Quick Service Restaurant

C: Okay, just to reiterate my client operates a quick service restaurant based out of India. Is my understanding correct?

I : Yes, that’s right.

C: Do we have a timeline since when the profitability has decreased?

I: Yes, the profits have declined in the last 3 months

C: Okay sure. I would like to know a little bit about my client to understand the situation better. Where exactly does our client lie in the value chain- does it only process food or also performs other functions in the value chain e.g food delivery? Secondly, I would like to ask about the current market landscape as it pertains to the client?

I: It both makes food and takes care of the delivery. The restaurant has both a dine in option and a delivery option. To your second question, the market is fragmented.

C: Understood. Lastly, who are the target customers- B2B, B2C?   

I: It focuses mostly on B2C customers

C: Sure. Do we have any information on the kind of product the restaurant sells?   

I: Yes, so the restaurant sells Indian Pizza and Pasta to the customers and the profitability has declined across the products.

C: Okay. Now I'd like to dig deeper into the case since I have the acquired some background information. Do we have any data on the channel wise profitability of the restaurants?

I: Yes, so the profitability decline is focused mainly on the online channel

C: Right. I'd like to analyse the situation from two perspectives- Revenue and costs. In revenue, I'd like to further bifurcate into revenue/customer and number of customers. In cost, I'd like to go through the whole value chain and analyze the elements one by one. Do you want me to focus on the revenue side or the cost side?

I: For the purpose of this case, I would like to let you know that the revenue is not a concern since it has only increased in the span of last 3 months. However, our costs have gone up significantly

C: Okay, understood. In this case I would like to draw a cost value chain for the restaurant to analyze the problem and pinpoint the issue.

I: Yes, you may proceed with this approach.

C: As I understand this, the major cost heads for this would be Procurement of the raw materials, inventory, processing and cooking which are common to both channel and the delivery charges for the online channel. Since the decline in profitability is in the online channel only can I assume that the delivery part is a point of concern for us?

I: Seems fair!

C: Okay, I would like to proceed with the value chain for the delivery of the food. Again, the major cost heads here would be Order receiving, packaging, delivery personnel salary and returns. Do you want me to focus anywhere in particular where there has been an overhaul in the past 3 months?

I: Yes, so we have changed the incentive compensation model of the delivery agents in the last 2 months which is now solely based on the number of orders delivered and is not concerned with the order value that they delivered. This was done to decrease the retention issue amongst the delivery drivers.

C: Okay. So, as I see the problem lies majorly in the Incentive compensation model which needs to be aligned with the revenue the order brings to the company and not just the number of orders. Other methods of retention like health insurance etc. can be explored to retain the drivers. Also, I believe the client should focus on its core competency of food making and outsource the delivery business to other players like swiggy, zepto, dunzo who operate in this space.

I: Those are some great recommendations . We can end the case here.