other industries as well. Stay tuned…