Question:
There seems to be a trend in purchasing methods by restaurants toward moving to large purchasing groups. What are your feelings in this regard?
– Neil, Owner, Crackpot Restaurant, Towson, Md.
Answer:
Large national competitors are able to offer great pricing and promotions that may present challenges for independent operations like yours, thanks to their large purchasing power. A large multiunit chain, for example, may be able to negotiate directly with manufacturers, lock in the best possible pricing with broadline distributors, or even arrange rebates and sponsored pricing for menuing specific brands. All of these tactics present challenges for independent operators who do not have the clout to make suppliers hustle to meet their needs.
Group purchasing organizations (GPOs) have been around for decades—not just in foodservice, but in many industries—to attempt to attempt to battle that imbalance. Put simply, GPOs unite multiple operations with similar needs to act as one united front when negotiating pricing and contracts. GPOs are particularly common in healthcare, schools and other noncommercial foodservice where quantities are large and there is less pressure to differentiate from competitors. However, as restaurant operations strive to be more competitive, GPOs have appeal there as well.
In general, the main advantage for GPO members is favorable pricing. Another advantage is that they reduce the member’s burden of meeting with salespeople. The main disadvantage is that preferred products may not be available. For example, the GPO may be able to negotiate a great price on cleaning chemicals for everyone in the group. That’s great, but if you have a particular favorite brand, you may lose the flexibility to use it (or will pay more for it if you are allowed to purchase it outside of the GPO agreements). Another disadvantage is that if the GPO’s list of products is too restrictive, you may have trouble differentiating your menu from that of your competitors.
My advice is to explore what a good GPO can do for you. It is simply too hard to run a profitable restaurant without taking advantage of every cost-saving opportunity at your disposal. There are a variety of GPOs, from small regional organizations to large nationals. The best don’t charge a fee to members, but rather collect a broker’s fee or a percentage of cost savings. Be wary of any GPO that requires a “buy-in.” Also, be clear about whether you are locked in to only purchasing through the GPO, or if you have the option to buy directly elsewhere as well.
As always, use your local restaurant association as a resource to learn what members are doing with regard to group purchasing. More on GPOs here and here.