Negotiating With Food Vendors
QUESTION From: Dale in CT
“I’m not complaining about the new minimum wage requirements. I am excepting them but realize that I have to get my costs in line somehow and it’s not going to happen with labor. I run as tight as ship as I can right now. Looking for ideas you might have to help me negotiate with suppliers so that I can reduce my food cost.”
Let me first say that there are many ways to improve food cost before it comes to buying everything at your local Restaurant Depot or trying to negotiate better pricing with alternative vendors… Not that you shouldn’t be considering those avenues (especially when it comes to paper products, produce & seafood- For those items I would strongly recommend going to specialty vendor who focuses specifically on those items) Just make sure you’ve got the basics covered first.
FIRST THE BASICS:
Implementing portion control systems is a great first step. Do you have Yield Sheets at every station and are you following up to make sure that Recipe Cards & Prep Cards (that stipulate or illustrate those portions) are being followed. Using ladles, cups, pre-portion bags & scales are worth insisting upon.
Using Sales History to accurately project PMIX and avoid over-prepping.
Limit waste by using as much product as possible is another necessary step. You’d be amazed at how many chefs aren’t using scraps for soup, less than ideal cuts for smaller dishes and ugly product for filling or staff meal.
Inventory Management / Menu Mix (creating new or additional menu items) definitely helps as well. At one restaurant, we were throwing away an unbelievable amount of avocados so we developed a guacamole menu with 11 different varieties to encourage selling more guac / using more product that was just spoiling too fast. First thing you do when you walk in should be to look at your inventory (not only to make sure everything has been day dotted and/or taped properly with the date and initials) but to also take an eyeball inventory to ensure pars and assess ‘distressed’ product. Take everything out that doesn’t look like it has much shelflife left and create a daily/blackboard special. (e.g. If you have four bunches of celery and a flat of mushrooms that aren’t looking so hot consider making vegetable soup or celery soup). This is also a great way to maximize use of items that you got on special or that have a very low COGS due to a special promotion from the vendor.
Another way to limit your food cost is by spending a little more on product that doesn’t need to be butchered or portioned...as this saves both on labor AND waste.
Speaking of waste… Ensuring Waste Logs are being used religiously is another great idea and one that often gets overlooked by new and understaffed kitchens.
Preventing loss / theft is another effective way to limit or reduce food cost. It’s common for me to take on a new client who is surprised that part of my assessments always include inspecting trash receptacles both inside and outside of the establishment. I’ve found, more often than not, that well-placed cameras and frequently checking the dumpster area reveals significant ‘loss’. (see this recent HH column: https://www.hospitalityhelpline.com/new-blog-1/2019/3/22/properly-tracking-food-waste)
Be sure that orders are not only being checked in properly parentheses in other words, not only checking to see that everything on the invoice has been delivered but check the invoice against your order sheet as well) And look for hidden fees and surcharges like “Delivery Fee” or “Fuel Charge”. These line items can absolutely be negotiated or eliminated simply by demanding it. I’ve seen all charges, especially in the summer, totaling north of $25/delivery. When you have 5 deliveries/day thats $600/mo.
Run daily and day part ReFire, Comp & Void Audits. Sometimes your food cost is inflated due to miss management in the front of the house. And it’s not just management. Sometimes it’s ownership’s fault as well. It’s not a rare occurrence for first time owners… or partners who are guaranteed a percentage of gross sales To take it vantage of perks like free meals and comped bar checks. Just be sure, that if you aren’t an owner, you consult with the owner who may have a system already in place to deduct those comped checks from the gross sales figures. That might not improve your food cost but it makes for one hell of an explanation come P&L review time... which should be sufficient unless, of course, your bonus is tied to profitability and/or maintaining a target food cost… In which case you should be subtracting that out as well if you didn’t negotiate that stipulation at the time your bonus structure was being hammered out.
NOW LET’S TALK ABOUT NEGOTIATING:
Once you’ve got these basics dialed in, many believe that the best way to negotiate pricing is to first know / track what price you’re paying on certain items and then share those prices with a competing vendor with the promise of giving them your business if they can beat the price - there are some vendors out there who know how busy you are and that food cost often gets away from you so they’ll lowball prices to get in the door and then slowly raise them once they have your business so... ask that vendor for the name of other accounts they serve that buy the same or similar volume as you do so that you can confirm the long standing prices they’ve been offering.
