STUDY SAYS NEW STRATEGY NEEDED FOR FOOD-SERVICE PROFITS

ROSEANNE HARPER

PHILADELPHIA -- Supermarket food-service operations can make a profit, if they change their strategies and put specific restaurant practices into play.

That message may be especially noteworthy coming as it did from Bill Hale, president of The Hale Group, Danvers, Mass., whose widely circulated and discussed Coca-Cola Retailing Research Council study on the topic has, since it was released in previews late last year, been characterized by some as a sobering description of how supermarkets are not making money with meals.

While the Hale Group research findings had revealed, with few exceptions, that supermarkets are losing on their food-service operations, Hale shed a positive light on that research at the International Dairy-Deli-Bakery Association's annual convention here last month.

In his presentation, Hale zeroed in on specific steps for survival that were outlined in the study, steps that he said could help supermarket food-service operations be more competitive in the meals arena. He emphasized that it's possible, given the development of systems described in the Hale report, to make money.

He said the study describes these keys for turning a profit:

Drive the top line by letting customers know you have something different that offers value.

Have an efficient menu mix.

Implement a sales data collection system that gives up-to-the-minute information so production can be planned.

Train staff.

Make the physical layout efficient and install the right equipment in order to make efficient use of labor.

Price products so they reflect created value.

On the other hand, he repeated that clinging to old-line grocery philosophies and systems can actually keep supermarket operators from even seeing why they're not now making money with food service.

One observer, Brian Salus, president of Salus & Associates, Midlothian, Va., said he was "dismayed" that more retailers were not in attendance at Hale's presentation, because data in the study, and Hale's suggestions, could be put to good use by those struggling with meals programs.

According to Hale, viewing food service as a business within the store, rather than as a department operated similarly to other departments of the store, is a prerequisite to success.

Until a year and a half ago, The Hale Group dealt primarily with commercial and non-commercial food-service operators. When it began the supermarket food-service study, it quickly saw crucial differences in how the two industries operate. Among the most critical differences is that grocery thinking means buying at the lowest cost, while food-service thinking requires buying for highest yield and lowest total cost as the product moves through the system with value-adding processes applied to it, he said.

A food-service operator, for example, would not be thinking in terms of the numbers of tomatoes in a shipment, as a grocer would, but in terms of the number of slices of tomato that a particular shipment would yield. Thus, the food-service operator would properly calculate the cost of a slice of tomato, while a supermarket operator would generally not know what a slice of tomato cost.

In grocery, the best value equals the lowest price, he said, while "in a food-service operation, best value means the best total experience." In food service, too, operators know that they'll be creating and adding value to products they purchase and will set their prices accordingly. But that's not so in the supermarket world, he said.

Bundling, too, is absolutely crucial for making profits, Hale said. Entrees, for instance, have a relatively high cost and bring a low gross profit (35% to 40%); side dishes have a moderate to low cost and a moderate gross profit (60% to 65%); desserts have a moderate cost and bring a moderate gross profit (45% to 50%). The moneymaker, however, is the beverage with a low cost and a high gross profit (50% to 90%), he pointed out.

Thus, a bundled meal with all those components, would yield a gross profit of 60% to 70%. A retailer concentrating too much on selling entrees alone would be making a 35% to 40% gross margin, less than half of what he would make on a bundled meal.

While many supermarkets have been able to emulate the front-of-the-house of a food-service operation, he said he hadn't seen any that had back-of-the-house systems in place that are the back bone of food-service operations.