COVID-19 forced restaurants to adapt to e-commerce, robotics, alternative payment options, and delivery options rapidly. Each trend has shown signs of becoming the “new normal” for restaurants, forcing business owners to utilize economies of scale to stay competitive.
Economies of scale refer to a businesses’ ability to reduce costs, increase production, and standardize its processes. While the service industry relies on individual skills and cannot capture economies of scale in the same way as manufacturers, some similarities remain.
For example, restaurants can increase input costs by ordering in bulk, thereby allowing the business to offer the product at a lower per-unit cost. Process standardization allows restaurants to operate efficiently, and new technology can track costs in real-time
Without understanding how to utilize economies of scale, the “new normal” could lead a business to peril simply by forcing production upon itself. Increases in production without subsequent polishing of procedures is self-defeating. It will merely make existing problems larger.
Strategically using economies of scale can help improve efficiency, increase profits, and help local businesses retain customers. This article will provide just a few examples.
Case Study: Impossible Foods
Impossible Foods provides a prime example of how economies of scale can benefit businesses operating under the “new normal.”
The company was able to increase production and cut its prices twice since the pandemic began. Its second cut targeted 15% on its open-coded foodservice products, including its quarter-pound and third-pound burger patties, 5-pound bulk burger packages, and sausage patties.
Impossible Foods said the cuts were driven by “record global demand” for plant-based food. As an example, it points to the success of its sausage patty, which launched shortly before the pandemic hit. Now just a year old, it is available in more than 20,000 locations throughout the United States.
Global distributors who do businesses with Impossible Foods are required to pass the cuts along to their customers, thereby ensuring that local businesses will also benefit from the price drops.
“Our stated goal since Impossible Foods’ founding has always been to drive down prices through economies of scale, reach price parity and then undercut the price of conventional ground beef from cows,” Patrick Brown, Impossible Foods CEO and Founder said in a statement. “Less than a year ago, we cut foodservice prices by 15%. Today’s price cut is just the latest, not the last, step toward making the food system sustainable.”
One way restaurants can utilize economies of scale is through its input costs, or how much product they buy. For example, ordering in bulk reduces the per-unit cost of a product, thereby allowing the business owner to offer it at a lower price to their customers.
But, simply purchasing more product is useless if it sits on the shelf. Restaurant owners need to have a plan to make sure bulk orders are used in a timely fashion to reduce spoil and waste. This can mean offering more special deals or specializing their menu by reducing less popular choices.
Standardization and Specialization
Standardization and specialization allow a business to simultaneously become more efficient and productive. For restaurants, that can mean shedding dishes from a menu, offering more bulk or family deals, or scaling down portions for to-go orders.
Businesses can also make their workforce more efficient through cross-training. Specialization and standardization in the workforce include having employees responsible for multiple tasks. This can reduce overhead costs without sacrificing the level of service.
With decreased labor participation in the service industry resulting from the pandemic, many restaurant owners find themselves on the frontlines again. This leaves less time for the necessary office work: balancing accounts, paying vendors, and running payroll.
Outsourcing the necessary work to a local business like as a data center, payroll management, or accounting firm can help relieve some of the stress. Even if it is a temporary solution, this gives a business owner time to focus on how to best direct their business toward the future.
Technology provides many avenues for businesses to improve their economies of scale with precision. Companies like Safety Culture, and its product iAuditor, offer businesses a digital ticketing system that can support operations and accounting staff. There are also an ever-growing number of POS systems offering contactless payment and other means that keep customers safe.
Any business trying to stay competitive after the pandemic will need to improve technologically in some capacity. Whether it’s to absorb new safety regulations or to adapt to a more economical business model, technology holds the key to future success for restaurants. Business owners need to make sure these advances support growth rather than constrain it.