Swinging for the fences: Selling to chain restaurants
Chain restaurants buy $16.2 billion worth of goods annually, approximately half of Canada’s entire food service industry purchases. The remainder is split evenly between independent restaurants and businesses such as caterers, hotels, institutions or transportation.
Chain restaurants run over 51,000 establishments in Canada.
With around 51,100 establishments earning an average sales per establishment of $923,000 - approximately 43% greater than independents - selling to chain restaurants is an exciting prospect for food processors.
In this article, a chain is defined as a restaurant concept or brand with more than three locations, but some brands have thousands of establishments. As well, some brands are run by parent organizations, further reducing the number of companies to approach and creating a top-heavy list. The top 75 chains control greater than two-thirds of chain restaurant purchases.
You may not get a second chance to get your product to one of the top 75, so take your time, do your homework and be prepared.
Here are three key points to keep in mind when gearing up to sell your food product to chain restaurants:
1. Chains are risk-averse
The larger the chain, the more cautiously they respond to trends and changes in the market. Instead of trailblazing, brands often wait for trends to establish themselves before responding. This is because of several reasons:
- Large chain menus must be relevant to the masses. They don’t often get the luxury of serving niche or emerging markets, so the product must be broadly accepted.
- Restaurants need a robust supply chain to provide a consistent product in all locations. Be sure your supply chain is strong enough to handle increased ingredient demand and deliveries and have safeguards for alternate plans. If your supply chain is weak, it will likely impact your relationship with chain restaurants. Food processors experienced in large-scale production and logistics reduce the supply chain risk and will likely be more successful in selling to large chains.
- Kitchens in large chain restaurants are carefully engineered to optimize production for a specific menu. Most equipment is specialized, and there is little to no room for new equipment or tools if required by your product. Coordinating new designs and equipment, even a simple countertop unit, is a far more significant undertaking for a chain than for an independent operator.
- Restaurant chains must heavily test new menu items to ensure relevance to their target market and refine preparation instructions to a science. They need training materials to ensure the new product is prepared the same way across all establishments. All this takes time and resources.
2. Manage your expectations
Despite all the work involved in launching a new chain menu item, a product rarely goes directly to the permanent menu. More likely, a new product will be featured as a limited-time offer (LTO) that will run for a few weeks, months or a season. LTOs allow operators to trial acceptance of a product, build buzz about the brand and differentiate without permanent menu adjustments. Successful LTOs may return seasonally or eventually become part of the core menu.
3. Know what you are selling
Your production capabilities are as important as your product. You may not have an exact product a chain is interested in, but your production concept might be able to be adapted for the client. Opportunities may also exist for you to produce the chain’s existing products for them (such as white-label products) instead of promoting a new product.
4. Find the right fit
You may find greater menu diversity – and, therefore, opportunities - in small to medium chains, especially when first entering the food service market. After all, the smaller the chain, the closer its purchasing and agility are to that of an independent restaurant.
At the same time, selling to chain restaurants is an opportunity to generate sales volume for a common product for both chains and independent restaurants. This will help you as food processors improve your ability to be listed by broadline distributors, gain sales efficiencies associated with multi-unit chains and still access the diversity of smaller restaurant operators.
With careful thought and research, chain restaurants can be a valuable opportunity for food and beverage suppliers.
Article by: Andrew Waddington, directeur principal, fsSTRATEGY Inc.