Thursday, September 27, 2012

Real-Deal Price or Vendor Discussion

Discussions with suppliers about pricing helps food service executives understand changing markets, protect menu profits and consider alternative buying tactics and options. However, until a written pricing agreement has been completed, do not assume that you have secured a protected price.

Leading food service chain buyers, as well as our consulting team follow these simple rules for distinguishing between pricing discussions, program negotiations and committed vendor agreements.

#1 Just because you made a purchase decision don’t confuse this with an agreement. Confirm all verbal pricing discussions.

#2 Pricing issues or misunderstandings about product and price commitments are best resolved in writing, as this formality serves to clear the air for the future.

#3 Formal vendor negotiations should be part of your contracting plan. This places all parties on record, allows you to involve the “next higher level” of supplier management, and for emerging chains, your brand will receive higher visibility back at the manufacturers or distributors corporate office.                             (hint: not all suppliers follow the commercial pricing rules of Sarbanes-Oxley or Robinson Patman)  #4 Stand Your Ground during formal price negotiations, if the supplier expects you to accept a price prior to the meeting or with the boss in the room, do not!   Feel free to question the pricing and be prepared to negotiate at a later time.

Here is a buying tactic that works great to achieve better prices and will save money when markets are increasing;  look directly at the most senior manager from the supplier's side and ask for a 30 day price extension. 

When food service owners/managers or your boss thinks they are negotiating when they are not, the consequences can be detrimental to your bottom-line.

To Higher Profits,

Fred Favole is Founder & President and Ronald Bay, Managing Partner, direct the  Strategic Purchasing Services (SPS) consulting firm specializing in department outsourcing, and the "Get Deals Now - 100% performance based contracting services for emerging hospitality and restaurant chains.   Connect via phone: 912.634.0030 or email:  SP_Services@Bellsouth.Net

Friday, September 21, 2012

How Much For CH Butt Steaks?

Foodservice purchasing specialists have learned that a majority of food and supply costs for products purchased over a 12-month period can be determined in advance with reasonable accuracy.

The planning approach to purchasing starts with a menu mix analysis and usage forecast, which usually consists of a descending dollar report from the distributor and 2-year menu and product price history.

The unstable markets of 2011/2012 exhibited short-run fluctuations for many commodities, moved prices for items like bacon and ground beef off the “charts” in terms of costs predictability. However, cost can be managed through tactical actions taken by the buyer with support from suppliers.

Now is the time!
The timing is perfect (Sept-Oct 2012) for you to secure long-term prices for ground beef, poultry, ribs, pork butts and other commodities to avoid the coming price increases projected from December '12 through Q1-2013. When booking product (securing a firm price for future purchase) is not possible, base your volume purchase and timing decisions on short-term market projections, seasonal trends, and look for buy-in opportunities. Establish atarget purchase price using the type of costing formula shown below.

With some experience, you can assure your food service organization receives an adequate supply at an optimal price even in a tough market. For example, our consulting firm and most established restaurant chains try to anticipate general price increases, project commodity prices and other production and transportation costs prior to negotiating the final price.

The foundation for any contracting commitment is an understanding of the total-cost-of-goods pricing model. This knowledge also allows you to identify cost-reduction possibilities.

Develop formula based pricing information for high-volume purchases, then project the final selling price from “farm to table”!  Keep in mind, the “formula” is not always used as the method of purchase.  Many times a firm price is a much better buying choice. The total cost method is solid resource to compare bids, used by everyone from Wal-Mart and Brinker to Avendra and Strategic Purchasing (SPS), to negotiate  reductions based on production efficiencies and component costs.

This approach will also assist you in developing savings possibilities even in tough buying markets.

Here is an example of a pricing calculation for a portion steak:
Raw Material: Beef Loin, Top Sirloin Butt Steak, Semi Center-Cut, and Boneless U.S.. CH Steer/Heifer Finished Product: 10 oz, CH Top Butt Steak, NAMP #1184A

Pricing Formula

Raw Product Cost:              2.25 FOB

By-Product Credit   :           - .28

Divided by Yield:                 + 50%

Raw Steak Cost: =              3.94

Profit /Markup Factor          + .65

Total FOB Sell Price: =        4.59

Freight to Distributor:           + .30 
Distributor Delivery:             +.35
Restaurant Price:               $5.24 lb.

To Higher Profits!


Fred Favole is Founder & President of Strategic Purchasing Services (SPS) America’s most experienced foodservice purchasing firm, providing outsourcing and support services to emerging chains and human-services organizations.  Contact: (912) 634-0030 email: Favole@Gate.Net
Professional Bio / Client Recommendation:   www.linkedIn/in/strategicpurchasing