If minimums prove to be what’s driving your costs up, consider negotiating set margins / a set percentage over purchase cost, increasing your dry and cold storage (I had one client dig out the floor in his basement 2.5’ and pour a floor in order to accommodate 2 extra walk-in freezers and one refrig box) or approaching other accounts who’s using the same vendor and ask if they’d consider setting up a drop ship with them (i.e., piggybacking your order onto theirs and then picking it up at their location on arrival).
Be sure to consider the less tangible value that some suppliers can bring to the table beyond pricing like: customer service, availability, product consistency, no hassle returns, prompt replacement orders, no minimums on orders and overstock off-site storage... Perks like those cannot only add residual income to your bottom line but also maintain the integrity of your brand.
If your existing vendors are offering advantages like those, you can try to leverage them against their competition e.g., mention that one supplier has a high minimum to fill so you’d need to buy other products from them as well - that way you’re making it clear that the contract pricing you’re looking for needs to affect more than just the sale price of one product and not spike should your order volume drop.
“Follow the butter, eggs and cheese and meat markets online and ask your vendors call you (as Last Buy-Ins) before prices are expected to spike” Ed Lubienski of Shamrock Foods in Philadelphia advises.
“You can make more money following monthly promos closely and buying at your desk than you can by selling 1,000 apps that day. Consider the fact that saving $500/week with promos equates to $2,000/mo.”
One member of an operator group I belong to added:
“We use two vendors for this very reason and continue to stay on top of pricing. If you know your numbers, there’s never a reason to go exclusive with any one vendor”.
But no matter how hard you try to negotiate, it’s unlikely you’re ever going to pay the same prices that “primary” accounts pay. These “throw away“ accounts are the ones that suffer losses to supplement the deals and price cuts offered to those customers that are doing more than $250k a year in purchases.
“Never put all your eggs in one basket. You have to determine what kind of an account you are to each vendor. Most vendors, especially the large institutional ones consider anyone doing less than $100,000 a year in business as “throw away” accounts meaning, they are absolutely going to beat you up on prices until you walk away and once you do, it won’t matter because they’ve already made a significant amount of profit from you.” says Lubienski.
Keep in mind that when setting up a new account, the rep will often ask how much business you plan on doing in a year. You can tell them (and be honest because they’ve seen their fair share of restaurants and could probably guess anyway) but also be sure to ask if there’s an incentive in store for you should business out perform your projections and you exceed that number. Be direct and let them know that you expect to get something back if you do - whether it’s a price break across the board, a price break on certain/heavily used items or a monthly rebate.
A good distrib will give you a locked down price for a year on key drivers like ground beef if you’re a burger restaurant...or crab, lobster and mussels if you’re a seafood restaurant.
THE ARGUMENT FOR A DEDICATED VENDOR:
Some very successful high-volume operators that I’ve worked with believe that dedicated vendors are the way to go.
And for some operators that’s true. In many instances, if you go with a primary vendor program, you can almost dictate your own terms and pricing (within reason of course)...and if you can’t try negotiating even lower with the product brokers directly at food shows like the ones hosted by NRA.
Then, there are always additional considerations like:
1. Quarterly rebates based on volume of specific brands purchased.
2. Set margins per category. (Poultry 3%, beef 3% , dry 10%, etc...)
3. Quarterly reports detailing locked margins and rebates.
4. Frequent manufacturer price breaks on some items.
5. Free graphics/design and printing of menus.
6. Free Order Guides, assistance with POS , Menu Development Tools and other helpful software (think COGS and Waste / Usable Product calculation).
7. Test Kitchen Usage.
8. Opportunities for Private Labeling etc...
9. ACH payment rebates (rare)
As much as many of us want to support local farmers, offer superior quality products and maintain good relationships with the vendors who help us cut down labor hours; if the pricing, reliability and consistency aren’t there nothing else really matters.
Just remember- before gathering up invoices to shop your business around, set up a face-to-face with your current supplier(s) and be honest with them regarding your needs. Whether it’s pricing or product handling advice, they just may surprise you with what they’re able to offer just for the asking.
Regards and Best Of Luck,