Retailers and restaurants should refocus on value-driven strategic initiatives

 

Article | October 2, 2024


 

As middle market retail and restaurant companies adapt to the costly capital in the "higher for longer" interest rate environment, business leaders must rethink their approach to growth and efficiency. In the past decade, many companies pursued aggressive growth fueled by negative real rates, but today, strategic investments that deliver clear, measurable value are paramount. Every dollar spent must drive real, quantifiable value—whether through cost savings, enhanced operational efficiency or revenue growth.

Strategic investments are no longer about large-scale projects with vague long-term benefits. Instead, investments must be aligned with business objectives and yield measurable outcomes that can be tracked and adjusted in real time.
 

Operational efficiency: Reducing costs and waste

One of the most immediate ways to achieve quantifiable value is by improving operational efficiency. Strategic investments that streamline processes, optimize resource allocation and reduce waste can have a direct and measurable impact on a company’s bottom line.

For instance, improving supply chain management by investing in predictive analytics tools can reduce inventory holding costs and prevent overstocking or stockouts. By making strategic investments in supply chain optimization, retail and restaurant companies can see immediate reductions in costs associated with inventory management, transportation and warehousing. These operational improvements are easily tracked through metrics such as reduced waste, lower operating costs and faster turnaround times.

Workforce optimization: Maximizing productivity and reducing labor costs

For both retailers and restaurants, labor is a major expense and frequent challenge due to high turnover; investing in workforce optimization technology can yield significant returns. Strategic investments that streamline scheduling, automate repetitive tasks and enhance productivity allow businesses to make the most of their existing workforce. The U.S. economy is showing signs of increased gains as companies have regained focus on productivity.

Implementing advanced scheduling systems, for instance, which align labor needs with demand patterns can reduce labor costs by ensuring the right number of staff at the right times. Investing in employee training and retention programs can also reduce turnover and associated hiring costs, leading to improved workforce stability. The value of these investments is quantifiable through labor cost savings, higher employee retention rates and improved productivity metrics.

Enhancing customer experience and convenience: Driving revenue growth

Investments that enhance the customer experience are key to driving long-term revenue growth. For middle market retail and restaurant companies, creating a seamless and engaging customer experience—whether online, in-store or through mobile channels—can lead to measurable increases in sales and customer loyalty.

For instance, a restaurant that invests in a mobile ordering app or a retailer that adopts a recommendation engine powered by artificial intelligence can create personalized and convenient experiences for customers, leading to higher order values and increased customer retention. The return on investment from these strategic investments can be measured through metrics like increased average order value, higher customer satisfaction scores and repeat purchase rates.

Strategic growth: Targeted and data-driven expansion

In today’s environment, growth needs to be data-driven and strategic. Middle market companies must focus their expansion efforts on high-potential markets that align with their broader business objectives. Investments in data analytics and market intelligence tools enable companies to make informed decisions about where to open new locations or expand product offerings.

Retail and restaurant companies can use location-based analytics to identify underserved markets, forecast demand and predict revenue potential. By making strategic investments in these data-driven tools, businesses can minimize risk and maximize return on capital. The value of these investments can be measured through revenue growth, improved market penetration and higher sales per location.

Profitability enhancement: Protecting margins

With rising costs, protecting profitability is a top priority for middle market businesses. Strategic investments that focus on automating routine processes, improving procurement or reducing supply chain inefficiencies can have a direct impact on margins.

Automating procurement processes and negotiating better supplier contracts can reduce the cost of goods sold, which directly improves gross margins. Additionally, investments in real-time financial analytics allow executives to quickly identify margin pressures and take corrective action. These investments provide measurable value in terms of improved profit margins, reduced operating costs and overall financial stability.

Key actions to become more value driven

  • Measure reductions in labor costs, operating expenses and overhead, and link these reductions to strategic investments in efficiency.
  • Track how specific investments, such as customer experience enhancements or data-driven market expansion, contribute to revenue increases and profitability.
  • Monitor improvements in employee productivity, operational speed or task completion times as a result of workforce optimization and process improvements.
  • Calculate how strategic investments in cost control or procurement efficiencies are improving gross and operating margins.


 

This article was written by Nick Stuart and originally appeared on 2024-10-02. Reprinted with permission from RSM US LLP.
© 2024 RSM US LLP. All rights reserved. https://rsmus.com/insights/industries/retail/retailers-and-restaurants-should-refocus-on-value-driven-strategic-initiatives.html

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent assurance, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about for more information regarding RSM US LLP and RSM International.