I have made so many dumb mistakes over the course of the last 12 years I have been in business that I have stopped counting. Some so bad that I will never admit to them. But learning from these mistakes is what has helped me build my business from a struggling no name pizza shop to a “World Famous” million dollar pizzeria.
And one of the biggest mistakes I ever made was spreading my food purchases across numerous vendors trying to get the best prices. At one point I was buying from three different pizza specialty vendors every week and often having orders delivered worth only a few hundred dollars. Even so, I still thought I was in control. I thought I was a big shot customer that they would do anything not to lose. Little did I know I was being viewed by them the same way we pizzeria owners view those customers who we wish would just go away. You know, the ones that only order with a coupon, try and combine multiple coupons to get even more of a discount, tell you how much cheaper the chain down the street is, complain about how bad the last pizza was and on top of it all they call you back and want a remake because you got the toppings wrong – and they do this every time! Sound familiar? That was me in my vendors eyes and there is a good chance that is you too. My vendor wasn't making any real money off me and I was a pain in the neck.
Over the years I had heard many professional speakers at many different seminars and conferences tout the benefits of going with a single vendor or “Prime Vendor” as it is often called. I always scoffed at it, shrugging it off as something just for the chains. But over time as my business continued to grow and the more I learned, read, and experienced the more it all started to make sense, until one day it just clicked and I went for it. As it turns out it was one of the best business decisions I have ever made. So, how exactly does it all work and why should you even consider it?
Say you are buying from 4 different vendors, giving each one $50,000 (before markup) per year in sales. And lets say each vendor is giving you a 20% markup on your purchases, giving each vendor a $10,000 gross profit off of your business. Now, you sit down with vendor X and explain to them that you purchase $200,000 of product per year and want to know their best bottom line deal that they can give you, and in return you promise to give them at least 90% of all your business. They look over your product list, crunch the numbers and come back to you with an offer of a 12% markup. Which means for you a savings of approximately $16,000 per year.
So why would they do this. Simple, just as you are saving more money, they are making more money. They now have $200,000 in sales at a 12% markup for a gross profit of $24,000. That is an additional $14,000 in profit with no additional truck stops and no additional sales calls.
You now have three less invoices to deal with, three less checks to write and three less sales reps to put up with. Best of all you now have a partner in your business. Your vendor truly wants you to succeed, the more sales you have will automatically mean more sales for them. Now your vendor will view you the same way we view the customer who orders every week without fail, never uses a coupon or asks for a discount and rarely if ever complains - the one you know on a first name basis. So think of the customer service you should expect from your vendor.
Of course this is a simplified example of how it all works, each vendor will be different. Some will put it all in writing, breaking down each food category, and lay out terms for price auditing. While some will seal it with just a handshake and a promise.
Start the process by sitting down with multiple vendors, prepare a list of all the products you use and weekly volume and don’t forget to specify the brands you can't live without.
What do you do about keeping your vendor honest? Start by getting plenty of references, talk with other operators to compare pricing, and educate yourself on how the commodity markets work and how it effects things like cheese, flour, produce, cardboard and more. Sit down with your vendor on at least an annual basis and review everything, then also sit down with other vendors to solicit bids for your business on an annual basis as well. Develop good solid relationships with your brokers and directly with the manufacturers. Also find out how the systems work inside the company, such as bonuses and commissions, will the sales rep pay be based on the markup they give you or will it be based on the number of cases you buy? Are there inside support people who can help you in the absence of your sales rep?
But most importantly choose a vendor that has a good solid reputation of being honest and trustworthy. The ethics and morals of those at the top will trickle own and set the stage for what you can expect as a whole from the company. Remember this is business, find a vendor who understands business and chances are you will find a partner who will help your business grow.