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From tariffs to value wars: 'Black Swans' that make QSR leaders rethink supply chain costs

The term "black swan" is used to refer to a random, unexpected event that is hard to predict. It's safe to say that the QSR community experienced its fair share of black swan moments last year.

June 19, 2019

By Victor Hinojosa/AscendantFX vice president -- digital solutions and partnerships 

The term "black swan" is used to refer to a random, unexpected event that is hard to predict. It's safe to say that the QSR community experienced its fair share of black swan moments last year. 

Specifically, U.S. trade tariffs and the fast food value wars were last year's defining black swan moments, and they continue to loom over the industry at large. These paradigm shifts have far-reaching influences on capital and operations costs, and thus are affecting the growth of QSRs. 

Fast casual captures 7.7% of the restaurant industry market share and while its growth far outpaces the trajectory of typical fast-food and full-service competitors, there are a few factors that could stall its rise to the top.

As a result of a slowdown in consumer spending, fast food titans from Taco Bell to Wendy's emphasized value pricing, with market research company, NDP Group reporting that value menu traffic was up 10% in Q1 2018, driving a 13% increase in sales. 

For instance, McDonald's update of their value menu played a huge role in defying analyst predictions for their first-quarter earnings. The rebirth of the value wars was a watershed moment that put pressure on the industry to meet rising customer expectations for higher quality and more variety in value-priced menu options. 

Other restaurants took a different route, shifting higher labor and commercial real estate costs to customers through higher menu prices. Despite the short-term gains, it was a race to the bottom as restaurants slashed or inflated prices, and the aftermath is still being felt today. 

With dwindling customer traffic, QSR leaders are scrambling to get more customers through the door during an age of unprecedented trade tension and uncertainty. Supply and demand is so global that the slightest whiff of uncertainty carries with it unintended consequences. 

Notably, international trade tensions between the U.S. and China continue to pose a problem for the QSR world. Uncertainty lingers for restaurants as the cost of importing goods rises. In a penny business, steep tariffs on imports can dramatically affect the price of meat/proteins, produce, and grains. This has massive implications for restaurants that operate year-round and rely heavily on international suppliers. 

There is no playbook for trade wars, but there is at least heightened awareness around trade costs within the QSR franchise and supply chain industries. As the trade wars continue, more QSR leaders are rethinking their supply chain mindset to streamline costs in a post-tariff world.

Sourcing the best prices now means not only seeking out the best value in suppliers but sourcing the best prices for foreign exchange costs — the unavoidable cost of doing business internationally. 

The U.S. franchising industry contributes $2.1 trillion to the country's economy, and QSR businesses that continue to thrive are being creative when it comes to foreign exchange costs. These black swan moments of 2018 have been a wake-up call for QSR franchise leaders to help their franchisees control costs and grow revenue for their franchisees. 

Some QSR leaders are investing in back-end solutions to manage inventory, as well as using customized foreign exchange solutions to effectively manage their foreign royalty payments from their international franchise network. This outside-the-box thinking offers an attractive alternative to unsustainable strategies, like hiking or slashing menu prices. Innovative, future-proof solutions offer the best bet for the QSR industry to weather this storm of uncertainty.

Victor Hinojosa is the vice president of digital solutions and partnerships at AscendantFX. 

Photo: iStock