Restaurants Redefine Shopping Strategies

Foodservice establishments are taking a new look at how they buy ingredients in order to streamline the process and save money.

April 05, 2011

SEATTLE - With food prices continuing to rise, more restaurants and other foodservice establishments are looking into new ways to purchase ingredients to keep costs in check, the Wall Street Journal reports. For example, Starbucks is considering partnering with other companies to buy food items such as milk and sugar. Darden Restaurants Inc., which owns and operates the Red Lobster and Olive Garden chains, has overhauled its purchasing system to purchase only the ingredients and supplies it absolutely needs.

"We??re seeing a level of sophistication in supply-chain management that didn??t exist five years ago," said Dave Donnan, a partner at A.T. Kearney, a consulting firm. "The separation of those that will succeed and those that will fail will be based on attention to detail."

The boost in food prices, combined with continued unemployment, soft home sales and a struggling economy, restaurants have been reluctant to raise menu prices. Therefore, many are coming up with novel ways to trim costs in other areas, particularly food.

"We are looking for innovative ways to navigate through this," said Howard Schultz, CEO of Starbucks, of its plan to join with other companies to buy ingredients. This will "give us more buying power, more leverage," he said.

Darden??s plan to run a more automated supply chain similar to retail companies has its own set of risks. "They could be exposed to more day-by-day spot-market volatility since they have to buy more often," said Michael Swanson, a Wells Fargo & Co. agricultural economist. "Another downside is if you're expecting a light day but there's more demand than you predicted."

Barry Moullet, chief supply chain officer at Darden, said the company needed to do something drastic. "China and Brazil are coming after food products they haven't before," he said, pointing to China??s net importing of shrimp for the first time, which has driven those prices upward. The company predicts a savings of up to $45 million a year after the system becomes fully operational.

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