Article
Stretching a supply chain
Connections, menu flexibility are key to how far brands can reach.
June 30, 2008
It's the million dollar question: How does a fast casual restaurant create a supply chain to accommodate national expansion?
There's no easy answer, but there are obvious challenges, said Rich Kampf, president of the supply chain for Focus Brands Inc. The biggest pitfall is growing without a supply-chain strategy.
"Someone comes in and wants to buy a franchise in Alaska, without thinking through all the variables involved with opening and operating that franchise," Kampf said. "People get caught up with growth and don't think about how they're going to get the products to that faraway place."
Rick Rosati, owner of Maciano's Pizza & Pasterias, based in Chicago, said his company suffered the typical growing pains when it expanded from its first unit to the 160 now in operation throughout Arizona, California, Texas, Nevada, Kansas and Indiana.
"Sometimes when you go into a market, you're so focused on the area, the demographics and whether your product will be accepted that you assume you can get all the products into that area at a price (where) you can be profitable," Rosati said. "And then you get in and realize you need tomatoes from California and cheese from Wisconsin and your suppliers don't have distributors in that area.
When Rosati first started to expand his operation, those types of decisions didn't even dawn on him. "We just thought we could buy from our suppliers and that would be that," he said.
Before expanding into unfamiliar markets, a restaurant operator needs to determine whether the company's current distributor has any affiliations or sister companies in the area, says Leo Plotkin, president of L.P. Enterprises Inc., a consultant on strategic hospitality purchasing. If not, the operator needs to consider moving to a broad-line distributor that will have a greater reach and range of products to choose from.
"The first step is to look at your products and identify what your needs are," Plotkin said. "You may be able to get everything you want from a broad-line, but some restaurants may feel like they have higher-end items and would be better served by a specialized meat company or a dedicated produce company."
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The real challenges arise when it comes to a restaurant's proprietary items, said Gary Karp, a vice president with Technomic Information Services. These are the signature dishes the ingredients for which may not be carried by most distributors, requiring special orders to be made. A distributor typically will not carry these specialty items unless the new franchise is ordering a certain quantity per month.
"The number of proprietary items you get dictates the warehouse economics of the distributor," Karp said. "They don't want to carry proprietary items unless they have a sufficient number of orders, say, 25 cases a month."
Startup and new-market considerations
A single startup in a new area typically doesn't have the volume to meet the distributor's requirements, however.
"It becomes a sticky issue because when you're just one unit, you're the lone voice in the wilderness when it comes to the proprietary items," Karp said.
When Maciano's expanded into far-off markets like Arizona and Texas, it had proprietary items the local distributors couldn't supply, such as Chicago-made Italian sausage. But the chain was able to go through its Illinois distributor, Greco & Sons, which worked out deals with southern suppliers, Rosati said.
"Greco put together all of these various little items we needed and shipped (them) down to the distributor in Texas," he said. "And that way, that distributor in Texas did not have to procure these items where there was no volume."
If a restaurant can't work out a deal like Maciano's, where it can have its proprietary items shipped to the new location, the operator may have to settle for similar ingredients carried by the local distributor.Of course, not every company is willing to change its products. And for those restaurants unwilling to change, it may mean not moving to that area.
"We won't compromise with our core products that are the essence of our brand," Kampf said. "Someone may really want to open a store in Montana, but it may not be the right thing for the brand. We want the same products served whether we're in Alaska or Georgia."
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