Dealing with distributors

The single best way to reduce your food cost is to shop every item from several distributors each week…

If you think this statement is true, congratulations, you are a buyer. If you think there may be more to it, read on and become a purchasing manager.

One of the reasons why pizzeria owners do not maximize their profitability is that they have too much focus on food cost. Managing food cost is extremely important; it just is not the only important factor. Prime cost, which is food cost plus labor cost is far more important. The most important is still revenue. When an operator spends hours and hours each week shopping distributor's prices, they are not spending those same hours creating, driving revenue, training employees and servicing customers. This is called opportunity cost. The time spent saving $6.00 on cheese comes at the opportunity to create a wait staff contest to sell more appetizers. That contest might generate an additional $800 a month in sales. The gross profit on those sales would be approximately $500. The opportunity to save $6 comes at the expense of making $500.

Shopping for ingredients and having fresh inventory is a critical function. Spending a lot of time doing it is a waste of your most critical asset, your time. I have walked into hundreds of pizza shops where the statement, "How much is your cheese?" is said long before "Hello." Every pizzeria operator should know exactly how much their cheese will cost that week before the distributor sales rep walks in the door. It is a simple formula based on the closing average of the CME the previous week. If you do not understand this, ask your sales rep to explain it.

The relationship between a distributor and the pizza operator should be based on the basket of goods and services the distributor has to offer. That basket includes reliable service, competitive pricing, manufacturer promotions, market information, menu and trend suggestions, new products and labor saving ideas. If you buy from a distributor simply based on price, you are missing the bigger picture. The truth about foodservice distribution is that all distributors are buying fairly similar products from fairly similar manufacturers at fairly similar prices with fairly similar costs of operation. Most distributors are buying a variety of products to meet certain price points for each category. They are running a gross profit of 15-17 percent with a cost of operation of 13-14 percent. The net profit for a distributor is 1-3 percent before taxes. Based on these facts, where is the room to make you a 'deal'?

Choosing the right distributor for you means explaining your needs clearly and being realistic. Demanding the lowest price every time on the highest quality products with a guaranteed 10:00 a.m. delivery three days a week and 60-day credit terms is simply not realistic. Explaining which of these items is most important to your operation and building trust between you and the distributor is the best way to manage your food cost long-term. Distributors reward loyalty.

Some sales reps will try to get your business by finding your 'hot button.' The rep walks in and the operator leads with, "How much is your cheese?" The rep either floats a low-ball price or asks, "Where do I have to be to get your business?" This is finding the hot button. In this type of exchange, the next step is to offer a low price on cheese and then make up the lost profit on some other item. This is called managing the product mix. The bottom line is that a distributor needs a certain amount of gross profit in order to stop the truck. Whether that profit is on cheese, sauce or trash bags does not matter. Understand that your distributor must make a profit to stay in business. Allowing your distributor to make a fair return is the basis of building trust from your side of the table. If you had a customer who consistently ordered three toppings and demanded to pay for two, how long would you keep letting them place orders?

The price-shopping operator puts the distributor in the position to play the cat and mouse game. They are constantly 'hunting' for the way to low-ball you on certain items and trick you to pay higher prices on other items. Dealing fairly with each other on every item allows both parties to win. In this type of relationship, the sales rep can spend their limited time serving you with quality information. The inventory replacement portion should be the shortest item on the meeting agenda. If the rep has to negotiate on each and every item, each and every time, they do not have the opportunity to show new items, suggest trends or even pass on promotions and new ideas.

Creating a fair, consistent channel of distribution puts the responsibility of competitive food cost on the distributor. They have every incentive to insure their best customers are profitable. This means seeing your big picture. Partner reps see where your menu pricing needs a tweak, keep you informed of competition and notice trash in your parking lot that needs to be cleaned up. They care because you are an "A" customer. The price shopper gets the hot button price and little else.

Your distributor is a professional. They observe more pizza operations in a week than you see all year. Most operators go it alone. The pressures to manage your menu, your staff, your costs and insure customer satisfaction are immense. Whom can you rely upon to assist? A dedicated distributor can be another set of eyes and ears. Having a rep to bounce off ideas is valuable in a world where everyone wants something from you every minute. Use your weekly meeting with your distributor to help manage your business rather than feel good about beating them up for the best price. The operator who uses this type of approach is a true purchasing agent. In the end, a purchasing agent will lower their food cost more effectively than the buyer who shops around for some mythical best price.