Restaurant Advisors

There are many schools of thought on what may be best-suited for each restaurant when it comes to purchasing. Most of it goes back to our experiences, and where we learned. Setting up purchasing programs that are "a fit" for your concept becomes much more important in today's competitive marketplace, especially when the cost of ingredients continues to increase.

The key question facing many restaurateurs is how effectively to reduce costs without diminishing quality and service. To do so, I find it makes sense to study the large-chain restaurant company purchasing programs to see what they do and what may work for independents. Make no mistake; these larger companies believe the wave of the present and future is really to structure partnerships or alliances with select suppliers. Their partnerships are structured so that suppliers share costs and have a vested interest in the long-term success of their customers' business. With the rising cost of fuel and the additional labor and accounting costs associated with checking in deliveries and cutting checks, it makes great sense for these companies to look to consolidate as much as possible to stay competitive.

Perhaps you are not running a Red Lobster or Cheesecake Factory unit. Nevertheless, in this article we'll look at how you might be able to establish a win-win partnership with your supplier that is right for your business, and not use the chains' purchasing model as a template, but more as "guiding principles" for establishing a better purchasing program.

First, Define Your Concept's Needs

Every independent restaurateur has to be true to his or her concept. Until you have defined your concept and remain true to who you are, you cannot expect to work with vendors to customize your purchasing program in a manner that makes sense for your business. First, examine your concept's needs from these perspectives:

Level of service needs. Is it imperative that your account sales representative personally take orders or can your restaurant order products online or via fax or phone call? Do you believe it's necessary to have more frequent deliveries because of storage space limits, or can you get by with fewer deliveries per week? If you require this level of maintenance, so be it. Just bear in mind that the more service and deliveries you require, the more you should expect to pay.

Quality specifications needs. Would it make sense to buy a large part or all of your food and nonfood products from a broadline distributor, or, do you find it necessary to use a dedicated meat, produce and/or seafood company for specific products. Specialty suppliers typically charge a premium. If your concept and/or menu truly lean on specialized products, your costs will increase, and your customers will have to be willing to pay a little more.

Primary supplier relationship needs. Can you afford to increase your primary vendor's drop size at your restaurant? Common sense tells us that suppliers become more profitable if they can deliver more products to you per delivery. If you can justify larger shipments, you need to work with your primary supplier to ensure that its efficiencies are passed along to you in the form of lower prices.

By way of illustration, some time ago, I raised this issue with a business associate who works in a regional position with a nationwide food distributor.

. . The point is that anyone can walk in your back door with lower pricing on certain products to get your business, but that same representative may be tied to a profit model that will not allow him to sustain that level of pricing over the long term..

In this case, it appeared the customer's "street account," (i.e., there was no ongoing commitment to purchase from the distributor), was subject to a calculated profit model. The customer's current distributor representative appeared to be working on a $300 minimum order per delivery with a 23 percent to 30 percent target gross margin -- regardless of specific pricing on individual products.

Let's say this customer could increase its weekly order to about $3,000 with three deliveries per week to accommodate the customer's limited storage space. If that customer was willing to commit to a primary supplier program (regardless of the company), the supplier could deliver $1,000 of product per shipment. The supplier increases its profit per shipment, and very likely could afford to reduce its margins on products marked up to offset distribution inefficiencies. It's a simple model and simple math, but the point is, that both the customer and supplier win. The supplier wins by making more gross profit dollars on the account and the customer (operator) wins by getting the same products at a lower cost.

The point is that anyone can walk in your back door with lower pricing on certain products to get your business, but that same representative may be tied to a profit model that will not allow him to sustain that level of pricing over the long term and across all product lines at your current level of commitment at the quantities you're currently buying. That's fair; however, it is also fair if you decide to commit to a single supplier for a significant percentage of your products that you have the right to pin the supplier down on how and where that commitment is going to translate to reduced costs -- item by item, if necessary.

Qualifying Your Suppliers

Let's say your restaurant decides to use a dedicated produce company with three to four deliveries per week, and buy everything else through a broadline distributor (two deliveries per week). And you have found that your chef is comfortable ordering online.

The next step in the process is to qualify your suppliers to ensure that they can fulfill your needs. What should you consider in a vendor?

One of the ways to do so is to make sure they are a financially viable company. Ideally, you've developed a good working relationship with one or a few suppliers. Also, ideally, these suppliers probably have already demonstrated that they have the revenues and capacities to extend credit terms, deliver good-quality products, maintain their delivery trucks and facilities and have personnel on the payroll. That said, you are in this business for the long haul. I would suggest investigating at this point whether that supplier has the capabilities to assist you with your potential growth. This becomes especially important if you do business with a local or regional type of supplier instead of a nationwide distributor (e.g., SYSCO and U.S. Foodservice).

Some of the questions to ask your distributor might include:

√ Do their products match closely to my quality specifications in all the categories my restaurant requires or will require?

√ Do they have the systems in place to pass along to me manufacturer deals as they arise?

√ Does that company have the ability to produce usage reports for my business upon request so that I can negotiate volume discount deals?

Once you have identified your supplier(s) that you believe might be a good fit for your quality, service and pricing needs, it is time to negotiate. This is the time to schedule a meeting to discuss how they can assist you with a purchasing program for your company. I usually suggest that the person who may be best suited to assist you in this endeavor will be a director or regional manager from a distributor. A person in that position will usually have the understanding and experience to discuss a program in their area and help guide you through most of this process. Don't be afraid to ask to speak to representatives higher up the regional "food chain."

Cost-Plus Programs