Partnering with a distributor

 
April 27, 2006

When it comes to strategic partners, none is more crucial to an operator than a distributor. But the operator-distributor relationship is often stormy because, while the partners need each other, they often don't trust each other. Operators think distributors are charging them too much, and distributors accuse operators of disloyalty when they search for better prices, service or products—regardless of how well they're treated.

Like most operators, Luke Bailey has had his share of distributor run-ins, but he kept looking until he found the right partner—a search that ended 15 years ago. Not only does he credit his distributor with helping his stores succeed, he said giving one the majority of his business makes his life simpler.

"If you

What's Important

No partnership is more important than that forged between pizza operators and distributors.

Often, however, the relationship is stormy because neither party trusts the other.

Successful operators say that a good operator-distributor partnership is a matter of both parties working to serve the other's interests. When that give-and-take relationship happens, both profit for the long-term.

can develop a loyal relationship, you end up saving so much in the long run, both financially and with time," said Bailey, owner of The Pizza Company in Davison, Mich. "My salesman knows exactly what I need, what I have to do, and he takes care of those needs. I've built a relationship with (Gordon Food Service) where I don't even have to look at my food invoices. I do periodically check them, but I don't find any errors."

Chuck Thorpe trusts his distributor so much, the company's delivery drivers have after-hours access for key drops at 80 percent of the 45 units in the DoubleDave's Pizzaworks chain.

"They come into the stores and place the product where it's asked to be placed," said Thorp, chief executive of the Austin, Texas-based company. Like Bailey, he doesn't have to watch his invoices like a hawk any more. DoubleDaves went from "monitoring invoices and orders on a daily basis to monitoring on a monthly basis."

Trust forged by experience over time is the keystone for any healthy partnership. Bailey's distributor has earned his confidence after years of predictable treatment, even when prices are volatile.

"When the market changes, such as with cheese, it's important for us to react immediately, especially when I buy 1,000 pounds of cheese a week," he said. "If tomato prices are going to jump because of floods in California, he'll call me to let me know."

Bailey's distributor rep also assists in developing new menu items by providing trends advice and samples for testing. And by letting him know what items might cost less in the near future, he helps Bailey with marketing efforts.

"He's put me in touch with the dairy farmers, who let me know what the trend is going to be for the next six to eight months so I can guide my coupons toward that," he said. "As an independent, I don't have the resources that the chains do, with the information at hand, but (Gordon Food Service) can always supply that to me."

Communication is Key

If you want to build a good relationship with your distributor, make friends with him, said Ross Violi, managing director of Buonamici International, a representative of independent distributors serving pizzerias and Italian restaurants.

"An operator can do himself a lot of good by linking up and personally and knowing their distributor," Violi said. "It's really a two-way street. Operators have to take a general interest in the products they're buying, the distributor bringing those products (and) the owner of the distribution company."

Keeping current with crop production, livestock markets and other product information goes a long way toward heading off a potential communication snafu in the operator-distributor partnership. When operators are aware of what's driving market conditions, they understand how that affects distributors' prices and products.

"Operators should understand the economics involved not only in their own business, but in the business of the distributor, such as gas price fluctuations and how that may affect the business," said Violi, whose company is in Richmond, Va. "If the distributor and the operator clearly understand each other's needs, they will always be thinking about how to help each other. It's never a guessing game."

Communication about market conditions should come from the distributor, Violi said, because operators—especially independents—aren't as well connected to information sources. When distributors share information about upcoming cheese price crunches or shortages of certain products, operators are less likely to feel as though they're being gouged by distributors.

"If the distributor is proactive in sharing this information with the operator, the operator would know ahead of time about market fluctuations and the blow is softened," he said.

Finding the right partner

Finding a distributor you can confidently call a partner may take time and some work; like dating, you might not fall in love with the first person you meet. But once an operator is convinced his distributor knows him and his business's needs, he's well into a reliable relationship, Violi said. At this stage, operators worry less about costs and more about growing their sales.

Ideally, some enter into "cost-plus" arrangements with their distributors. Here operators and distributors agree on a fair margin the distributor can add to most or all items purchased by the operator. For example, as cheese prices fluctuate throughout the year, an operator can rest assured the distributor is charging him the market cost plus an agreed-upon margin.

DoubleDave's buys some 200 items on a cost-plus basis from its distributor.

"They have helped us maintain our food costs better than I've seen with past distributors," Thorp said. "They're a true partner."

Jim Laube, owner of RestaurantOwner.com, recommends his clients develop prime vendor agreements with distributors. Such an arrangement ensures the bulk of an operator's product needs are met by one distributor, who, in turn, gives the operator a volume discount.

Laube said a key benefit of a prime vendor agreement

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 is the time savings.

"I know people on prime vendor agreements who say they save eight to 10 hours a week because they're not on the phone all the time," he said. "That's time that they spend building their business rather than saving 25 cents on a case of green beans."

A veteran operator himself, Laube understands why some are slow to dedicate the bulk of their purchases to one distributor; they feel they're turning over too much price control to one provider.

His experience has shown, however, that the opposite situation is far more common.

"I have seen restaurants lower their food cost 5 to 10 percent overnight by going to a prime vendor agreement," he said. Those vendors, he added, can absorb a narrower margin "because they get more of your business and can make more gross profit on your account."


Topics: Operations Management


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