Consolidating Purchasing Power at FOHBOH.com

I have been thinking about how to present this idea to the members here.

Based on what I've seen, we have Owners, Operators, Chefs, Producers, Marketing People, and possibly some Broadline Distribution types as well.

I suspect that the entire membership food spend is probably in the 10's, if not 100's of millions of dollars. Obviously, groups like the Thomas and King members have much of their procurement and distribution streamlined and consolidated, but what about the rest of you? I'm willing to bet most of you are on your own and at the mercy of whatever your distributor tells you.

We've all seen our cost of goods rise dramatically over the past couple of years. Oils, dairy, beef, pork, poultry, energy, stainless steel etc, it's all gone up and continues to do so. If I were selling you products, I would much prefer a 15% markup on an $8/lb item than a $5/lb item, so where is my true incentive to buy well?

I wonder how many of you actually know the true cost of goods that your distributor carries, including the freight components, sheltered income programs private label co-packing and so on. I also wonder how many of you actually believe that your markups are in the 5-7% range. I can assure you, not one single braodline distribution company would be in business for long at those gross margins. But your sales rep would never tell you that, because chances are, they are not privy to that information.

In reality, it's more like 18-23%, and in some cases, much higher, when you average all categories together.

I do believe it's possible to organize a national distribution agreement and negotiate transparent markup structures for a large group of independent operators/owners, which would result in substantial savings across many categories.

There are companies out there who claim to do just this, and some are good, others, not so much.

I think we have an opportunity to take this community to a whole new level, and to help ourselves benefit in new and creative ways. It's just a matter of the members deciding this is something they want to participate in and support.

I am not suggesting that this is something super easy which can happen next week, it will be a process. But it is possible and from what I've seen so far, the members here appear to be quite intelligent.

I know how to do this and I know it can be done. It would take courage, commitment and trust but what doesn't?

Is this a concept the general membership is interested in pursuing further?

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Comment by Burt on March 30, 2008 at 11:39am: Steve;
We are a small company. We sell just over 3 million ducks a year say 22 million pounds. Our small order is 5,000 lbs because of trucking costs. We figure it costs an average nationwide about 10 cents a pound.
If the customer wants 1/2 truck or 20,000 lbs we deduct 2 cents and a full truck at 40,000 lbs we deduct 4 cents a lb.
Any order less that 5,000 lbs starts to cost alot more fast. This is frozen product...fresh is even more of a challenge.
I will assume the 1st buyer wants 12% as they ask for 20%. This is bare. If the world wants to add ANY program we have to add to the cost of our product. We have nothing built in except COST TO PRODUCE DUCK and in some years a profit.
Guess you can imagine how it's going this year. bc

Operator Comment by Oscar M. Gayer on March 29, 2008 at 7:20am: if its good for the membership and good for the cionsumer and it meets the budget then it is a no brainer, i would love to particiapte in a program that saves everybody money and stills insures the quality of products and extensive customer service

Comment by Alan Williamson on March 28, 2008 at 9:17am: Steve

Think Global Act Local

Alan - Based in England

Comment by Steve Paterson on March 27, 2008 at 2:51pm: Carl and Kevin.
As I stated in my original post, there are companies around the country that provide services similar to what you suggested. Some are good, some are bad, many in between. I can name a dozen of them without even thinking about it.

I was not, and will not suggest to FOHBOH members that we jump on one of these company bandwagons. My vision is far more creative than simply outsourcing the concept. I am not saying that something along those lines should not be considered or discussed. What I am saying is that conventional wisdom does not hold a large slice of this pie.

I am talking about FOHBOH.com members collectively 'giving birth' to our own self serving agency. One that takes a fresh and innovative approach to combat the challenges of increasing costs. (I am not yet prepared to go indepth on this yet, as I think we need more membership dialogue first)

In general, I am opposed to engaging in the rebate game. (There are exceptions which I will address in a moment). To me, that is the equivelant of overpaying your income taxes and thinking your tax refund is found money. On top of that, when you are paying a 10% margin (just for simple math) to your distribution company, why on earth would you want to pay an additional markup on a percentage OF WHAT IS YOUR OWN MONEY? To me, that is absurd.

I would like to believe many members would prefer to see these potential savings flow directly to their bottom lines on a daily and weekly basis, rather than quarterly or annually. This would allow them more free cash flow to improve and grow their business daily, or in some cases, help prevent them from going under. (I will qualify this in a later post)

Also, I did not want this blog post to become a sales platform for people who currently provide these services.
If that is your intention, please start your own sales blog elsewhere.

In the name of full disclosure, my company also provides this type of service, but I am not trying to plug my business here. That is not what this is about.

I was very tempted to delete both of your responses because I think the sales pitch is counter-productive, however I will not. In the name of democracy, if nothing else. I would appreciate it if you would not continue to do so here.

Now, back to the concept of rebates. I stated above why I am generally opposed to them, however, sometimes they make sense depending of who you are dealing with.

An example would be a company like Kraft. (just an example, not an endorsement).
Think of FOHBOH members as a single customer.
Spend 30 Million dollars (a BS number) in a year with them and they will put aside $400,000 for the group to do whatever they want with it.

Some examples:
-Checks written and mailed to each member on a pro-rated basis.
-Fund the entire annual FOHBOH convention
-Split between the above two options
-Donate to one or several charities
-Marketing money
-Buying FOHBOH or other stock for the members
-Just about anything you could think of.

I would love to hear ideas from the other members on this.

Non-Operator Comment by Kevin C. Thompson on March 27, 2008 at 8:14am: Carl Muth is correct about the services that FMS Purchasing & Services provides however, FMS Purchasing is truly a National company (Anywhere in the USA) that has negotiated rebates and cost plus purchasing power that represents well over $125 million dollars in the marketplace and is growing daily. Membership is free and a no-cost no-obligation cost analysis is also available. Please contact Kevin Thompson at 404-787-1916 - Cell. Also, if you are a vendor to the hospitality industry in the Atlanta Georgia area please be sure to connect with Carl Muth to secure new business. Not doing so will result in missing the boat.

Comment by Carl Muth on March 27, 2008 at 5:27am: If you are in the Southeast you can call Kevin Thompson at FMS Purchasing and Services. They have a terrific Group Purchasing Plan that secures good pricing from a ton of vendors and even tracks rebates through their system. Rebate checks are issued quarterly; my friend Lee at the Metropolitan club, has gotten back hundreds of dollars in rebates (and hers is a Special Events Facility). Incredibly, their service is completely free. You can click Here to get Kevins contact information.

Comment by june on March 26, 2008 at 6:05pm: you have put me to thinking steve, this is a very good thing for all to get involved in. we too make the bulk of our purchases from sysco and us foods, and i do know that my reps are as clueless as i am as to their companies cost of goods/mark up. i do know that we do negotiate prices down with these two companies as we have multiple stores buy from them in our portfolio. keep me posted.

Comment by Michael Klauber on March 26, 2008 at 3:55pm: I am the president of an local organization of 50+ independent restaurateurs (it's like herding cats sometimes!). I would be very interested in keeping my members (www.freshoriginals.com) in the loop!

Comment by Nathan on March 26, 2008 at 3:16pm: Steve - powerful ideas you've got there. I'm interested to see it become reality.

Comment by Matt Urdan on March 26, 2008 at 2:49pm: As this gets fleshed out, please let me know....We purchase about 1.5M annual through Sysco and US Foods, but that's small potatoes in terms of getting the best pricing. Great idea and leadership Steve and Michael!