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Supply Managers Retool for the Recession
Expect more limited-time offerings, as well as better supply-chain management to execute them.
LTOs and better management help restaurant supply chains in tough economic times.

Quick-serves might be the lucky beneficiaries of cash-strapped consumers, but there is still plenty of room for gloom as both they and casual-dining operators confront bleak economic tidings for the coming year.

In addition to a deepening recession, the two segments face the continued prospect of swelling commodity costs, factors that are prompting both to place renewed emphasis on menu enhancement and customer satisfaction, as well as cost control, revenue enhancement, and greater foot traffic, according to a survey of supply chain managers by Chicago-based software supplier ArrowStream.

Managers acknowledge that meeting these priorities will depend in part on their ability to better synchronize their supply chains with suppliers’, whether a matter of balancing cost and pricing or inventory and demand.

Accurate forecasting, they say, is critical, as it drives investment in the key areas of marketing, product development, inventory, and distribution, all question marks in the case of discounts, combos, new menu items, and other limited-time offerings operators are deploying to drive greater foot traffic.

Orlando, Florida–based Red Lobster famously stumbled in 2003 when customers feasting on its "Endless Crab" promotion unexpectedly returned for seconds and thirds, thereby eroding profits at a time when wholesale prices for shellfish were soaring.

The good news is that chains have gotten better at projecting sales as a result of POS software and similar technologies, says Danny Bendas, managing partner with Laguna Beach, California–based Synergy Restaurant Consultants.

"Operators also have grown more accustomed to running LTO promotions," Bendas says. "You tend to see more of them during economic downturns, but they've also become more prevalent in good times as chains compete for share of stomach."

"The objective is to engage the customer with a value-oriented promotion while controlling costs," says Bob Goldin, executive vice president with Chicago-based foodservice consultant Technomic, Inc. "Subway's foot-long sandwich for $5 is a great value-oriented promotion, though what it's done for the chain's bottom line I can't say. It certainly has generated a lot of foot traffic."

Studies indicate operators currently are devoting as much as 75 percent of their total annual investment to LTOs, a fact David Cox, president of Atlanta-based ARCOP, Arby's nonprofit purchasing and distribution cooperative group, knows all too well.

This year alone, ARCOP has managed more than 76 promotions and tests for 161SKUs in order to "stay competitive in this current economic climate," Cox says.

As product offerings multiply, so does the paperwork. Among other strategies, ARCOP has adopted supply chain software that automates tasks such as invoicing while synchronizing with the data of product suppliers and distributors.

How efficiently operators interface with the two has an obvious impact on costs and consumer satisfaction.

"Guest satisfaction is our No.1 priority, says David Parsley, senior vice president of supply chain for Glendale, California–based DineEquity Inc., parent company of Applebee’s and IHOP. “We must make sure that items are available when guests want them. There is no room for disappointment. One way we ensure we deliver on our commitment to the guest is by creating fluid supply chains that only can be achieved through visibility across our network."

His mantra: Integrate, integrate, integrate.

Efforts are all the more effective when suppliers provide a central data repository for product, shipment and contract pricing data—an approach that saves time while enhancing product quality and pricing. As a result of integrating its data with that of its suppliers, ARCOP "no longer calls the [distribution centers] all the time for information because we now have the data at our fingertips," says Wendy Kleefeld, vice president of supply chain management. "It saves them, and us, a lot of time."

Time is of particular essence with LTOs, which are intended to score quick wins and speedy returns on investments.

The more efficiently they integrate, the more quickly and efficiently operators can implement their promotions, says Alan Stukalsky, CIO with Atlanta-based Church’s Chicken. “To gain optimal visibility from the supplier to the back door of the store, we sought a system that would readily link distributor information to our systems,” he says.

The one bright spot in the economy is lower oil prices, even if they denote slackening demand for consumer goods and services.

One way we ensure we deliver on our commitment to the guest is by creating fluid supply chains that only can be achieved through visibility across our network.”

And while restaurant operators might be feeling some momentary relief from higher fuel-related costs, but the issue of fluid product movement remains central to implementing LTOs.

One option—and one exercised by Steak 'n Shake—leverages nationwide transportation networks fueled by freight optimization technology.

"We've already realized more than 25 percent in savings, says Scott Deibert, vice president of supply chain management with Indianapolis-based Steak ‘n Shake, "and project future savings to keep growing.”

Which is the challenge in a shrinking economy.