The current economy has shaken the confidence of many once-proud and cocksure operators to their core, bringing to mind the words of Paul Rubin who said: “Never confuse brilliance with a bull market.” And while remembering the “good old days” days of 2005 may bring the comfort of memory, today’s reality requires better discipline and teamwork. We’ve got to re-think pricing and better leverage the knowledge and resources of our vendor and distributor partners. Here are three effective strategies to consider:
1. Take the long view regarding price increases. Restaurant customers surely understand the certainty—if not the necessity—of price increases. They’re smacked upside the head daily with escalating costs at the pump, grocery store, and Wal-Mart. It may even be presumed that consumers wonder what’s taking restaurants so long; a recent Technomic poll (March 2008) indicates that 65% of consumers are expecting restaurant prices to rise 10% in the next six months. Yet many, if not most, independent operators are fearful that higher menu prices may further alienate skittish guests, driving flat sales further downward. But it appears that most chains have bitten the bullet and raised their prices from 1.5% to as much as 8.5% so far in 2008 depending on the market. In my opinion, carefully raising prices is a prudent and reasonable strategy, providing you simultaneously better manage your primary variable costs. Your alternative is to have the lowest price. Historically-speaking, choosing to be the lowest-price foodservice provider has proven to be a zero-sum game. So take a reasonable price increase and play up value instead. Promote the sale of higher-margin menu items, lower-priced beverages, and pile on the service (it’s free) to maximize repeat business. Ask your distributor partners to offer advice on the local marketplace relative to menu price increases. (Note to full-service multi-unit operators: assess your price increase thoroughly. The cost of menu printing alone may not offset the additional revenue the price-hike may generate.)
2. Understand price increases from the distributor’s point-of-view. The relationship between operators and distributors can be cool, close or cautious depending on whether you view your distributors as allies or adversaries. Smart operators recognize the importance of partnering closely with their distributors, After all, they’re ultimately serving the same end-user: the restaurant diner. Some operators mistakenly believe all distributors and suppliers are “always out to get them” on pricing and therefore maintain a challenging relationship that does nothing but waste time, energy and potential. For instance, many distributors have lately had to reluctantly add a fuel surcharge to offset the spiking price of gasoline. This is a trend that is now common across most industries that use vehicles to do business including UPS, FedEx and even pizza delivery. Think about it: would you prefer that the additional cost of gasoline be covertly added to your price of hamburger, carrots or salad dressing, or clearly stated as a separate line item on your invoice? Don’t blame distributors and suppliers for higher prices. They’re paying them too, and their business model is based on succeeding only when their operators succeed. They gain nothing by putting additional financial strain on their customers by adding unnecessary costs to the price of doing business. You’ve been to the gas pump lately and are paying more to travel. So are they. So my advice is to focus on what you can do together with your distributors instead of who’s to blame for a rollercoaster economy.
3. Partner better with your suppliers and distributors. Just as providing more value to diners can improve foodservice sales in tough times, so too can leveraging more value between trading partners. I recently read a book of checklists called Smart Moves for People in Charge by Sam Deep and Lyle Sussman. While not written specifically for foodservice operators, it had some great advice about partnering with vendors. I’d like to adopt, adapt, and share three of their ideas below and add three of my own in an effort to help us all better understand how to work smarter with our strategic partners:
Imagine the future. What changes are affecting your restaurants now and how long are those changes likely to last? What are your short-term strengths, and long-term vulnerabilities? Share this and solicit insight and advice on trends, resources and strategies from your distributors as you visually roadmap your operation over the next two years. Let them help you help yourself.
Align your partnering needs. Review your distributor’s mission and vision statements. Are they in synch with your thinking, ethics, expertise and goals? Share your mission, vision and strategic planning with distributors. Clearly detail your expectations and what kind of service you expect. Discuss any issues related to confidentiality and conflicts of interest first.
Balance price and quality. Picking a vendor solely on having the lowest price is a chump strategy based on “stinking thinking.” A customer will forgive you for a higher price. They will never forgive you for lower quality. Understand where the quality-to-price line is and don’t ever cross it. In tough times or boom times, customers have long memories.
Consider establishing a prime vendor relationship. Contracting with just one broadline distributor brings a wealth of advantages beyond better pricing. It brings a higher level of service, fewer mistakes, and greater partnership. It may not be for every operator, but can make sense for most.
Be smart about where you’re not smart. A distributor or vendor is only as smart as you are. Know what you know, know what you don’t know, and learn what you don’t know that you don’t know. Your distributors can be very effective “fresh eyes” in this regard. Ask them for ideas on product and process improvements, and if they (or the manufacturers they represent) can provide additional product-specific training for your crew.
Be fair and share the love. Operators are quick to criticize and complain about distributors when things go wrong but often stingy with praise when things most often go right. Take the time to write letters of commendation to DSRs. Invite favored suppliers to company conferences or celebrations. If they’re part of your team, treat them as such.
So in summary I’d suggest you think big, act small, but do something. In the words of Henry Ward Beecher: “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts his sails.”
By Jim Sullivan