Group Purchasing Organizations for Restaurants
More Purchasing Power to Independent Restaurants
A group purchasing organization or GPO is an organization that helps pool the buying power of its individual members to help get the best possible prices and quality on products and services. Most people would be familiar with the idea of Group Purchasing from places like Costco and their insurance companies. Both industries use the practice to get the highest quality goods and services while keeping their costs as low as possible.
It wasn't long before the large national chain restaurants started acting as their own GPOs to help them with all of their purchasing from food items to cleaning chemicals to toilet paper. The combined clout of all of their individual franchisees' buying power allowed them to bargain hard with suppliers—gaining favorable pricing and first-in-line delivery when supplies were short, among other benefits.
Providing Profitable Solutions for Small Restaurants
Meanwhile, independent restaurants, until recently, had nothing like this and were (and many still are) paying significantly higher for the exact same items. Keeping costs low is critical to restaurant success.
It was this disparity that gave birth to my company: in 1998 my father and I knew we wanted to start a group purchasing organization for independent restaurants in the Rochester, NY area, and in preparation we sat down and had conversations with dozens of independent restaurant owners to come up with a solution. In the end, the owners we met with agreed to pool their resources and we launched the Dining Alliance.
After 12 years, and over 14,000 locations across the country and high concentrations of members in Atlanta, Boston, Buffalo, Baltimore, Houston, Pittsburgh, Phoenix, Rochester, Saratoga Springs/Albany, Seattle, Syracuse, and Washington DC, I always hear the same thing: "I can't believe I hadn't heard of this before."
(Sidenote: This is a great example of Storytelling Marketing to illustrate the unique selling proposition of Dining Alliance.)
The Benefits of Joining a Group Purchasing Organization
- Saves Time: Tracking and comparing prices, vendors, and services is overwhelming for most independently owned restaurants (typically done by the owner/ chef). This is incredibly time-consuming and takes away from the most important focus: customer satisfaction.
- Fighting For the Little Guy: Independent restaurants are often at a disadvantage compared to the larger chains, both in commanding a good price and the best quality. The big chains have more purchasing power, and better bargaining power for the price, access, and quality. The big guys have entire teams of accountants and specialists going over spending, and those teams bring huge buying power to the bargaining table. GPO's combine the resources and buying the power of many independents to create a well staffed and strong bargaining unit for their benefit on a par with the "big guys."
- Competitive Edge: At Dining Alliance, we strive to stay abreast of food trends and new product launches and we advise our members about them well ahead of time of impact; for example, we let them know as soon as we hear of new ways that certain cuts of beef are being used or other interesting menu additions that our members may be interested in. And with large events such as a major drought that affect commodities such as corn and wheat, we keep our members informed about what's going to be in shortage, what's going to happen with pricing, and how to prepare and cope.
- Trust and Safety: With huge scares and recalls such as the salmonella in lettuce disaster of a few years ago, it's more important than ever for restaurant owners to be able to trace their supplies. Dining Alliance members sign agreements only with suppliers who have traceability. Also, we make it our policy to get the restaurants included as a "named insured" on the distributors' insurance contracts, something most restaurants don't know they can do.
- It's a Two-Way Street: The benefits are hardly limited to the restaurants. Vendors who partner with a Group Purchasing Organization gain hundreds if not thousands of new clients and are able to lock in large contracts with less selling time.
4 Tips in Selecting a Restaurant GPO
- Make sure you have local representation. Working relationships with local vendors and on-the-ground representatives are crucial to ensure the best quality product and prices. But aside from quality and savings, perhaps the best part is the sense of community that comes from working locally.
- Make sure that your organization helps its members have a presence in locally based Restaurant Weeks, Taste of's, and other locale-specific events. These have huge value in building a presence, brand, and customer loyalty.
- Check to see if your GPO works on a pay-for-performance basis. This model helps ensure that you're getting the best deals and quality with NO out of pocket costs to you.
- Does your GPO offer you a combination of savings opportunities such as rebates, deviations, cost-plus programs, and high-low contracts?
The Bottom Line
Independent restaurants looking to grow should not only look into purchasing through a GPO but should know all the tips and tricks for keeping costs down while delighting customers.