Web Exclusive | July 2012 | By Sonya Chudgar

Who Needs a Supply Chain?

Foodservice producers open their own quick-serve concepts.

Dannon's Yogurt Culture Company offers prepackaged yogurt products.
Dannon's Yogurt Culture Company offers prepackaged yogurt products.
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Two foodservice producers ditched the supply-chain middleman and opened their own quick-serve concepts earlier this month.

Smithfield Foods, synonymous with Virginia ham and pork, and yogurt company Dannon defied the traditional supply chain and started carting product from their manufacturing facilities to proprietary quick-service storefronts. Taste of Smithfield opened in the company’s hometown of Smithfield, Virginia, while Dannon unveiled the Yogurt Culture Company on Park Avenue in Manhattan.

Both restaurants were conceived for the purpose of enhancing their brand’s mission, not necessarily to compete head-on with other quick serves, say representatives from each company.

“Our mission at Dannon, and part of the mission of the Yogurt Culture Company, is to help Americans discover and enjoy yogurt on a daily basis,” says Michael Neuwirth, senior director of PR for Dannon. “And we know that there are lots of ways to enjoy yogurt, including frozen yogurt, fresh packaged yogurt, and fresh handcrafted yogurt like we have at Yogurt Culture Company. [Frozen yogurt] is certainly not a competitor.”

Meanwhile, at Smithfield Foods, the “mission is to support our community, our home,” says Pete Booker, vice president and general manager of the Smithfield Specialty Foods Group. “This is really not done to go in competition with other restaurants and other customers. It’s really to do something for the town of Smithfield.”

While neither restaurant seeks to enhance the competitiveness of its respective market, each demonstrates that a producer-owned venue can potentially have implications on the industry.

Smithfield’s traditional business model places meat either in the hands of the consumer, via grocery stores, or of restaurant chefs. But using a Smithfield-branded site to foot the product has numerous benefits, Booker says, including menu innovation. He says feedback on the concept’s menu items and flavor profiles may influence future offerings from Smithfield, which could change how operators and chefs utilize the meat on their menus.

“We’re trying some new bacon ideas that we have from our Smithfield innovation center, a sea salt bacon on a BLT or a salad,” Booker explains. “I think that every time you ask the customer and engage the customer in what they like, it gives you a better opportunity to build a product offering over time that the consumer demands. And so yes, I do think it will have, ultimately, some feedback on how we evolve.”

“Every time you engage the customer in what they like, it gives you a better opportunity to build a product offering over time that the consumer demands.”

Neuwirth says Dannon, too, hopes to add interest in the yogurt category using this new approach. The Yogurt Culture Company answers consumer demand for freshness and customization, two things a prepackaged yogurt manufacturer has no opportunity to answer in a grocery store setting, he says.

“The product that we sell in the [Yogurt Culture Company] store is made exclusively for the store in small batches,” he says. “The products that we make and sell in supermarkets are packaged, and the sweetness and the flavors are pre-determined. It is a truly different concept.”

In addition to customizable cups of yogurt, the Yogurt Culture Company also features a grab-and-go station filled with innovative yogurt-inspired sandwiches, yogurt-inspired muffins, and even salads with yogurt-inspired dressings.

At least one more foodservice producer is jumping into the restaurant fray in the near future. Chobani, purveyor of prepackaged Greek yogurt, announced on July 10 plans to open the flagship location of Chobani SoHo, a Mediterranean yogurt bar located in the SoHo neighborhood of Manhattan.

The opening date is under wraps, but the restaurant’s focus will be on made-to-order yogurt creations built around the fresh yogurt that will be brought into the store daily from the Chobani plant in central New York.

Not everyone is convinced this direct-to-customers approach is wise for food producers. Jeff Karrenbauer, president of Insight Inc., a company that provides solutions and consulting in the supply chain industry, says that as producers pioneer original offerings and sell them directly to consumers, their supply chains are simultaneously shrinking.

“There’s a reason for the middleman,” Karrenbauer says. “If there wasn’t, people wouldn’t use it. It comes down to cost. And typically, going direct, going around the middleman requires pretty high volumes.”

Whether a producer-operated restaurant has a more efficient supply chain, Karrenbauer says, depends on the volume of traffic and demand coming from the store. If volume is relatively limited, expenses quickly rise, especially if a company peddles a perishable product such as yogurt that requires frequent deliveries to remain fresh in stores.

“They might not really be a start-up, but their whole supply chain is starting up,” he explains. “It’s a whole new kind of business. It comes down to cost, and that’s the classic trade off. It comes down to, Where do the lines cross in terms of economic volumes?”

The opportunity cost of opening a restaurant is nonetheless in Smithfield’s favor, Booker says.

“It’s a good place for people to experience some of the great products we have, and hopefully when they go home, if they’re tourists, they’re going to partake in some of the products we sell and make,” he says. “If we’re branded on a menu with a retailer on a restaurant side, they’ll say, ‘Oh, I went to Smithfield. It’s a great product,’ and have a great dining experience.”