Climbing Vertically to Success

Guest Blog | Togather Restaurant Consulting

The landscape of our industry is in constant flux. It seems that each day we wake up to a new obstacle on our horizon, whether it be rising prices from vendors, competing with the mounting employee wages in your community, or simply tackling the ongoing supply chain issues. Looking at these things from a broad scope can be overwhelming for many business owners. A question that begs to be answered is this: how do we achieve our financial goals when the economy seems to be pitted against us? 

We have seen plenty of restaurant owners scale back their operations lately. Menus are shrinking, hours of operation are dwindling, and table service is becoming a rarity. Many would consider this unavoidable in the current market climate. While these actions have been proven to help mitigate losses, it would be a disservice to ignore additional options for making a profit. Vertical integration is a fantastic opportunity to gain revenue elsewhere within your restaurant. Vertical integration, simply put, is when a company controls more than one stage of the supply chain or production cycle. This creates an avenue of potential income based upon commodities already found within your company. Some examples of vertical integration would include bottling and selling signature sauces that your restaurant produces, creating take and bake menu items for pickup, or perhaps even hosting cocktail classes taught by your bartenders. The possibilities differ for each restaurant or concept, and finding a lucrative vertical for your specific company might look different from your competitors. The key to creating the right vertical for you lies within your unique company. Take a look at the things that keep your regulars coming back and ask yourself how you can make them even more profitable. 

There are numerous benefits to utilizing vertical integration in your business. However, the strongest advantages include sustainability, quality, and increased market share. To help explain these notes, we will be using a hypothetical vertical. In the following scenarios, we will be discussing a fabricated Mediterranean restaurant called “Yamas”. They are pursuing a vertical that markets their tzatziki in bottles to local stores and vendors. Now, we can dive into the benefits of vertical integration. 
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• Sustainability: When businesses integrate verticals, their metrics for sustainability increase. How is this possible? Put simply, vertically integrated companies communicate more fully and crossover their staff, product, and ingredients. Efforts towards sustainability are more successful overall. This is due to the fact that their efforts are deeply rooted amongst multiple levels and move quicker than a standalone concept, as the order of operations becomes more concise. Consolidating staff and allocating resources appropriately ultimately save your bottom line, all while eliminating the middleman markup regularly found in production. For example, Yamas decided to bottle and sell their tzatziki. By creating a production line that is overseen by the holder of the recipe, and is being created by staff that has knowledge of said recipe, each facet of production is held to the highest standard and is executed by employees that have experience creating it. 
  
  
• Quality: Vertical integrations have a proprietary claim on their concepts, which ensures consistency amongst sister companies and concepts. “Trade secrets” are taught in house, and the ability to learn from within improves the overall caliber of each product. Streamlining your process can only benefit the quality of your creations. Through repetition, insider knowledge, and consistency, we see an elevated standard of production across the board. Our tzatziki line, Yamas, sees an uptick in customer satisfaction when each bottle produced is invariant and refined. 
  
  
• Increased market share: Increasing your market share means increasing the effort you put into sales as a business, and using new or additional strategies to help you get there. The higher the market share, the more stable your business can potentially be. Additionally, this helps deter competitors. It’s difficult to compete with a company that gains access to limited production. By creating a vertical internally, you are efficiently monopolizing your own market. This creates effective barriers for competitors to enter your market. Yamas has perfected their production line and has found an excellent strategy for receiving and maintaining their supply. This helps Yamas to expand their brand recognition and upset the market with leading sales in their community for tzatziki. 

In the end, there are many factors to consider when looking towards vertical integration. Before deciding to take on a project of this scale, ask what is to be gained from pursuing a vertical. Would creating a vertical be realistic for your company? What problem would it be solving? What opportunities would arise from your vertical integration? Can your business support an internal start-up? These questions can only be answered with data analytics, creativity, and ingenuity. Integrating verticals into your business has the potential to elevate your profit margins when executed correctly. While expanding horizontally seems to be an impracticability in a post-pandemic climate, we can always look vertically. | Kate Ratledge, Bar & Front of House Consultant. Togather Restaurant Consulting. 

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This guest blog was submitted by Togather Restaurant Consulting. For more information on guest blog opportunities, contact Marla McColly, Business Development Director, Oregon Restaurant & Lodging Association.