If you operate in the food service industry, you’ll know that the last few years have been tough. Suppliers have been increasing their prices and customers have been tightening their budgets, leaving many businesses feeling the squeeze.
With external factors conspiring against them, food service companies are increasingly using revenue growth management to regain control in an uncertain industry. As margins tighten in the sector, firms must find ways to be more innovative and adaptable - a process that started during the pandemic - to wring as much value from this channel as possible.

This article explores the principles of revenue growth management for food service businesses and provides some easy-to-implement suggestions. Full-service restaurants, bars, pubs, fast food outlets, caterers, and other places that prepare, serve and sell food or drink to the general public are all concerned by this trend, and there’s something for everyone here.

What is revenue growth management?

Revenue growth management (RGM) is the process of implementing strategies throughout the business to drive sustainable income growth. You can use various techniques, from those focused on customer acquisition and retention to optimizing your pricing and using data analytics to supercharge your sales, promotions, and marketing.

Revenue growth management isn’t a new concept. It has been used extensively in the consumer packaged goods (CPG) industry, where it has helped companies sustain their profits despite ongoing challenges, such as record inflation and spiraling wages. However, in the food service industry, firms are just waking up to the significant opportunities it provides.

What are the different revenue growth management principles?

Revenue growth management is evolving in two complementary directions:

  • Strategic RGM - This approach involves taking a holistic view of the market and understanding consumer and competitor behavior, the product portfolio, and promotion channel management to develop an end-to-end strategy. You can connect different teams to align their strategies and achieve shared revenue goals.
  • Precision RGM - This data-based approach relies on digital tools and analytics to give you a detailed understanding of customer trends and needs. You can then make informed and timely decisions about pricing, the product portfolio, demand forecasting, and sales promotions.

By combining these two approaches, you can create a strategy that empowers your teams to work together and serve up consistent and profitable growth.

How to implement revenue growth management in food service

The following framework highlights the specific areas and actions that food service companies can target to optimize their financial outcomes.

Yield management

As a food producer, a critical measure of success is your ability to produce the maximum end product from your raw materials and ingredients. By increasing your output and reducing waste, you can optimize your revenues.

Easy, right? Unfortunately, optimizing yields is rarely straightforward. The production process, the quality of the raw ingredients, your equipment, and external factors such as employee skill and experience all play a part.

To create a yield management system that boosts revenue, you must consider each of those factors and develop strategies to improve them. You could invest in better equipment, introduce effective ways to retain your best workers, improve your production process, or implement new quality control measures.

Although you will have to invest time and money initially, making incremental improvements will help you boost yields, reduce costs, and increase revenue.

Rethinking your pricing strategies

In our fast-changing world, food service market trends and customer demands shift daily, making it easy to lose track of your pricing. With so much information out there, food distributors may find it tough to analyze spreadsheets and collect swathes of relevant market information on their own. This is where machine learning technology can make a difference.

Price optimization software uses data and statistical algorithms to crunch the data and provide instantaneous pricing strategies for marketing and sales teams so you can stay ahead of industry changes.

For example, for a food distributor with a diverse product portfolio, it’s not always easy to determine which products are profitable and to price them accordingly. With price optimization software, you can eliminate unprofitable transactions and improve your margins to more sustainable levels.

Optimizing menus

For restaurants, hotels, and bars, menu optimization is a vital step in enhancing revenue growth. Here are some various ways to influence customer choices and increase overall sales:

  • Put promotional items and special offers at the top of the menu
  • Design promotions and offers to align with customer preferences and trends
  • Offer free items with high-value purchases and meal bundles for a fixed price
  • Make high-value items stand out by including them in a chef’s choice category
  • Adapt your wine list or beverage menu, offer something for every budget
  • Replace a long list of side dishes and extras with customization options for main dishes to upsell and encourage higher spending.
  • Add vegan and vegetarian items, as these are increasingly popular

Leveraging seasonal trends

Seasonality has a big impact on the food service sector and makes it challenging to stay ahead of the curve. Customer preferences, demand, and staffing requirements can change significantly throughout the year, which makes revenue growth an ongoing challenge.

To stay relevant, restaurants and other hospitality businesses must adapt their menus, shift their marketing, change their pricing, and create new promotions to appeal to customers throughout the year.

You can create seasonal menus that feature fresh produce, highlight specific seasonal promotions, and plan special events around holidays and local festivities. You can also take an analytical approach to your pricing. You can increase your prices when it’s busy to maximize your revenues and reduce them when it’s quiet to keep customers coming through the door.

Streamlining the buying process

Customers buying from food distributors want timely responses, quick quotes, and an easy-to-navigate buying process. By giving your customers the service they want, you can become their food service partner of choice and boost customer retention.

High levels of customer retention are key if revenue growth is your goal. A Harvard Business Review report suggests that increasing customer retention rates by just 5% leads to a 25-95% jump in profits.

Over the past few years, food delivery services, or aggregators, such as Uber Eats or Just Eat, have changed the market irrevocably and set the scene for large-scale growth. Morgan Stanley estimated the US food delivery market alone could swell to USD 210 billion in the long term. Embracing such services, by offering take-out menus and making it easy for aggregators to order and deliver your products, is a smart move for this channel.

AI tools can help you make quick work of the buying process, allowing you to give customers accurate and data-driven responses on demand. You can generate proposals, help them find the right products, and generate personalized responses quickly. That helps to shorten the sales cycle and boost your cash flow.

What are the benefits of revenue growth management?

A robust revenue growth management strategy can help you realize several benefits alongside the upturn in your income:

  • Increased profitability - As well as raising revenues, an RGM strategy can directly impact the bottom line and boost margins in an industry where they’re known to be slim.
  • More efficient resource allocation - By making decisions based on a detailed analysis of market trends and product performance, you can allocate your resources more efficiently and focus on the most profitable products and markets.
  • Market differentiation - Streamlining the buying process, optimizing menus, and implementing strategic pricing can help you produce unique value propositions that differentiate your business from the competition.
  • Enhanced customer retention - RGM strategies enable you to better cater to the preferences and needs of the market, creating satisfied customers who are more likely to return.

Redefining value in food service

Given the unrivaled challenges food service companies face, revenue growth management can be an effective way to regain control. By combining modern technology with an analytical mindset, you can refine your operations, target high-performing markets, and realign your offering with consumer demands to achieve sustained revenue growth.

About EHL Group

EHL Group is the global reference in education, innovation and consulting for the hospitality and service sector.
With expertise dating back to 1893, EHL Group now offers a wide range of leading educational programs from apprenticeships to master's degrees, as well as professional and executive education, on three campuses in Switzerland and Singapore. EHL Group also offers consulting and certification services to companies and learning centers around the world. True to its values and committed to building a sustainable world, EHL Group's purpose is to provide education, services and working environments that are people-centered and open to the world. www.ehlgroup.com

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