As restaurateurs around the country strive to lower costs, all segments of the industry are seeking to leverage buying power. Some independents are banding together in co-ops/buying groups; small, multi-concept companies are consolidating purchasing; mid-sized companies are outsourcing to purchasing groups; and large chains like Subway and DineEquity (IHOP/Applebee’s) have created their own purchasing co-ops to serve franchise and company-owned stores (with DineEquity projecting an annual savings of 3-5%). Some strategies:
Outsourcing purchasing. Gary Foreman, senior vp, Rock Bottom Restaurants, a chain of 140 casual dining restaurants headquartered in Louisville, CO, says, “We recognized that the only way to get better pricing on high volume items from our purveyors was to increase our purchasing volume.” Gary says they signed on with SpenDifference, a strategic outsource purchasing company, created in 2008 by two Rock Bottom purchasing veterans who realized that there weren’t options for mid-sized operators – between $10 and 120 million in spend. Maryanne Lewis, ceo and president, SpenDifference, explains, “We’re working with companies that have restaurants scattered around the country, like Rock Bottom and Spaghetti Warehouse, with similar buying needs. We can help solve their distribution challenges and cut costs by consolidating volume, vendors, and deliveries.” SpenDifference has product experts who provide the kind of specialized expertise that mid-sized chains usually can’t afford on staff. “Our experts get into every detail of a client’s supply chain – from examining distributor programs, raw material contracts, product yields and selection, and production costs to packaging and overhead/profit to insure clients are getting the best price. Plus, we do line-by-line auditing of all invoices.” SpenDifference’s fees are based on a percentage of spend and are fully transparent to their customers; Maryanne reports overall savings range from 3 to 12%; with some items as high as 30%. By outsourcing purchasing, clients have not only been able to lower costs, but also save on general and administrative costs as the result of being able to downsize their in-house purchasing departments.
Consolidating purchasing. Union Square Hospitality Group, New York, NY, an independent restaurant group, has hired a purchasing director to develop and manage a preferred vendor list for the common items that each of the group’s 10 restaurants and catering operation used to order separately (e.g., paper goods, cleaning supplies, linen, and water). “Now we are benefiting from economies of scale on these ‘non emotional’ items, i.e., non-food products,” explains Jeff Amoscato, purchasing and systems operations manager. (Jeff advises looking at this category, saying it’s surprising how many items fall into it.) “While we’re committed to having our restaurants be as hand-crafted as possible, there’s no reason to leave money on the table. So far we’re seeing savings of 7.5%.” Jeff says he’s transitioning to the food side slowly. “We’ve consolidated our liquid dairy purchases and are looking at other items that offer the best buying power without sacrificing quality. Aside from the cost savings, one of biggest benefits of consolidating purchasing is that our relationships with vendors are stronger. We’ve become partners – they’re really working for us, and we no longer are just leaving messages on their answering machines.”
Forming a buying group. Some independents have been able to reduce costs by banding together. For example, group purchasing is the mission of the 42-member Dine Originals Columbus (originally part of the now-disbanded Dine Originals, a national organization of independent restaurants with regional chapters). “We started with one supplier who gives us a discount based on our combined spend,” explains Kamal Boulos, owner, The Refectory, Columbus, OH. He says that 10 members were already buying from the same produce vendor and, as a result, the group was able to negotiate special “national account” pricing. “We agreed to three different pricing levels, based aggregated on spending of $225,000, 250,000, or 275,000 per quarter. Not only did prices go down, but the purveyor dropped the fuel surcharges, and we each instantly saved about $200/month.” Kamal agrees with Jeff that it’s key to focus co-op buying on “non-emotional” items. “Next we’re going to look at items like fire-suppression systems, payroll services, and insurance providers,” he says. Another group, Sarasota-Manatee Originals, also a former chapter of the national Dine Originals group, has tried to organize a purchasing co-op, but without success. “We’re just too diverse. People buy differently – some get deliveries every day, some weekly. We couldn’t make it work,” explains Michael Klauber, proprietor, Michael’s on East, Sarasota, FL. However, he says, because many of the 50 members buy from the same broadliner and linen companies, the group was able to negotiate marketing rebate dollars that account for 80% of the group’s annual advertising campaign.
Buying through a co-op purchasing company. John Davie, founder and ceo of the 11-year-old Dining Alliance, a for-profit company with over $500 million in buying power, says that a lot of people have tried to start buying groups in the past. “They’ve been very successful in other industries, but they didn’t work in restaurants, mainly because chefs had the perception that buying as part of a group meant buying inferior product that was bought in bulk and warehoused – which is simply not true.” Currently, Dining Alliance has over 1,800 members – mostly independents and chains – with chapters in eight major markets. There are core programs for produce, credit card processing, insurance, trash removal, etc., that are available nationally. There are no membership fees – Dining Alliance is paid a percentage of savings. As the company expands, John meets with restaurateurs in potential markets to get vendor leads. “When selecting vendors, we never sacrifice quality or service – we’d always rather pay a little more.” John says clients are saving 10-15% on price, and some tell him they are even upgrading in quality.
“I’ve wanted to pool buying with other independents for years, and when Dining Alliance came to town I signed up,” says Kevin Joyce, owner, The Carlton, Pittsburgh, PA. “While I still work with individual purveyors for some items, 50%+ of my purchases go through Dining Alliance.” Kevin adds he’s seeing dramatic savings on such items as linen, paper goods, coffee, and soft drinks; his food costs have dropped two-plus points, plus he’s getting manufacturers’ rebates as part of a Dining Alliance program. Kevin underscores the importance of bringing chefs on board. He explains, “It’s challenging to change long-term supplier relationships, and you have to help your chefs get used to the idea of new vendors.” Steve DiFilippo, proprietor, Davio’s and Avila, Boston, MA, agrees. “It’s a bit of a blind order for our chefs – they’re used to meeting with a couple of different vendors in person,” Steve says. “However, now we’re buying the same top quality and saving 10-15%, and the chefs don’t have to worry about how much we’re paying for chicken – all that work is done for them.” Steve adds he feels secure knowing that his food costs won’t go up because of the contracts Dining Alliance has with its vendors.
“Buying groups have been very successful in other industries, but didn’t take hold initially in restaurants, mainly because of chefs’ perceptions that groups buy inferior products – which is simply not true.”– John Davie, founder/ceo, Dining Alliance