Going "Green and Healthy" Impacts Purchase Decisions

Speculation has been confirmed: the foodservice executive chef and purchasing manager role in product purchase decisions is having an effect on the way farms, ranches and packers use hormones, pesticides and processing additives like "meat glue" and "pink slime" despite pressure to contain prices.

As we enter 2013, the environment’s predictability seems to be decreasing as concerns about the healthful and green quality of foods we serve to the public increases. A requisite for restaurant chain economic survival requires organizations to manage the coming food inflation, follow menu trends and yet keep menu prices affordable.

On the other hand, as the culinary and procurement staff in restaurant and hotel chains becomes more knowledable about the products they purchase; they are connecting the cause and effect relationship between product specifications and  buying "green and healthy foods." This influences suppliers who must respond to the bid requirements (specifications) or risk losing business.
  
5 Factors Influencing Your Ability to Buy Green & Healthy (G&H)

SUPPLIERS - competition forces a continued use of chemicals and additives, clean feed, and hormones. And, broad line food distributors resist using warehouse slots for slow-moving green, healthy, natural products, although this attitude is changing.
                                                                   
SUPPLY/DEMAND – foodservice chains develop new local resources for natural products; consequently, there is a low level of centralization, and greater variance in product standards. At the same time, the demand for “green” and heathly products is growing.  In the West exciting emerging chains like Garbanzo Mediterranean Grill and Costa Vita Fresh Mexican Grill continue to push the “healthy-green” food envelope. The Millennium generation can anticipate a new age in institutional G & H food purchasing without the economic and logistics challenges of today's CPO's.
                                                                                    
GOVERNMENT - think worldwide: laws, regulations, international farming conglomerates with Agency 21 product shortages and allocations. The motto, “feed them first, then turn them green! (See my previous blog “Local Suppliers and U.S. Food Crunch https://purchasinginsights.blogspot.com)

TECHNOLOGY - the chemical influences of food continue (example: enzyme-modified cheese, artificial flavors). Despite the lack of funding, research in food technology continues and many Argo-farming companies are using less “Roundup” and other nasty chemicals to kill bugs and weeds.

CONSUMERS - the average restaurant customer can’t afford to eat out at the “G & H" restaurant most of the time, and others continue to make poor food decisions. Overall, the socio-political component plus consumer attitude will force more environmentally friendly, echo-green and healthier products to market.

Food service buyers have always grappled with the challenge of buying the right product at the right price. Now that many foodservice executives have embraced the "G & H" supply chain as critical to their success, the purchasing-culinary team will be able to make better purchase decisions.

To "G & H" Foods & Higher Profits!
Fred

Fred Favole is President of Strategic Purchasing Services (SPS) is America's most experienced firm specializing in foodservice chain outsourcing, cost-reduction and green & healthy (G & H ) supply-plan programs. Contact: Fred@StrategicPurchasingServices.com, P: 912-634-0030 or Connect on LinkedIn.

Local Suppliers Can Help You Avoid The Coming U.S. Supply Crunch

Foodservice operators are able to improve the quality and value of food products by sourcing local vendors, and giving preferences to green initiatives. This is an important sourcing strategy that also supports an even more important initiative.

The world’s food growing limitations and coming inflation will politicize the production and distribution of many transported food products and commodities. We have already seen legislation controlling farming land development, cattle and poultry processing. These are only a few of the components that will change the face of the food supply-chain.

Unless the foodservice industry reforms the menu and purchasing process by supporting local and regional suppliers, America’s golden age of food product variety at reasonable cost will give way to product shortages and allocation programs.    

In our purchasing consulting practice and my previous experience with Fortune 50 restaurant chains, there has always been a battle for a share of the world’s food supplies. The independent restaurant operator,and many emerging chains do not understand that we compete against international conglomerate farm/packers, both domestic and foreign.   

Will your foodservice organization be forced to change menu offerings because of world-food management solutions? Did you realize that the largest food organizations already utilize closed buying systems for the purpose of expanding control over food supplies. 

My consulting firm specializes in protecting foodservice clients from price increases and supply shortages. However, we still come across too many operators that try to match the popular menu items promoted by the major brands, which means they make less profit and risk out-of-stocks. Other restaurants depend on distributors to manage supply relationships,  without realizing the that are not protected without a formal supply agreement.  

What can be done? 

We are a creative and talented industry, isn't it time we made changes to how products are selected for the menu?  Why create “false” markets and elevate common products like the Kiwi fruit to high-cost exotic food status?  Many restaurants promote bone-in chicken wings, once a cheap throw away item, now high priced and hard to buy. Does every casual dining, sports bar, pizza and sandwich joint have to offer chicken wings?  

In my openion, foodservice has always been a "follow-the-leader" industry when it comes to new products. Not only are “me-too” menu offerings boring, but they inflate acquisition costs and lower profits for everyone! (btw.. chicken tenders’ prices are falling now that the BK promotion has ended)

When will product development managers and chefs follow the lead of procurement professionals who can identify best buys based on product seasonality and availability. Why not use more pork and turkey for greater and actually give the customer a break by discounting the menu price! 

