Yum! Brands

A major global restaurant brand achieved record-breaking industry development by opening over 3,000 net-new units in 110 countries, beating their 2021 industry record. At the same time, they reached a new high of $24 billion in digital sales, doubling their digital business since 2019. This focus on digital occurring while managing through a pandemic is not a transformation ; it’s a metamorphosis

Technology innovation is increasing every year, and the evolution of the restaurant industry through COVID is an interesting case study. My cousin owns a small Mom-and-Pop Dulin’s Café located in Vancouver, Washington. He highlights his experience with industry challenges, stating, “In the earliest days of COVID, the government forced restaurants to close. When we could open, our customers could not come into our lobby to eat. I had no room to build a drive-thru and no website to speak of, so I had to create a website that offered carryout and delivery services. My kitchen was set up for walk-in traffic, so when the orders were too much for us to handle, we just had to stop answering the phone”. Now imagine that challenge at a global scale.

Chance of that magnitude requires a deep understanding of the new customer needs, the options to meet those needs, and the effective execution of the digital metamorphosis. The sudden inability to serve customers created new requirements. First, how does a restaurant engage with a customer who cannot order in the store? Many restaurant concepts rely on carry-out, delivery, or drive-thru. However, that wasn't the case at my cousin's cafe. He had to immediately implement new customer engagement channels, including a website, carry out or “call center,” if you could call it that, just to take orders from his customers

He also added a pick-up awning and made his menu available for delivery aggregators so that his food could reach his customers.

He wanted to avoid taking on his own delivery fleet, so the aggregator websites offered another ordering channel and the ability to deliver food to customers

Labor also became an issue across the industry. Fortunately, my cousin has long-term staff and focused heavily on keeping them employed, but labor became a challenge in other concepts. The labor shortage that impacted the country forced the industry to look at other options to replace labor with automation. My local Walmart is a great example. They replaced a handful of checkout lines with almost 90 percent self-checkout and a guest service member.

As the changes in behavior drove new requirements to meet customer and employee needs, the requirements placed on CIOs and IT departments increased. At the same time, the ability to work from home exacerbated a technology talent shortage.

  ​Today’s market leader may not exist tomorrow, and tomorrow’s market leader may not exist today   

CIOs had to balance the competing needs of multiple stakeholders to define and execute the most critical priorities. The good news is that the speed of technological advancement and the ability to expand new concepts using cloud infrastructure and readily available capital created a vortex of new technology companies. Another interesting consequence of this new digital metamorphosis is that a startup’s strategic advantages decrease rapidly as other companies copy their business model and leverage improved technology infrastructure to launch competing firms.

This allows CIOs to evaluate their team's current demands, skills, and capacity to apply a Build and/or Buy strategy to define which products they build themselves and which ones they collaborate with supplier partners to create. As we look at the industry's major technology advancements, including Automation, Kiosks, Back of House, Front of House, Point of Sale, Drive Thru technology, and the ability to better understand and market to the customer, there is an even greater need to collaborate effectively with critical suppliers to create competitive advantage.

While negotiating with vendors, it’s a good idea to take a Win-Win-Win approach to the overall negotiation. The first Win is to understand and meet the critical business requirement

From a procurement standpoint, I define success for the business as the “right requirements, right supplier, right price, and right timeframe.” This is critical when procurement is running an RFP on behalf of the business. RFP aims to provide the stakeholders with the information required to make the right decision. A key callout on price is that the “right” price is not always the best price but a market-competitive price. If price parity is obtained through negotiation, then price no longer becomes a decision-making factor.

The next Win is for the supplier or strategic partner. Their Win is initially defined as being selected by the business to meet their specific need but ideally expanding the initial relationship with other business units in the company and other businesses in the industry. This can be through increased spend on the original product, increased use of other products, competitive displacement, and/or co-development of new products.

The third Win is to unlock new markets. The goal of developing strategic relationships is to reduce prices as spending increases. This is incredibly important in diverse global organizations due to the difference in market dynamics and price sensitivity. As the relationship grows, spending volume increases and unit costs decrease, which may “unlock” other price-sensitive markets. This creates, what I call, the vicious circle of happiness, which essentially repeats this cycle to unlock more global markets

Another thing to consider is the ultimate buyer of the supplier’s product. Suppose the company is creating a product to market to franchisees. The franchisee relationship creates an inability to “commit spend” at the time of purchase. This can prevent leveraging and growing the Win-Win-Win unless the appropriate contract structure allows pricing to decrease over time. I call this the “Field of Dreams.” Structuring a tiered pricing contract allows increased spending volume to reduce pricing over time. Once the field is “built” and more franchisees “play ball” by purchasing the solution, the price decreases so that franchisees can adopt it. These Field of Dream contracts must be properly structured to prevent “overcharging” the early adopters and to mitigate potential revenue recognition for the suppliers when pricing tiers are met. However, they are a great tool for accomplishing the Win-Win-Win.

If this makes sense but leaves you wondering how to develop strategic supplier relationships, there are several things to consider

First, who are the strategic suppliers you want to establish these relationships with?

To answer that question, look at the suppliers you work with today. Which of those suppliers provides a key capability that creates a critical competitive advantage in the marketplace? Which supplier would be irreplaceable if they were no longer there?

What are the current and future state capabilities that make them critical, and could another supplier provide those? If the answer is no, those are the suppliers you want to build this Win-Win-Win relationship.

Once you identify the strategic suppliers, create a WinWin-Win strategy by looking for opportunities to expand that relationship

The easiest way is to expand the current products and services to other business units. However, there are other options if that is not possible. Look for opportunities to codevelop or purchase new products or services that expand upon the relationship, look to expand the product portfolio, and look for opportunities for competitive displacement.

By working with your procurement team to identify strategic suppliers and establish the Win-Win-Win approach, you become a strategic client to your suppliers and mutually benefit from growing your strategic relationship.