Background and Challenge
The restaurant industry is increasingly competitive and is forcing eateries to come up with creative dishes that are appetizing for the palate and the wallet. One quick service restaurant (QSR) chain was working to set itself apart by stressing the freshness and quality of its ingredients, while simultaneously offering low prices. The private equity firm (PE) firm that acquired the company was enticed by this proposition but was concerned about the restaurant’s soaring costs.
The PE firm enlisted L.E.K. Consulting to analyze the company’s operations – especially its procurement strategy and approach – to identify systemic cost savings for this restaurant chain with several hundred locations.
Approach and Recommendations
The L.E.K. team examined more than 30 commodity spending areas to understand the scope of products and services used for regular operations, literally spanning from condiments to gloves for food preparation. Once L.E.K. gained a detailed framework of the restaurant’s non-labor costs, L.E.K. undertook the following actions:
- Identified cost reduction opportunities:
- Benchmarked the data with other internal data sources
- Estimated savings potential by commodity groups and sub-groups
- Assessed the ease and process to achieve savings:
- Highlighted the potential barriers, pitfalls and constraints to achieving savings targets
- Developed recommended next steps and timeline to achieve savings
L.E.K. developed a detailed presentation that addressed the company’s commodity purchasing strategy and identified opportunities to potentially save over $1 million annually. Importantly, L.E.K.’s recommendations were actionable and presented cost-saving opportunities on a product-by-product basis. Based on L.E.K.’s recommendations, restaurant management initiated certain changes and is planning to enact additional changes to yield these savings.