The process can be managed in the cloud with purchasing and vendor postings of based seasoning buying calendars,protein production cycles and local products available for immediate purchase.  This new menu management process starts with Purchasing providing the Culinary team with the product list for developing new products. 

   

Independent restaurants can do more to support local and regional supply sources and  jump start this process, by developing a local supplier database that includes green suppliers, independent farms, growers, packers, processors and re-distribution centers (ie: DOT Foods, Mega-Warehouses). Send your  local supplier data base to the State Restaurant Association and SPS (fred@strategicpurchasingservices.com) so we can share the information online.   

I am confident that local suppliers and smarter product selections can help us prevent a supply-crisis.  The industry will  be forced to "do more with less" and we will pay higher prices for the products that are available. That's why we must develop and support food sources closer to home and change the menu management process.

The Foodservice community, more than any government program, can and will lead the way in preserving our food self-sufficiency. And, in doing so,assure food supplies for the talented professionals that feed America.

A final suggestion: whenever your foodservice distributor or purchasing agent seeks a new source of supply, takes a competitive bid, grant a 5% cost preference to locally qualified suppliers and consider it a business investment.

                                                                                                                                                                       To Sustainability,

Fred

Fred Favole is President of Strategic Purchasing Services (SPS), America’s most experienced foodservice firm specializing the outsourcing, rebate recovery,  staff support, and commodity contracting. His contract information: P: 912.634.0030, email: Favole@gate.net.  Profile: linkedIN.com/in/strategicpurchasing

Foodservice Struggle To Cut-Costs As Chain Compete for Better Prices

 

In order to be competitive, emerging foodservice organizations are re-examining the way they perform activities such as; menu-management, strategic product sourcing, contracting, vendor price-compliance and other routine C-staff functions.

Despite the clear advantages of outsourcing these non-core business processes, many organizations fail to do so because of established attitudes, limited knowledge of the purchasing supply-chain, fear of high retainer costs or long standing distributor and supplier relationships.

DOES ATTITUDE AND COMPANY CULTURE IMPACT THE ABILITY OF YOUR COMPANY TO UTILIZE THE NEW PURCHASING DYNAMIC AVAILABLE THROUGH SPECIALIZED PURCHASING FIRMS?

Consider your strategic supply-chain plan for 2013 and how well you managed the 2.1% food inflation since May 2012.   Did you know that Q1-2013 is projected to be the highest food cost-quarter in 30 years!

You still have time to unlease the tremendous benefits of utilizing the skills and resources  available from SPS and other industry leading companies; consider the following:

More than a trend - there is a need for hotel and restaurant brands to focus on critical / core business functions, downsize staff and upgrade the purchasing process. Outsourcing programs managed by the top 4 companies in the foodservice industry now manage $2.65 billion in food and supply purchasing for clients through "direct-to-supplier" contracting. 

Gain Leverage - leading consulting companies are managed by senior level procurement executives with a tremendous network of alliances / partnerships which allows them to operate much more efficiently that your purchasing department.

Experience Drives Performance - product costs are driven by commodity price managment and you really do need an ally with experience and experience to conduct business in this tough foodservice environment that demands excellence in everything your do.

Best ROI On The Planet -- the value proposition for outsourcing is much larger than simply cost reduction. Outsourcing also allows organizations to be more effective and flexible.  To start, ask SPS to complete a 1-time department and spend assessment,  it's really worth your time and investment.

Ranking the best purchasing outsourcing services by critical performance categories:

#1 Strategic Purchasing Services (fields the most sr. level purchasing & distribution management,)   acheives the highest acquistion cost-impact / savings, offers outsourcing package and a stand-alone 100% performance based commodity contracting service. 

#2 Spend Difference (most $ spend under managment and growing, solid service, features "vendor paid fees" that offsets the cost-of-service, service leader operating is the Western states.

#3 Empad - provides proven service, middle management provided support to a variety of chains, leadership is knowledgable, steady but not dynamic.

#4 Restaurant Partners - an emerging service for casual and fine dining operators; service works best when combined with RP's restauarnt managment program; lacks advanced spend-management software. Part of the Foodbuy program re-seller family, with a focus on rebates.
                     
SPS, on average, achieves savings or cost-avoidance of  5% to 15% of total food and supply spend; with overhead cost reductions as much as 60%,  when the full department outsourcing option is selected. 

To Higher Profits!
Fred


Fred Favole, President of Strategic Purchasing Services (SPS) along with Ron Bay, Managing Partner, direct America's most experienced firm specializing in purchasing dept. outsourcing and cost-reduction contracting.   Contact: HQ Office. 912.634.0030, email ffavole@hotmail.com. Fred's Bio: linkedIN.com/in/strategicpurchasing

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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

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

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 a “target 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

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