US Food Service Industry Overview  

The US food service industry is nearly equal in size to food retailing. The category includes full-service restaurants, fast food outlets, catering, and vending companies, some cafeterias, and carry out operations. However, distributors and manufacturers in the US food service industry cannot assume that these operators will continue to drive incremental profitability. They will have to address commodity swings, increasing operator level costs, and rising input costs. Also, they must identify strategic purchasing practices to address the reducing profitability of the market due to the penetration of GPOs and independent operators across all foodservice segments.

Business Challenges Faced 

The client is a leading company in the US food service industry that manages numerous brands and operates 250 cafes in different US states. The growing nature of contracted procurement in the US food service industry was suppressing the profit margins of the client. Group purchasing organizations were becoming power buyers and taking their negotiated prices meant for customers. Margins, that were already compressing over the past several years, tightened even more and started impacting the health and strength of the business. The client, therefore, decided to collaborate with SpendEdge to identify strategic purchasing practices to manage the change proactively and better prepare themselves for the shift. 

Inability to increase profit margins can prove to be a major barrier for the growth of companies in the US food service industry. Request a free proposal to access our complete portfolio of purchasing solutions and identify strategic purchasing practices.

Our Research Approach 

To help the client identify strategic purchasing practices, our experts provided a comprehensive overview of the sales and volume incrementality of GPOs and another contract business relative to the lower overall margin. They offered market insights that helped the client understand key leverage points and create pull at the operator level to avoid the commodity trap.

Seeing the complex nature of the purchase, our experts recommended auditing and managing trade-spending programs. Understanding true cost to service and ensuring contract compliance reduced the leakage of funds, thereby, improving profitability. Also, the engagement helped the client to become much more efficient in terms of logistics and drop sizes. Suppliers who were reliable in multiple dimensions were chosen to ship products on time without error. Purchasing relationships were simplified to improve the sourcing process and achieve minimalism in supplier arrangements.

Engagement Outcome

Based on our experts’ recommendation, the client started using contract pricing to ensure that higher-margin business remains profitable. They ensured favorable pricing based on the contract for operators to avoid price-extendibility. Also, strategic purchasing practices identified provided necessary insights to deploy sales force as activities changed from demand creation to driving compliance.

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Key Strategic Purchasing Practices for the US Food Service Industry

• Acquire knowledge of the other enterprise’s social values to improve the supply chain socialization process.
• Integrate with suppliers at the operational level for improving business performance.
• Engage with fewer suppliers to reduce costs, improve design cycle times and foster innovation development.