Know Your Vital Signs

What Spend Data Tells You That Sales Data Doesn’t

Sales data gives an incomplete picture of your restaurant chain’s financial health. Spend data helps you look deeper.

Think about the last time you were asked, “How’s Business?” Chances are, your answer reflected your restaurant brand’s latest year-on-year sales comparisons.

But if the question came from an investor, he or she would want you to speak beyond the chain’s sales, to its profitability—and to its likely profitability next year as well.

That kind of insight comes primarily from historic spend data and future cost forecasts along with current point of sale numbers. Spend data trends are vital to strategic business planning and help financial executives monitor a restaurant brand’s health in ways that sales data alone can’t. Cost forecast comparisons are essential to managing the enterprise with an eye on the future.

Spend data can guide strategy

Here are just a few examples of how supply chain spend data can help in big picture decision-making:

  • That successful LTO from last spring that you plan to run again? Supply chain spend data can tell you if associated food costs helped or hurt check average margins in that period and help guide the program’s re-launch planning.
  • Buying from more than one distributor? Supply chain software can aggregate and analyze the combined spend data to identify opportunities for consolidating purchasing.
  • Experiencing soft market conditions and looking for ways to cut costs without compromising brand integrity? Spend data can help identify opportunities to phase out non-signature menu items with expensive ingredients and low margins.
  • Looking to reduce the number of SKUs your brand requires in the distribution chain? Supply chain spend data can evaluate low velocity items and identify where minor menu changes can allow their elimination, or substitution by another stocked product.
  • Concerned about whether any franchise operators are going “rogue,” purchasing product off-contract or off-spec and potentially harming the brand? Spend data can show you when and where out-of-spec substitutions are being made. Driving compliance also helps ensure that strong food safety standards are consistently in place across regions.
  • Planning seasonal promotions for the year ahead? When combined with historical spend data from the past, commodity price forecasts will help you test their likely profitability in the future (and avoid cost over-run surprises).

Data needs to be actionable

The key to using spend data effectively is not based on how much of it can be collected. Reams of distributor data and endless spreadsheets are seldom helpful when strategy is developed.

In contrast, effective use of supply chain data depends on having systems that aggregate the mass of available data and then mine it for key trends and metrics that support decision-making. To be useful, data analysis must be actionable.

For example, you will want to keep an ongoing eye on whether key ingredient costs will likely decline, remain stable, or increase. If changes are in store, will they be modest or significant? Are alternate sources of supply available, and if they are, what pricing or other constraints are associated with the new source? What has been the spend on your top 50 items for the last six months, vs. forecast spend for them in the next six months?

Spend data also will have associated inventory data, an important metric to consider alongside changes in business demand. Historic usage patterns can help determine whether warehouse inventory levels need to be increased or decreased to match ongoing or expected demand changes.

Adding predictability to the future

Sales forecasts inherently face many unknowns, from changing economic conditions to shifting competitive environments. But supply chain spend data and cost forecasting bring an element of predictability to business planning and can help executives moderate and adjust for those uncertainties.

On a purely practical level, consistent auditing of supply chain spend data can ensure that contract pricing is adhered to and that invoices reflect the product prices and distribution fees that have been negotiated.

One key point to remember is that while sales data is essentially based on present-day comparisons against the past, supply chain processes inherently look to the future. They are based on commodity forecasts, contract pricing arrangements, negotiated distribution costs and pricing parameters established with supplier partners.

In competitive situations, supply chain intelligence can help management estimate the future cost pressures that they may face, as well as those that will likely be faced by competing restaurant concepts. Forewarned is forearmed, and spend data analysis is a key tool for developing effective menu, positioning and pricing strategies designed to increase market share.