Doug’s Corner #2 – Dealing with suppliers

Experienced Chef and writer Doug Allen returns with the second installment of Doug’s Corner, where he shares his experience and advice on dealing with food suppliers.

Get the stuff you need delivered to where you need it at the price you expect.

Sounds simple enough but I recently worked with a new restaurant owner that despite having no food service experience decided to reinvent the supply chain process from the ground up.

But I can get it Cheaper!

When it comes to sourcing raw ingredients and dealing with suppliers an operator needs to play the game very well or rely on someone that does. And crucially, someone that can be trusted. If you get it wrong you are putting profit that could have gone in to your pocket into the hands of someone else.

Now my new owner above thought the best way for him to save money and to control food cost was to drive to the supply house or the membership clubs and buy everything himself, on almost a daily basis.

He also had wholesale vendor deliveries several days each week. When put all together he was spending the majority of his time transporting food and dealing with suppliers instead of managing his restaurant.

His food cost was increasing, not just because he spent so much time driving around collecting supplies but because of the inconsistency of what he purchased.

With a good wholesale food vendor you can establish specifications and set up standards of product quality that may not always be possible at the clubs and small stores. This way when the order is placed your salesperson knows exactly what your standard is and will make sure that is what arrives at your door.

Run the numbers. It’s easier than you think

If you are attracted by the proposition of driving down to Costco yourself and seeing if you can find what you need at a cheaper price than your suppliers are offering I would advise you to take some time to think it through.

You can quite easily create a simple spreadsheet that specifies the food cost of one of your menu items based on the quantity of ingredients used. Try constructing this spreadsheet using your wholesale supplier’s prices and the supposedly cheaper prices at your local supply store.

Now add in the cost of your time, the cost of fuel, and think about the opportunity cost of you not being around to deal with other tasks in your kitchen. The comparison will almost always show an advantage to using a wholesale vendor that delivers.

It is a proven fact that when an owner or manager is not around the operation does not run the way it would with that person present. I know the tendency is to say “we have great employees and morale” but people are people.

You need to be in the building

Owners and managers are the ones who see the big picture and there is a lot to be gained by having them around rather than out sourcing supplies.

To use an old expression, when the kitchen staff are “knee deep in alligators it is the wrong time to remember they should have drained the swamp.” When employees have their heads down and are doing a great job they just don’t see the little things that the manager or owner would, it makes a difference to the quality and consistency of a restaurant to have senior staff present, focused on the smooth running of the place, not on saving a few pennies on potatoes.

Build trust but have a backup

So how does one keep integrity in the purchasing side of a food service business ? Planning and creating a plan that can be executed easily is the key.

If it is hard to make the plan work, it will fail due to resistance from everyone involved. In my experience on both sides of the negotiating table I have found that once you are comfortable with the vendor and the salesperson then work on building trust.

Even for a small operation that spends fewer dollars the vendor will be more likely to offer a better price if the operator can place the majority of purchases with that vendor. It can make sense to tell a vendor that you want to order as much of your requirements through them as possible and that you will expect a high service level for this kind of commitment.

Do I recommend putting all your eggs in one basket ? No.

Even as a former salesperson I would tell my customers to have a back-up. No vendor is going to have a one hundred percent fill rate with no out of stocks. So make your life and the primary vendor’s life a little less stressful by having a way to fill in if needed.

Most vendors today will offer a fixed mark-up pricing plan or some way to keep your prices competitive but we are dealing with agricultural products that are at dependent on weather and other factors out of the control of the vendors.

By having a set mark-up when the price falls you are on the early side of that decrease.

Giants of the US wholesale food market

In the U.S. the two giants are U.S. Foods and Sysco with sales in 2014 of $22 billion and $46 billion respectively.

These two had a merger agreement but in 2015 the US Federal Trade Commission stopped the transaction citing that this would create a detriment to competition in the industry. I worked ten years for Sysco and am now working on the other side. I have purchased from both companies at large scale and small scale operations.

Both companies have tools and resources to help operators monitor purchases and cost but always keep in mind that their ultimate goal is to sell. Not that they would do anything deceptive but knowing that is their point of view should be kept in the forefront of your mind.

The National Restaurant Association estimates that the 2015 annual restaurant sales in the U.S. will be about $709 billion. Combining Sysco and US Foods would have created a company with sales of about $65 billion so if the industry has an average food cost of 30% then the potential of just restaurant purchases would be about $212 billion.

That combined company would only have 30% of the purchases in just the restaurant industry. Hardly a monopoly but the deal is dead for now and many regional companies are around as well doing a great job of meeting customers’ needs.

Over the years these two have come out with online ordering and other tools but then when upgrades come into play the customer is sometimes left out in the cold and will have to deal with system down for maintenance messages.

Having a dedicated in-house system that the operator is in control of may be a better solution in the long run. Have you checked out Kitchen Coster ? :)