Prime Vendor Programs and the Cowboy Hat

Have I ever told you the story about the cowboy hat?

We had a meat specialist that went to help out at the Alliant Foodservice Texas Foodshow and when he came home he dropped his expense reports for his rental car, room, drinks he bought for customers, and an expense for a large 10 gallon cowboy hat. The Marketing director (his boss) kicked the hat report back to him and told him it was frivolous and uneccessary for the show. In other words "the hat was on him". The next month the meat guy came in with a huge stack of expenses, coffee for customers, parking, tolls, postage, lunches, dinners, and more. He drops the thick stack on Marketing Directors desk and turns to walk out. When he got to the door he did a half turn and said "Marketing Director Guy? See if you can find the hat."

The point of that story to me is that every distributor has a minimum expense to do business and they have to pass on those expenses one way or another. So your pork ribs, chicken breasts, and pink detergent may be amazing prices, and every distributor may be fighting to the penny to get you the best price, but you better watch the sugar packets, the foil, and (what was that other one I found..um oh ) spiced Chili Beans! I recently did price comparisons at two restaurants and the $11.00 box of sugar packets from my competitor was $30.00, and the $22.00 spiced beans were $44.00-but boy the competitor got me by a penny on the chicken breast that week!! Which leads to the next point, don't get so hung up on the pennies that you are missing the dollars.

Call me about a Prime Vendor program that you can trust.

“Price is what you pay. Value is what you get.” Warren Buffet

More often than not, value beats price. The question is whether the principle holds true when the economy and customers are jittery.

For the answer, we travel to Indiana where Senior Vice President and General Manager Jim Moody describes a cutting showdown where U.S. Foodservice™ left the competition in the dust.

An upscale restaurant a U.S. Foodservice versus the competition cutting for each of two properties in the area. The match was on. It was Chad Krockover, Vincent Kinkade and Curt Bressler taking on the competitors management, sales reps and COP specialists. As Jim Moody reports, “We won so big that the GM of the properties stated that cutting products again at the second property was a waste of time” and cancelled the second session. Jim reports that the competition “focused on saving the customer money, while U.S. Foodservice™ and the customer were focused on quality products enabling them to save and grow their customer base instead of chasing them away.”

Value beats price once again.

Why Select A Prime Vendor For Your Business

The Easiest Way to Cut Your Food Cost 10%
by Bill Marvin, The Restaurant Doctor

While there are few absolutes in this business this is one - "Engaging in ongoing competitive bidding practices to get the lowest prices actually leads to higher food costs, not lower."

That's right. Contrary to what most of us, who have grown up in this business have been taught, having an ongoing purchasing process that revolves around using lots of vendors, comparing bids, price shopping and buying from the lowest bidder NOT only doesn't save you any money but ends up costing you in several ways.

To prove my point, how many professionally managed, large chain operators employ ongoing competitive bidding practices? ZERO, NONE, NADA! Every large chain uses one primary purveyor to supply 80% - 100% of it's food products. How many independent operators do this? Probably less than 10%, easily less than 20%.

And who makes more money at the restaurant level, the typical chain or independent restaurant? According to industry averages published by NRA the average independent nets about a nickel or 5% of sales before federal and state income taxes. Having worked with several chain operators and from perusing the annual reports and 10-Ks of many publicly held chains, the average restaurant level net income before corporate overhead and income taxes is around 12% - 15% of net sales.

The fact that chain restaurants are 2 to 3 times more profitable than independent operations may not be entirely due to purchasing practices but I'm sure it's a factor, possibly a big one.

Distraction from High-Return Activities
Another factor to consider is the amount of time it takes to constantly evaluate bids, deal with lots of vendors and put away lots of deliveries, lots of small deliveries, that is. Using a prime vendor frees up management time that can be better spent on high return activities like taking better care of your customers and developing your people. In my mind, trying to save 25 cents on a case of green beans is hardly a high return activity worthy of much owner or management time.

A Case In Point
When I took over as the Food & Beverage Director of the U.S. Olympic Training Center (OTC) in Colorado Springs they were using lots of suppliers. As many as 15 to 20 vendors a week.

Sensing the need to do something different, I invited the major vendors in the area to submit a proposal if they were interested in being considered as a prime vendor. In short, the program would be a year-long, non-contractual agreement whereby the OTC would agree to purchase a major portion of its total food purchases (50% to 70%) from one supplier in exchange for a fixed "mark-up" (not price) on their products.

