How to manage foodservice profitability

Focusing on sales is extremely important in any business. After all, sales cure all ills.

This is especially relevant in a grab-and-go foodservice environment, where focusing on sales begins with your display cases. A full case conveys freshness to the consumer, which can equate to more sales. But inventory must be managed effectively to ensure incremental profits are not lost due to waste.

Implementing an inventory and production software solution customized for a grab-and-go foodservice program can minimize daily spoils by managing products with varied code dates, developing sales projections for those products, providing production schedules for staff, and even improving overall merchandising impact.

An important piece to creating foodservice profitability is ensuring that waste is within a certain tolerance.

A waste target must encompass what we call a “merchandising factor” – the amount of product needed on-shelf to ensure the item is merchandised well to the consumer.

Waste will also include overproduction, spoils and returns. Additionally, waste needs to be balanced with an in-stock position to ensure customers can find what they want, when they want it.

The solution may sound simple; however, the execution is not.

To maximize profits, it is essential to know how much to order, what to make and when to make it.  Having too much inventory creates excess waste and erodes profit margins, while having too little prevents category growth and negatively impacts customer satisfaction.

The executive team must not only be committed to the concept of putting the right product on the shelf at the right time, but also to providing the resources necessary for these efforts to be successful. This applies to groups with beverage-only programs, in-store production as simple as roller grill, complex sandwich and entrée programs, or commissary operations.

Balancing controlled waste and the need to facilitate good merchandising is necessary to maximize the success of a grab-and-go or made-to-order program.

Do you include a merchandising “waste factor” in your foodservice management plans?

Growing profitable sales is important to the long-term prosperity of your retail business. It is impossible for any successful foodservice retailer to separate effective merchandising from efficient waste management as key factors in maximizing the profitability of a foodservice program.

Typically, “waste as a percentage of X” is used by industry executives when discussing performance. While this may be sufficient for a general program comparison, in order to perform a more comprehensive analysis, additional foodservice management principles must be evaluated. These metrics include: fresh item subcategory merchandising goals, shelf life and subcategory expected vs. actual per store, and profitability performance.

Unique to fresh-food development, category management principles must be enhanced with the creation of targeted waste numbers for each subcategory to ensure adequate merchandising and sales. Each fresh item category should measure its gross profit margin ​after waste.

​Holding warmers, coolers and bakery displays can make a significant impact on merchandising – and sales. Investing in cooking equipment to handle mass production will help staff meet demand during peak timeframes. Also, foodservice retailers should avoid offering product with a short shelf life during hours when staff is limited as this can hurt the execution.

PATTERNS & FORECASTS

It can be incredibly beneficial for retail businesses to identify the patterns that can appear in day-to-day operations. For example, if a supplier who delivers products to the store across the street is always there on the same day of the week and visits you after that, this can help to create a forecast based on this history that you should trust.

While you cannot forecast when a bus may pull in, having products with longer shelf life can ensure product availability without the need for instant production or the waste that can result.

For those products with a shorter shelf life, make less more often and commit to the forecast. Think of the forecast as guardrails on a road. Your challenge is to narrow the guardrails as much as possible while still allowing free-flowing movement.

Another key consideration is the volume of each store. If a chain has committed to making the store experience the same regardless of volume, this lack of customization will lead to insufficient product availability for higher-volume locations, and increased waste for locations with lower volume.

A high-volume store can be running 12 percent waste (as a percentage of sales) but should be at 5 percent because it is not executing to the plan, while a low-volume store could be perfectly executing the merchandising plan and have an overall waste of 20 percent. Therefore, some stores should be managed via percentages and some managed via units, depending upon their volume.

To simplify the production and ordering processes for store personnel, it is best to generate a forecast that includes a merchandising factor.

The correct target for fresh-food waste will vary by organization and the formula being used to represent it. From my experience, an acceptable percentage of waste (to sales) for shorter shelf life product is approximately 15 percent (depending on volume), while products with longer shelf life should have almost no waste – if proper stock rotation occurs.

In summary, if a store sells less of an item and meets the waste goal, one can conclude the store did not have the product out at the right time of the day. If a store sells more than the forecast and is short of the waste goal, they either were not paying attention as well as they should be, or the forecast may require adjustment. If a store sells more than the forecast and meets the waste goal, they are doing an excellent job.

Kay Segal is senior partner and managing executive for The Business Accelerator Team. Having started her career in foodservice operations and moved into convenience retail marketing, Segal shares nuanced insight from years of relevant experience in foodservice, retail, media and business development. Originally published at Convenience Store News.