Having worked as a consultant for a large foodservice distributor for 4 years, I learned a lot about their business. A lot of stuff they don’t want you to know! My mission is to you the independent restaurant that is trying to thrive and not just survives in today’s ultra-competitive restaurant industry. It’s my duty to give you an edge that can help you run a more profitable business.
You have a major food distributor in your market that you are probably buying from. It could be Sysco, US Foods, Performance Food Group, Ben E. Keith, Shamrock Foods, Gordon FoodService or another regional brand. One thing you have to know up front is that their business is a lot like yours: uber-competitive!
They make their money as you do. Where you are one guest at a time, they make money one case at a time. Just like you, they have overhead that kicks their ass. In restaurants, it’s usually the culinary team that eats up most of your labor budget. In foodservice, it’s their operations team.
Things don’t just get loaded onto a truck by little magical elves. No, they have two different shifts like you. The day team receives all the product and puts it away. The night team loads the trucks that become your route. Then throw on top of that the drivers who have to follow strict rules and regulations for transporting food over interstates and you might now see your labor issues as not so bad.
You see foodservice distributors are more in the transportation business than the food business. If you can reduce ticket times in your kitchen, reduce the time it takes to turn a table, and increase delivery without adding more staff... your team becomes efficient and you make more. The same is true for foodservice companies. They have fixed costs to send a truck (route) into your market. If they can load that truck up with cases and make bigger drops they make more money! They also learned how to make money by filling up empty trucks going back to their market with what is known as the backhaul. It the same concept that we use in restaurant work: full hands in, full hand out!
Here are the 5 Things Foodservice Distributors Don’t Want You To Know:
Let’s start off by saying that getting on a prime vendor agreement is a fast way to lower your overall food costs. If you don’t have one you want to ask for one. However, here’s the catch: your salesperson will try to persuade you out of it.
They make their money by the commission or the margin they write on your account. The really clever ones know how to manipulate margins so you don't see them taking advantage of you. Many do what is called “speeding” where they jack up the margin so high that it should be illegal! They fear a PVA because then you are locked in a certain price and they are them set at a fixed commission rate and they don’t like that.
Here’s another thing to be aware of: their supervisor (district manager) will usually lookout for the salesperson, while those at the higher levels look out for their company. Don’t think for a second that the smiling handshaking person who is their boss who stops in only once a quarter to say “hi” is your friend. They get a commission based on overall sales for their territory. They basically work for their sales team.
You need to move up the chain to those that want more cases on the truck. That is usually the district or regional manager. You could also ask if they have an emerging brand division if you are a small and growing chain. The more restaurants you have the better buying power you wield.
When they present you with a PVA they will give you most likely this option: They will give you a percent markup on a category (dry goods, dairy, produce, etc). It looks actually much better than the random pricing that your salesperson gives you now. You think right away, “WOW, this is awesome!”
Not so fast. What you want to ask for is margin instead of markup and you want it to be auditable.
That means at any time you can ask to see their records to make sure you’re not getting screwed and if you are, they have to reimburse you!
They want the markup instead of margin.
Here’s some math:
A $10 item at a 10% markup is $11.11
If it is the margin is 10% then they only make $11.00. Now you might not think that11 cents is a lot when you are moving millions of cases that add up quickly. Remember they are in the per case profit business like you are in the per plate profit business.
Remember that foodservice wants to keep their overhead low. That truck is heading into your market so it needs to be full. The more cases they can drop off at your restaurant in one or two “drops” is better for them. Now, if you can manage your inventory to be more efficient and can reduce the number of deliveries you get per week while keeping the case count high, that is worth a percentage point on your PVA!
Those restaurants that can’t manage their inventory and need five deliveries a week are paying much more for their products then they realize. The sad thing is that many don’t care to ask this simple question to their foodservice distributor, “What can I do to help you lower your costs of getting groceries to me?”
