Restaurant Owners Join Forces To Strengthen Purchasing Power By Mark Anderson
Written By: MarK Anderson - Sacramento Business Journal
There’s strength in numbers, and buying power, too, as local restaurateurs have found by forming a buying group.
Leverage Buying Group LLC was started by the owners of some of Sacramento’s best-known restaurants so they could negotiate better deals from their suppliers. So far it’s working. The group has negotiated delivery at 7.25 percent over cost, compared with the 20 percent over cost of traditional supply and food delivery.
Buying power is extremely important to restaurants these days as they try to minimize expenses during the recession, but it’s very rare that independent restaurants or small, competing chains enter into such agreements.
The group’s initial members include owners of Ernesto’s Mexican Food, Bistro 33, Pronto, Zocalo, Paesano’s and other restaurants.
By working together, the restaurants have more purchasing power, and therefore can get better prices. The restaurants must have enough volume to order at least an average of $2,000 per delivery.
Leverage hopes to get purchases up to a total of $40 million this year, which would ensure they get the best pricing possible. With 25 members in the group so far, it’s on track to do more than $5 million in purchasing, but many more restaurants and restaurant groups are interested in joining, said Tara Alam, an accountant and the vice president of operations for Leverage Buying Group.
By buying in volume, the restaurants can negotiate deals all the way through the supply chain to the manufacturer, Alam said. That allows the group to get a lower price not only from the distributor, but they can get an extra $3 off every case of cooking oil, for example.
“The savings are very significant,” Alam said. Some of the larger restaurants are realizing a savings of more than 15 percent in their weekly costs. Some of the smaller ones are savings between 5 percent and 10 percent.
It costs $185 a month to join the buying group, but that cost would be recouped in the first few days of the first week for a restaurant that gets 12 deliveries a month.
The buying group cut through some of the middlemen and went right to a broad-line distributor. A broad-line distributor delivers everything from produce, meat and dairy to napkins, cooking oil and condiments. Leverage negotiated its deal with Maryland-based U.S. Foodservice Inc. The national company has an office and distribution center in Livermore.
One of the benefits of negotiating a deal with one distributor is that it eliminates paying commissions to a cadre of different salespeople from many suppliers, said Mark Scribner, a partner in Pronto and Paesanos locations in midtown and Elk Grove.
The restaurateurs have been working on the details of the buying group since September, and they are launching Leverage Buying Group now. The idea was born about 18 months ago when some of the restaurant operators were comparing notes about business. It turned out they paid wildly different prices for the same things, Scribner said.
“When we started comparing prices, it was all over the board,” said Scribner, who is also president of Leverage Buying Group. The idea of a buying group started out as a watchdog for the independent restaurant operators, and ended up becoming a purchasing manager.
In addition to food and supplies, Leverage negotiated a volume buying contract with a credit card processing company and a nationwide soda distributor.
“It’s working great for us. It’s been the reason for a big decrease in our costs,” said Fred Haines, executive chef and president of SRO Inc., which owns and operates the three Bistro 33 restaurants as well as 33rd St. Bistro, Tre, Riverside Clubhouse and Suzie Burger.
He said it was strange, after many years in the business, to drop multiple vendors, but the buying power really pays off. And he can still get special meat, seafood and produce from anyone he chooses if he wants to.
At some of his restaurants, he’s gone to getting 98 percent of his delivery from the Leverage partners.
There are some things individual operators are particular about, say a type of olive oil or a certain ingredient, while other things are just commodities, such as toilet paper or napkins.
“We just all get together, pick one and buy a lot of it — and we save some money,” Haines said.
The group is now negotiating with produce suppliers, and it will move later this year to strike deals with linen services, trash hauling, and beer, liquor and wine distribution.
“Our prices are negotiated pretty tight. Members are finding that they can save money by switching over even more of their supplies,” Scribner said.
The distributor benefits in that it gets a roster of volume restaurants that are tied to more of its products, which makes the deliveries more efficient.
“We believe in their business model,” said Melody O’Shea, vice president of sales with U.S. Foodservice in Livermore. “We wanted to be part of this exciting venture.”
The distribution company supplies restaurants from Fresno to Redding from Livermore.
Buying cooperatives are big buzz in the restaurant industry. DineEquity Inc., the parent of IHOP and Applebee’s Neighborhood Grill & Bar, said on Tuesday that it had created Centralized Supply Chain Services LLC to procure and deliver more efficiently to its 3,400 company-owned and franchised restaurants. They already share about three-quarters of the same vendors. DineEquity is expecting about a 5 percent cost savings.
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