1. Current business model and value chain

Restaurants have been dealing with the challenge of reducing food waste since their creation. They are required to order their produce well in advance of knowing customer demands for the day. They offer a selection of options on their menu, some of which being more popular than others. With only limited knowledge (previous experience), the restaurant forecasts the supply required to meet the daily demand. While overage is expensive, especially for meat and fish, underage can be very damaging to reputation and long-term profitability. As such, restaurants tend to bias oversupplying to satisfy their customers.

Process map of the traditional restaurant service process

This method, of forecasting with little knowledge, inevitably leads to restaurants having a large stock of unused fresh produce. Restaurants are then faced with the dilemma of either throwing away the unused produce, or recycling it to appear on the following day’s menu. The latter, if done improperly or too frequently, can be damaging to the image of the restaurant. On the contrary, throwing away all the surplus is very costly, with no/little salvage value, and damaging to the broader environment.

2. Emerging business model and value chain

One innovative solution to combat the restaurant food waste problem has been the development of mobile friendly apps and webpages which, through re-sequencing of events, allow restaurants to improve the accuracy of their stock levels, reduce wastage and improve freshness of their offering. Today’s customers are using technology for searching, reviewing and reserving restaurants. A natural step to add in this process would be to offer pre-selection of meals. While the objective is not to lock one into their selection choice (making the customer feel restricted), the intention is to get a better sense of demand on any given day to better inform the restaurant’s supply orders.

Process map of the new suggested restaurant service process

How it leverages modern technology:

While making the restaurant reservation via a mobile app or website, the customer would be prompted to preselect their meals from the normal menu ahead of time, changing the time of the critical decision. The lead time could vary from 1 week down to 48 hours before their sitting. Discounts would be used to incentivize customers to preselect their meals, with earlier selection being associated with larger discounts (e.g. 5% off their total bill).

Once the restaurants have delayed their supply order for as long as they can, they are then equipped with more accurate data about the daily demand. This dynamic input from customers would improve accuracy of restaurants ordering supplies, and introduce the establishment with a split decision. The staple ingredients, those ingredients featuring across several plates, would continue to be ordered in the same historical manner at an earlier stage. Preselection would not significantly impact the volume of staple ingredients. Rather, the objective is to target the more expensive produce whose freshness is highly valued (e.g. steak, fish, vegetables). The level of supply for these ingredients could be reduced/tailored to better match demand. These items would be ordered later, very close to the time of the sitting, thus introducing the split decision in ordering stock.

The option of pre-selecting meals would be a win-win situation. The restaurant would reduce its overage costs by adjusting its supply to the more accurate customer demand and the customer would benefit from a discount on the price of the meal. The offered discount would obviously need to be lower than the generated savings from reducing the restaurant’s overage cost but high enough to provide an incentive for the customer.

3. Key stakeholders and effects

This innovation is game changing in the restaurant industry from both the supply and demand sides:

Supply side (restaurants, processors and farmers)

• Lower overage costs and reduced net inventory due to a more accurate demand forecast, that in the medium to long term will result in higher profits
• Less food wastage, which will have a positive impact on the brand image of the restaurant potentially contributing to an increase in the number of clients. From an industry perspective, this innovation will generate more awareness about the environment, thus creating peer pressure to adopt the solution for a greater good
• Higher demand and sourcing of fresh products from local farmers and suppliers they may boost local organic business growth
• Higher table turnover by skipping delays with ordering, food preparation and checkout, which will lead to higher revenues

Demand side (end consumers)

• Higher value for money for the customer due to price discounts for using the solution
• Increased brand loyalty if customers believe the solution works well and would like to try new dishes or repeat the experience, eventually becoming a regular customer
• Better experience for the client for two reasons: first, improved quality of food, with more assurance of less “food tapering” of old produce and increased used of fresher products; second, reduced waiting times (pre-ordering and booking allows the restaurant to better adjust kitchen timings, avoiding long waits)

4. Short and long-term impacts[1]

Short term:

• Optimizing food waste operations can help businesses (restaurants, processors and farmers) achieve cost savings in production, purchasing, human resource and disposal costs
• Waste tracking and analysis can also help businesses pinpoint operational inefficiencies, and profit from food waste reduction
• Through optimized food waste operations, businesses can also pass cost savings to consumers along the value chain and increase brand loyalty, resulting in increased revenue potential
• Food waste reduction would mean Less food waste disposal in landfills and waste streams
• Rescued food is redirected to emergency food providers working to eliminate hunger in communities

Long term:

• Reducing food waste can make a significant contribution to tackling climate change. 7% of all global greenhouse gas emissions (GHGs), 3.3 billion tonnes CO2 equivalent (CO2eq) per year, are due to food waste. WRAP estimates that by 2030 global GHGs could be lowered by at least 0.2 and possibly as much as 1 billion tonnes CO2eq per year through food waste reductions.¹

 

Authors: Shruti ARORA, Vittorio GARGIULO MORELLI, Carolina PERISSINOTTO

 

[1] https://www.bloomberg.com/news/articles/2014-11-26/preorder-food-coffee-apps-can-boost-restaurant-sales