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Surviving in a low growth market

Surviving in a low growth market

Business is slow in South East Queensland’s restaurant and catering industry. According to the Australian Bureau of Statistics, Queensland Foodservice turnover for Cafes, Restaurants and Catering businesses is currently down 3.14% for the year to August. A recent survey by MOCO Food Services of nearly 200 South East Queensland Foodservice customers reflect this trend, with approximately 40% of respondents stating that they have been quieter this month in comparison to the same time last year.

The response to low growth by foodservice suppliers has been to consolidate. From July 1st, all Combined Foodservices of Australia (CFA) members merged into the Countrywide buying group in a move to provide more competitive pricing for end customers. At the same time, Quadrant Private Equity has merged foodservice suppliers from Melbourne with those in Sydney to build economies of scale. Similarly, national provider Bidvest has acquired seven food businesses as part of its national growth-by-acquisition strategy.

Business owners of restaurants and catering businesses are also taking action to survive this low growth environment. With margins ranging from 3% to 6.7% of total revenue (IBISWorld), increased profitability for business owners lies in reducing their total cost of operations. Traditionally, business owners have sought to decrease total cost of operations in three ways: negotiating lower food prices with suppliers; limiting food wastage, and reducing labour costs through increased technology use.

An emerging approach that is delivering more sustainable results, has been for businesses to work smarter with foodservice suppliers. The goal is to reduce inefficiencies that take place between organisations and create shared gains. Key opportunities include: reducing the distribution economics by optimising the number of deliveries and order size; increasing the accuracy of order capture (and thus reducing rework) through more advanced order entry technology; and reducing food costs through better product selection for a desired menu offering.

Businesses who have taken such a joint approach have found the conversation with their food service supplier shifts. Instead of an adversarial negotiation around cutting the profit pool in their favour, it moves to jointly identifying opportunities, creating significant value and sharing the unlocked gains.

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