Buying Food or Procuring Food: is there a difference? Many food service operators buy food rather than purchase it. The difference between these two methods of food procurement is the difference between good and bad management practices. Before you purchase any food products, consider your menu and specifications. Decide what quality is needed, what the market availability is, and your storage capacity. Check out the Foodservice Operations Manual by John C. Birchfield for more information.
Food Service Purveyors Master Distribution Agreement
One way to reduce food costs is to enter into a “Purveyors Master Distribution Agreement.” In simpler terms, this means that you will agree to use a purveyor as a primary distributor. Now, what is in it for you? There are a few things that you, as the buyer, have to agree with; but these will entitle you to a reduction in your food cost:
The first item is the “Prompt Payment Incentive.” As the name implies, your agreement to pay promptly within the specified number of days entitles you to a percentage off of your invoice. Generally, the prompt payment incentive is 1/2% off if you pay within twenty one days from date of your invoice, and 1% off if you pay within fourteen days.
Another incentive is “Delivery Size”. Delivery Size offers an incentive for placing larger orders. The incentive generally ranges from 1/2% to 1.25% off of the invoice cost. The larger the order, the greater the discount. This means that if you are going to take advantage of this and want the largest discount possible, you will usually need to spend anywhere from four thousand dollars and up.
The third incentive rewards brand loyalty. The food purveyor offers an incentive for purchasing their specified brand. Allowances start at .40% and can run as high as 1.5%. Generally, your order needs to be composed of 85% of their brand to get the maximum allowance.
So, if you were to maximize all of your allowances per month you may receive as much 3.75% off of your invoice. This would require careful planning and a healthy business firing on all cylinders, but it is definitely worth it if you can achieve it.
Purchasing groups are a great way to reduce food and operational costs without having to do much of anything. A group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of business to obtain discounted or preferred pricing from vendors. The discounted pricing is based on the collective buying power of all the GPO members. To participate, you would simply sign an agreement with a group purchasing organization and purchase your food as you normally would. Participation entitles you to the following benefits and services:
- Purchasing Services for Healthcare and Hospitality Industries
- NO COST Membership, No Commitment Level
- Volume Discount Pricing and Price Protection
- Full Transparency Reporting, Vendor Flexibility, and Savings
- Detailed Cost Reporting
- A Focused Portfolio of Products and Services
- Quotes on Products, Services, and Equipment
- Nutrition and Food Consultant Services
- Individual Sales Support
- Safe Harbor Compliance
- Employee Benefits Program
Now, if you are a small operator, you can’t even come close to receiving this many services without having to pay for them. I believe that the best solution to save time and money is to join a program. Navigator GPO is able to reduce my food purchasing cost, and if I wasn’t on the program, my cost would go up about eight to twelve percent. The best part of this program is that not only do you receive a reduction in your operational and food costs, but you will also receive rebates from your purchases.
Take advantage of the money-saving opportunities that exist. Proper management and planning can help you reduce the cost of your food and supplies. Don’t just buy your food, procure it!