Seven Ways To Spring Clean Your Hospitality Business, Step #4

OPTIMISING YOUR FOOD AND DRINK SUPPLIER RELATIONSHIPS

1) Getting the best deal

Background: 

• Suppliers must be recognised as significant stakeholders in your business.

• Independent hospitality businesses have an increasingly hard battle to fight and these suppliers need to be on your side.

• Customer expectations in terms of quality food and drink are higher than ever, especially with more discerning eaters and wine ‘savvy’ drinkers than ever before, for example.

• Customer spend is restricted due to economic pressures, discount culture, price competition from restaurant chains and supermarkets.

• Food and drink costs can and have risen dramatically over last few years, squeezing margins to knife edge situation – will the margins, coupled with sales levels, cover the business overheads (which have also risen!)?

• Planning and controlling – independent restaurant and pub operators in particular are notoriously bad at calculating food and drink cost targets, costing menus, comparing suppliers, controlling waste, portion size, measuring deliveries, receiving goods personally, identifying and eliminating theft, recording all sales, making accounting and stocktaking errors and updating menus. The list goes on, but on the whole multiple operators and restaurant and pub chains will always have these skills and processes under control, before negotiation is even brought into the arena.

• Getting the best deal has never been so important, but so are internal processes and controls.

Suggestions:

• Be open with your suppliers, gone are the days when you ‘hold all the cards’

• Be prepared to discuss the trends in your business, they will then be able to tell you their trends, areas where margins are better than others, etc.

• Meet regularly. Food suppliers should be prepared to sit down and forecast with you every season and all drinks suppliers at least once a year, preferably twice.
  Remember, drinks are bottled and are less prone to seasonal raw material price fluctuations, so most reliable suppliers should be able to guarantee 12 month terms and price points.

• Never put all your eggs in one basket: Why would anyone have just one supplier for drinks categories and food items? Unless in a ‘tied’ pub, this makes no sense in a marketplace that is anything but a monopoly.

• Have two wine suppliers, two main drinks suppliers for all your other items. This does not mean splitting your volume and allegiance, just keep comparing cost and added value.

• Have two fish and meat suppliers, one will be able to give advantage for regional, fresh ‘specials’, while the other will be great for fish for fishcakes and lamb for pies. Competition is good for everybody.

Best deal is related to a number of factors:

• Quality of produce – most suppliers are great to start with. Take no prisoners and stipulate quality reviews through each supply period

• Credit terms

• Price guarantees – over what period of time can the price be guaranteed?

• Best deal guarantee – will they always be prepared to match or better the deals that you are constantly being approached with?

• Frequency of delivery – understandably suppliers don’t want to spend more on transport than is necessary. Could you reduce purchase price if deliveries are made once per week?

• Alternatively, fresh fish needs to be just that and so price and frequency of delivery need to be factored in.

• Added value – what extra help, training, information, easy to follow statements and invoices do they offer?

• Forget tickets to football matches and other inducements – price, quality of service and support are what matter most in 2016

Best deal is an ongoing process. Menu costs and supplier relationships need to be assessed regularly, throughout the year. Remember that it’s a classic ‘Win:Win’ relationship with suppliers, your best deal also has to be their best deal in order for it to work!

2) Credit terms

Background:

• Suppliers need to be flexible, as do independent operators on credit terms. In 2016, a best price deal is not always a best credit terms deal

• Most new supplier credit terms are harsh, for good reason

• Suppliers are now working under very tight financial constraints, three month payment terms should be taken with scepticism, they may not be around in three months!

• ‘Cash flow is King’, so what do you accept?

Suggestions:

• Sit down and discuss credit terms with all existing and prospective suppliers

• Ask suppliers, what are their real priorities? In reality they may just want to be paid on time, especially if many of their hospitality customers have gone into insolvency

• Offer first 30 days of ‘Cash on Delivery’ or payment by return, just to gain trust and best deal, this should usually start a good relationship

• Consistent order volumes and regular, reliable payment should result in you receiving best deal on price from suppliers in the future. If not, move on!

• Most regional and national suppliers will run a credit check on you (especially if you are a Limited Company) in advance of negotiation, so anticipate this

• What is the supplier’s credit worthiness? You don’t want to be left without supplies and every food and drink sector has now seen suppliers going into administration over recent years.

• Ensure that suppliers supply you with a weekly or monthly statement and ask if you can pay based on this.

3) How to negotiate

Background:

• 90% of deals are not negotiated professionally

• 95% of deals are not re-negotiated at all!!

• Do independent operators have the skills and knowledge to benchmark supplier proposals?

• Do independent operators have the time to pull in the best suppliers for every area of their business?

• Target costs for both food and drink are rarely calculated before negotiations commence and accurate monitoring and analysis is even rarer.

Suggestions:

• Calculate your starting point. What are all your current costs and margins, across the entire menu and drinks lists?

• Establish your target food and drink costs.

• Invite at least 2 suppliers to tender for all sections and categories of food and drink.

