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When you’re a burger brand based on value, rising beef prices could mean a supply chain disaster. But at drive-thru chains Checkers and Rally's, vigorously staying ahead of commodities forecasts has shielded the sister brands from this year’s growing beef costs.
“Checkers is really known for value. We were the first ones to talk about 99-cent burgers when McDonald’s and Burger King were charging twice that in the ‘80s,” says Adam Noyes, chief restaurant operations and supply chain officer and executive vice president for Checkers/Rally's Restaurants. “If you think about our consumer, we win when we can consistently deliver the best flavor at a great value.”
Current cost analysis puts the average price of beef in America at $3.50 per pound, and it could rise by 15 percent this month. Noyes says the folks at Checkers and Rally's expected the rise in costs for 2014 back in October, when brand executives analyze forecasts for the upcoming year. He adds that a decline in cow population has strained supply across the U.S., contributing to high prices.
“The good news is that if you look at the cycle, grain prices are going down a bit, and 18–24 months from now it should be better,” he says. “In the interim, these next 18–24 months will be a challenge.”
Noyes says to combat the challenge Checkers and Rally’s took a three-pronged approach, focusing on supply chain management, new product development, and in-store execution.
On the supply chain side, analyzing forecasts continually is important to adjusting strategy to reflect real-time commodity information, Noyes says. Though a strategy is drafted in the fall of a preceding year, company executives look at predicted costs versus actual costs on a weekly basis and use the comparison to determine where costs are going. Noyes says that information allows the brands to target ingredients that may be rising to lock in prices in advance, and so far, executives have been able to lock in low prices for about 70 percent of total supply.
He says that Checkers and Rally’s also looks at other ways to cut costs in the supply delivery process. Executives recently evaluated freight costs from the manufacturer to the distribution center and were able to save “over half a million dollars for our system just by taking control of some of those costs,” he says. “That ultimately ends up with lower costs at the restaurant level. In organizations larger than us, I think this is a common practice. For us, since we are value conscious, it is essential for us to be leading on that… among other restaurants of our size.”
When it comes to product innovation, brand executives approach new products and LTOs with commodity prices in mind, stressing cost-effective menu additions. And on the restaurant level, Checkers and Rally’s have taken a merchandising approach that emphasizes value menu items on the street to draw customers in, but on the lot, signs advertise higher-prices items, Noyes says.
“We also have a heavy emphasis on suggestive selling,” he says. “If someone orders a Spicy Chicken Sandwich, the cashiers will ask, would you like cheese on that? That brings the cost up.”
“The other key thing is having the right restaurants systems to make sure you’re controlling cost. The restaurant operator can’t control the cost of what’s coming in the back door, but they can control their product mix,” Noyes says. “One of the things we have—it’s in all of our company restaurants and about 85 percent of our franchise restaurants—is every single Checkers and Rallys has the same back office solution that helps us manage food costs by item. It can help operators remove any inefficiency.”
By Tamara Omazic