QSR: How different are they from traditional restaurant? - Part II
In my previous blog, I had tried to explain some of the significant challenges QSR faces and how they are much different from a traditional restaurant. This begs the question - is it different for the food distributors? The answer is an emphatic yes. A food distributor having a customer base consisting both traditional restaurants and QSR will have to change its process significantly to serve QSR. Why do I say that? Both of them serve food and the distributor has to supply food materials. Mind you, the supplier base doesn't change much irrespective of the customer base. Then you may ask what is the big deal?
No control over choice of suppliers and price
Typically, food distributors, based on the customer demand, will source from suppliers who make business sense for the distributors. It is the distributor's prerogative to decide on the suppliers, pricing terms, quality, quantity, etc. But when it comes to serving the QSRs, all these privileges are taken from the distributor. The QSRs choose the suppliers, fix the price and other contract terms and leverage the distributors to purely provide the logistics of picking the goods from the chosen suppliers, storing it in their warehouses and distributing to QSRs based on the agreed drop schedule.
In the case of QSRs, the distributors purely act as a 3PL. They don't have any say in the price of the products and hence lose the leverage of mark up. Also, since the products are finalized by the QSRs, there is no scope for cross-sell or up-sell for the distributors. Selling private label is almost negligible when it comes to QSR.
Too many drops
In my previous blog, I had talked about the shortage of storage capacity in a QSR store. Due to this, they expect the distributors to drop frequently, sometimes more than once a day. This results in increased transportation cost for the distributors which is another reason for extremely low margin in servicing QSRs. Without large volume, the business case for servicing QSRs almost doesn't exist.
Leveraging other logistics providers
This is not necessarily a challenge, but an interesting technique some distributors adopt to service QSRs. We talked about the need for frequent drops, right? Instead of planning for frequent transportation using their own fleet, they leverage players like UPS and use them to provide the shipment drops to different stores. This in a way makes it cost efficient for the distributors
Net-net, the functioning of QSR and the business process for their distributors is significantly different from traditional restaurant business.