• Set aside at least 2 days a month to meet and discuss with existing and prospective suppliers.

• Invite suppliers who are known to specialise in your region and style of outlet.

• Never see suppliers without an appointment.

• Never see suppliers without a clear agenda worked out in advance, otherwise it’s a certain way to use up valuable time on needless discussion of unimportant issues.

• Ask suppliers to provide volume reports on all products you have purchased in advance of your meetings, so that you can review progress and establish the value of your outlet in their overall portfolio of accounts

• Do you have grounds to ask for better credit terms or price in return for consistent payment and increased volume?

• Consolidate purchasing as much as possible. Every supplier will provide better deals in return for consolidated deliveries and increased share of product range.

• Commitment from you should result in commitment in price and terms from suppliers.

• Don’t be afraid to ask the margins they are working on and establish areas or categories that offer opportunities for price reductions. All suppliers have their own areas of specialisation and high margin, just like you.

• Always ask suppliers to go to their manufacturers and primary suppliers for more involvement and support if your venue has a particular speciality or Unique Selling Point (USP). Brand support and promotional back up are usually closer than you think.

• It is up to you to be as hard or soft as you want to be. Cosy relationships are great fun, but rarely commercially sound.

4) Getting added value and category support

Background:

• Unless you have been living under a stone, you will know that ‘added value’ is what all suppliers have been purporting to offer for years.

• Some supplier ‘added value’ is fantastic for your business

• Some supplier ‘added value’ is entirely inappropriate and a waste to your business

• All suppliers will have an incentive to sell more through your outlet, so just see how far they are prepared to be a stakeholder in your business by evaluating their ‘added value’

Suggestions:

• Quality is best benchmark for value, ensure that this is clearly identified and stipulated in all your product ordering

• Consistency and reliability of supply is a grey area, often overlooked compared to price

• Can your supplier offer the best brand and product support?

• Can you or your chef give suppliers a clear remit and specification for the products that you’re ordering (‘Spec sheets’) – where possible outline your expectations and agree on the following:

1. Provenance – e.g. will your steak always be supplied from a particular source or breed?
2. Cut – be clear how you want a cut to be prepared, otherwise do it yourself!
3. Weight – essential to agree in advance
4. Delivery method – fresh or frozen, sealed or package type, time of delivery, etc.
5. Package size
6. Allergy, health and safety issues to be identified and quantified in advance
7. Religious issues – will this product be appropriate for all sectors of your market?
8. Accepted levels of tolerance – not all fish are the same size! Agree on levels of acceptable tolerance in advance, e.g. 5%-10% is usually acceptable
9. Seasonality – will produce be available through menu lifespan, what is their recommended alternative
10. Listen to each supplier’s promise of training and staff education that is available to you. The best added value is a supplier’s genuine desire and evidence of helping to increase your sales in their particular category
11. Can your wine supplier provide winemakers for dinners and tastings?
12. Can your butcher offer attendance and support for special dinners and BBQs?
13. Can one of your real ale suppliers provide cellar management and ‘perfect pour’ training in return for brand promotion and permanent positioning on your bar top? Most bar staff need to thoroughly understand the uniqueness of real ale and the care that is needed in order to offer the ‘perfect pint’.
14. Look at your drinks categories and establish which high margin areas, such as spirits, need more promotion. Usually there is substantial support and even listing fees are available for high volume outlets.

5) Leveraging group purchasing power

Background:

• Purchasing consultants and buying ‘clubs’ can be used to gain better deals and service ‘clout’

• All multiples and chains have better negotiation power and influence, often employing their own purchasing directors and staff

• Very few independent operators can negotiate effectively and this limits competitive advantage Suggestions:

• Talk to independent purchasing companies and consultants and see what they suggest to best support your business

• All Hospitality Entrepreneur members have access to Pelican – use them. They’ll make life so much simpler, unless you have time to do all that’s in this article, EVERY WEEK!!

• Do shop around. I have used purchasing companies charging as much as £6,000 per year, per outlet in return for just 2% to 3% gross margin improvement, but the consistency, on site consultancy, analysis and benchmarking was probably worth it.

• Having a purchasing consultant frees up time, often reduces paperwork and invariably opens up considerable access to improved and best deals on the market.

INNVENTIVE CASE STUDY:

For my private clients, I would usually aim to negotiate at least 10% cost reduction for any operator and tailor supplier relationships to improve supply consistency and ‘add value’.

One of our best examples would be the following:

Jordan Hallows, Southwark Rooms, London:

“I used Innventive and their independent purchasing consultants to look into my food and drink supplies on both my bars in 2011. As a ‘tied’ operator, with nearly 10 years of experience in the pub and bar business, I thought I already had the best deals. However, in just one year I calculate that the benefit has been well over £20,000 in reduced food and drink costs and listing fees, all from just £395 annual Innventive purchasing membership fees per site.”

Peter Austen

By Peter Austen, Business Planning and Operational Coach (www.innventive.co.uk) and Founder of Hospitality Entrepreneur (www.hospitalityentrepreneur.com)