The relationship between hospitality venues and their suppliers is a complicated one. Sometimes, vendors act like a business partner, tipping you off to new products and trends. Other times, you feel as though they are competition, squeezing out every last cent. The best way to manage this paradox is to have some supplier tips and tools up your sleeve – here are some suggestions.
Many small hospitality businesses run their price negotiation on a weekly or daily basis, like thrifty seniors who are always looking for the best price on canned goods. But suppliers need to promise long term goals to the farmers and companies supplying them with goods, often on a quarterly or seasonal basis – they think medium to long term.
Understand the Friction. The primary source of tension between a hospitality business and a supplier is a difference in cash flow. Suppliers are running a business, just like you, and facing the same pressures of rising costs, uncertain orders and staff issues; plus one that most hospitality businesses don’t face – bad debts.
Figure Out Where there’s Room to Move. The price suppliers charge you is a combination of:
- their cost of goods
- administration, promotion, and distribution costs
- their profit margin.
… This combination gives you the selling price.
So if you want to save money, you need to figure out how can you help the supplier reduce #2 ‘administration, promotion, and distribution costs’, so the savings can be passed on to you.
Upgrade the Ordering Process. Instant electronic pricing and ordering is now widely available – services like Foodbomb have multiple suppliers for comparisons. Is there still value in loyalty to one supplier, where they get all your business for 12 months in return for better prices? Maybe – pricing can now be much more transparent, and substitutions agreed to in advance.
Help Reduce Distribution Costs. Order larger quantities less often – ask how you can eliminate delivery surcharges. But weigh this up against the pilfering and spoilage problems that come with carrying excess stock. Order in the pack sizes that the supplier receives, so they don’t have to break them down. Plan ahead as best you can. and guarantee a minimum quantity that you will buy over a period, and indicate the seasonal buying pattern so they can plan ahead.
Work on it suiting them, not just you. A happy supplier will usually result in better deals. For example, discuss a delivery at an off-peak time, eg in the afternoon – it may just need some reorganising. Be flexible with substitutions, especially for seasonal produce such as fruit and vegetables. Can substitution be done automatically by the supplier?
Agree on the Ground Rules. Before working with a supplier, agree on clear guidelines about when and why goods will be returned. Obviously faulty product must be replaced, but sometimes returns are for trivial reasons that cause unnecessary cost. Simplify the order process so iit can be done electronically – we’re at a point now that suppliers without online ordering are not competitive. This also eliminates the need for a salespeople to visit, and a written agreement protects you if there’s a change in staff. Make sure that both parties (your staff and the supplier) know that there are to be no special gifts or favours for head chefs and managers that can be misconstrued as bribery.
Ask How Else You Can Reduce Costs. Don’t be shy about asking your supplier how you can look to get a discount. Chances are, they already have several options. For example, ask if there is a discount for faster payment? Promoting their brand can also bring a discount, but be clear on your boundaries. Agree to promote the supplier’s brand, but do so discreetly – not like some coffee and alcohol suppliers that seem to take over completely. Put a value on the promotion that you will give.
Use Dynamic Menu Changes. With instant menu adjustments available through digital menus, there’s no need to feel ‘stuck’ with items that have had a cost increase. Have strawberries gone through the roof? Just turn off that cocktail or dessert on your menu control panel, and it will no longer appear on the app or screen. Using a modern recipe management system gives you an immediate red flag if a price goes up, so this can happen on the same day – no need for an expensive delay before action.
Offer a Loyalty Period. Give the supplier all your business for an agreed period. You will get a much better deal on supply worth $200,000 per year than if you only give them $100,000 and another supplier $100,000. This is where major benefits can flow. Free stock can also be another benefit eg they supply you free cases of mineral water that you can sell, instead of a discount. If you’re running a charity promotion, how can they support you in return for a mention in the promotion?
Ask What Else They Can Offer You. In return for your loyalty, ask what they can provide your business beyond a good price. This could be product training for your staff, or equipment on loan, particularly in the coffee and liquor sectors. Maybe even inclusion in their promotions.
By being transparent about your needs and requests, a good relationship will follow. A happy supplier will make for a much easier business to run!
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