In a notice to the prime vendor candidates, I included a quote sheet (called the Prime Vendor Quote Sheet below) outlining the products and specification of the OTC's principle products and the quantities purchased in a typical week. Each vendor was asked to quote their current prices on those products and how they would determine their mark-up on each product (cost plus a percentage or cost plus a fixed amount per unit) over the term of the prime vendor program, which in this case was 1 year.

Results
We noticed these benefits as a result of going on the prime vendor program:
1. Reduction in food cost: Immediately after implementing the prime vendor program, the OTC's food cost per meal dropped 10% while maintaining the same menu using the same ingredients.
2. Fewer vendors and invoices to deal with. Instead of dealing with nearly 20 vendors and lots of deliveries and invoices, the number of vendors dropped to 5 or 6. Fewer people and paperwork to deal with.
3. Less purchasing activities: Prior to the prime vendor program, the OTC had a full time purchasing clerk. That position was no longer needed and was phased out.
4. Better vendor service. The prime vendor became much more responsive to special requests and to situations that required immediate action.
5. Improved product consistency. Food was now coming from one source, not the low-bidder of the week. This meant better food quality and consistency.
6. Closer vendor relationship. There was now the incentive for the sales rep to provide more attention, and to maintain a good working relationship.

Bill Marvin, The Restaurant DoctorTM is an advisor to service-oriented organizations around the world. For more information, visit Bill's website at www.RestaurantDoctor.com or email him at bill@RestaurantDoctor.com.

CUSTOMER TOOL KIT

Here is a handy feature for customers purchasing from US Foodservice San Francisco. These forms are available on a CD and ready to load onto your computer.

BUSINESS OPERATIONS
20 Ways to Boost Your Take Out Sales
37 Ways to Boost Your Sales
Banking Policy and Procedures for Servers/Waiter
Basic Income Statement
Basic Ratios Tools
Beverage Purchasing Journal (Sample)
Beverage Purchasing Journal
Business Hours Poster
Business Plan (Sample)
Cash Handling Tips
Daily Income Statement
Demographics Reports (Sample)
Evaluating Restaurant Profitability
Federal and State Tax Information Websites
Food Cost Control Best Practices
Food-Nonfood Purchasing Journal
Food-Nonfood Purchasing Journal (Sample)
Labor Cost Control Best Practices
Menu Analysis Profitability Tools
Menu Costing
Menu Costing Spreadsheet
Menu Management Workshop
New Restaurant Opening Checklist
Recipe Template (Sample)
Restaurant Chain of Command
Restaurant Income Statement (Sample)
Restaurant Opening Budget
Restaurant Phone List
Reporting Tip Income
Restaurant Vendor Phone List
Up-Selling Games Bingo
Up-Selling Games Tic Tac Toe
Up-Selling Games The Floating $10 Bill
Up-selling Games Poker
Up-Selling Games The Perfect Guest Check
Weekly Income Statement
Weekly Labor Schedule Template
Why Do Small Business Fail?

EMPLOYMENT
Application For Employment
Commitment to Employee
Employee Handbook Checklist
Employee General information Quiz
Employee Satisfaction Survey
Employee Timecard
Hiring Check List
Interview – Back of House
Interview – Front of House
Interview – Manager
Interview Rating
Interviewing and Selection Tips
Job Analysis
Long form – application
Mini Application
New Hire Checklist
Offer Letter For Hire
Pre-screening Compatibility Test
Pre-screening Math Test
Progressive Counseling Form
Recruiting Card
Recruiting Ideas
Reference Verification Form
Sample Drug and Alcohol Policy
Sample Job Description Host
Sample Job Description General Manager
Sample Job Description Bus/Dishwasher
Sample Job Description Cook
Sample Job Description Server
Suggested Letter to Unsuccessful Candidates
Telephone Reference Verification Form
Termination Check List

EMPLOYEE INFORMATION
Employee Handbook
Employer Time Off Report
Employee Info
Opening Training Schedule (Sample)
Telephone Reference Verification Form
Time Off Request

Food Quality
Food Quality Checklist
Food Safety Inspection Form

FIRST AID
CPR (Artificial Respiration) Adult
First Aid for Burns
First Aid for Choking (Adult)

HEALTH
Health Inspection Check List
Manager on Duty Inspection
Pro Active Food safety Program
State Health Department Websites
Temperature Log

MANTINANCE
Back of House Cleaning List
Back of House Closing List
Back of House Opening List
Bar Side Work List
Clean Force (Cleaning Supplies)
Front of House Closing List
Front of House Opening List
Front of House Cleaning List
Master Cleaning Schedule (Front of House)
Master Cleaning Schedule (Back of House)
Master Cleaning Schedule (Restaurant)
Restroom Checklist
Server Side Work