New IFDA Study Looks at $16 Billion

Titled "The Impact of Group Purchasing Organizations on the Foodservice Industry," the study traces the advent of GPOs and their success in the healthcare industry, and analyzes the impact they are having in their more recent incursion into foodservice.

The basis of the study, commissioned by IFDA's Foundation for Education and Research and the IFDA Supplier Advisory Council, included telephone interviews with executives from manufacturers, distributors, GPOs, and foodservice operators.

The white paper reveals key findings and challenges represented by GPOs and was undertaken as a catalyst for industry discussion in addressing the issue of GPO's increasing role in the foodservice industry.

GPO BACKGROUND AND FOODSERVICE PRESENCE In the 1980s and 1990s, GPOs were created in the healthcare field as hospitals and other facilities pushed to gain economies of scale and cut purchasing costs. Over the past decade, a number of these GPOs began extending their operations into the foodservice channel.

Although foodservice is still a relatively small percentage of overall GPO business, sales within that channel are estimated to be between 8.5-9.5% and are growing with some GPOs having recently achieved significant increases in their share of business in foodservice. Almost all GPO companies interviewed for the report view foodservice as an area for growth.

IFDA's report notes that operator-members of GPOs can achieve savings in the cost of goods, enabling them to compete more effectively. These same operators can also benefit from peripheral services offered by some GPOs, such as insurance, linen service, etc.

According to the report, manufacturers and distributors also can derive benefits in possible increased volume of sales to markets not currently served. That volume, however, only goes to suppliers approved by or under contract with GPOs. In some cases manufacturers and distributors must also agree to contribute a margin percentage to the GPO as an administrative fee.

GPO CHALLENGES While a reduction in margins was seen as an acceptable cost when balanced against increased sales, some GPO practices are now having a negative impact on the foodservice supply chain, according to the report. In particular, the report cites the practice of "extendibility"

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