Good news from the latest Consumer Confidence Index: Consumer confidence is up to its highest levels in eight months. However, this news is tempered by figures that demonstrate consumer confidence is still low overall by historical measures. Additionally,, a June 2 report from the Commerce Department reports a continued reduction in spending of 0.1 percent overall and by 0.6 percent for nondurables like food and clothing. It’s no wonder that today’s consumers are more thrifty, saving more than ever and cautiously spending less due to rising unemployment and declining housing values. How does this cautious consumer affect the foodservice industry? More importantly, what are chain leaders doing about it?
Poor Economy Raises Demand for Value and Service
Food industry trading partners know that the economic decline has caused consumers’ expectations of value and service to rise. Recent research from Technomic shows that most consumers do not expect the economy to readily improve and are increasingly seeking out promotions and discounts such as fixed price, value meals, etc. In addition, the survey reports that while consumers plan to reduce the number of visits to restaurants, they also plan to reduce the alcohol, dessert and appetizers they buy, all while expecting better service because business is more precious now.
The challenge for restaurant chains is how to offer greater value to their customers to drive more sales. Successful chains are improving supply chain operations to meet these challenges, deliver value and increase traffic. Take these two examples:
Wendy’s implemented a complete supply chain solution that enabled more informed and timely forecasting and product movement decisions that are particularly important for effective promotions. So despite the economy and its impact on the industry, the company can stay profitable. The solution provides:
- integrated and synchronized supply chain data from all distributors, with critical data available daily
- usage tracked daily within a promotion
- real-time access to data for finance, marketing and other functional areas, and
- dynamic routing for nimble and cost-effective freight management
Arby’s increased SKUs by 300% due primarily to executing an aggressive promotions strategy and managing the added complexity with an integrated supply chain solution that:
- validates that supply plans are executed by the company’s DC partners,
- makes it simple to set order caps for auto-shipments of items and validate the dates and quantities of auto-shipments by the distribution centers, and
- eliminates dollars lost in misdirected inventory and advertising by reducing the incidence of out-of-stocks late in a promotion.
So, while a promotion can entice a visit, fulfilling service expectations including product availability and price ensures a positive experience, which has been deemed critical during these tough economic times.
Arby’s found that its integrated supply chain broadens its menu item selection and pricing options because it can capture all purchasing data and view it by category so the chain sees opportunities to negotiate volume purchases with suppliers. The result is that consumers get more choices at a better price, and the chain gets a better bottom line.
The chain also gets distribution fee pricing stability by controlling the parameters and data for the distribution RFPs. Arby’s and its distributors now estimate from the same information creating a fair and accurate proposal process, delivering protection from late price changes.
Interestingly, a recent NRA survey asking chain operators how they plan to deal with the economic downturn and control costs showed only two of seven strategies named by respondents involved the supply chain. Instead, “negotiate further with distributors” and “carry less inventory” topped the list as strategies for surviving economic tough times.
Yet successful chains like Arby’s and Wendy’s have demonstrated, it’s not just about carrying less inventory, but rather about making smarter decisions about product movement and sharing information with trading partners. The result is a transparent and therefore more efficient and profitable supply chain process for all.
Steve LaVoie
slavoie@arrowstream.com