When you sign a Prime Vendor Agreement you get some cool perks. Most have to stock those hard to get items that you seem to have a hard time sourcing. Another thing you have to understand that the foodservice distribution world keeps secret is that a “slot” in the warehouse is gold to them. Food manufacturers pay big bucks to get their products in prime locations in supermarkets and they pay the same to big food distributors to get “slots” in their warehouse. A local foodservice company is limited by the number of products they can carry at their local location. Many offer the ability to order from one of their other warehouses and have it shipped either the next day or by FedEx. That can make inventory management a challenge at times.
In your PVA you can request certain items that are key to your brand to be stocked locally. You can also request that those items not be sold to other restaurants in your market. They call it a “prop block”. That’s why some of those local restaurant chains can seem to get a French Fry that you can’t. Want a signature steak produced just for your brand? Request it, have it stocked locally, and then request it is prop blocked from competitors getting the same from your vendor.
Contracts are great because they hold each side accountable to do what they say. That’s why you get one to protect your business. The days of the handshake deals are done. Get it in writing, and every six months ask for an audit to see if they are living up to the agreement. Foodservice distributors get a little nervous when you mention the word “audit” to them. Try it a see for yourself.
We talk about loyalty coupons and discounts often in restaurants. In foodservice distribution, they call them deviations. These are the discounts that they are able to find you from major brand labels. They have two kinds and you want your foodservice distributor to go hunting for each of them.
There are internal deviations and external deviations.
Internal is the discounts they can get you for items that are within their brands. Manufacturers make product lines that are not just for one company. No. Those cams tomatoes you get could very well be the same can with just a different label on them. When you brand a line under your name they are sold to you for a better price. That means that the foodservice distributor usually can make more money on their brand label than a mainstream one. Your foodservice team can sharpen the pencil a little bit better when dealing with brands under their own label. Take advantage of them they can save you a lot of money.
Ask for a process called “product rationalization”. That is where they compare the major brands you are buying normally and compare it to their house brand label. Now, most will be honest and do a “cutting” comparing the products side-by-side. You would be shocked by the money a good foodservice distributor can save you doing this. I have seen an annual savings of over $50K easily!
External deviations are the deals they get from the major brand that have marketing money. Let’s say you buy Hornel bacon and they have a promo that gets you $10 off each case you buy. That could be some great free money that they tend to give you back in the form of a rebate check. Some of the laws are changing and it’s changing the way these checks are distributed. However, internal deviations are very much alive and well. You just need to ask for them.
Here is the one that you must be asking for in your Prime Vendor Agreement....perks. Major perks. While most big-time foodservice distributors offer luxury trips for their top customers that doesn’t mean you should stop there. I have seen PVA’s written that have all kinds of weird requests in them like:
-Rounds of golf on top courses
-NRA Show trips (including airfare, hotel, show passes, and VIP tickets to events)
-3rd Party consulting services
-Printing of menus
-Mastermind Groups paid for
Granted the bigger customer you are the more you can negotiate (you'll need to be buying over $5M a year to be considered a big fish in their pond). The keyword here is to negotiate and ask! You have to be a little ruthless when cutting a deal with your foodservice distributor. Trust me, they have more competition and tighter profit margins than you do and they are very willing to work a deal. The deal has to be good for them as well as you! That is really what a business partnership should be. Both sides benefit for the welfare of the collective.
The days of shady salespeople are coming to an end. As technology becomes better, you will see that your salesperson is replaced with a customer service phone number that will just confirm your order and tell you of any products out of stock. Like the rise of delivery in a restaurant, computers and automation are the new way. Foodservice distributors will have to get more of their customers to order online and reduce the number of salespeople in the field if they want greater profits. Locking yourself into a PVA is one way to protect your business from salespeople “speeding” on your order guide and then you wonder why those tomatoes cost you $60.
Transparency is becoming the top topic. Guests in your restaurant are asking where food is sourced and how it is processed. Foodservice is also taking a hit from this as well as new tools are coming out that allow restaurants to compare prices of food sold to other restaurants in their market.
Here are three companies that are leading the way of showing pricing across the board from vendors:
If you are looking for an all-in-one POS system that syncs with your foodservice vendor, check out Upserve. They have robust software (and hardware) that will give you the edge you need to increase profits without spending hours in the office trying to get the data you need.
There are so many tips and ways to boost your bottom line.
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