GPOs are Here to Stay so It’s Better to Learn to Live with Them – Part 2
The Food Connector: What prompted this interest in GPOs at this time?
Mike Roach: the evolution of the GPO model prompted Interest in GPOs. GPOs have been around for a long time in some form or another particularly in the healthcare segment. As they evolved, they saw a growth market for themselves in the independent operator segment. Distributors have finally realized that GPOs are here to stay and they must figure out how to work with them as GPOs continue to push into the independent segment. Distributors have learned that there must be a better way to work with them.
So, distributors should not consider GPOs adversarial?
The relationship has yet to be defined and you can’t define it with one work “adversarial” or “not adversarial.” It’s a complex relationship. But it must be a collaborative relationship. Distributors and GPOs evolved differently and have different objectives and certainly different go-to-market-strategies that can be misaligned. Distributors must thoroughly analyze GPOs and ascertain which GPOs they can work with as they try to establish a collaborative go-to-market strategy with them. And there are some GPOs out there that are easier for distributors to collaborate with than others.
What is the benefit of GPOs for the foodservice supply chain?
The GPO strategy is based on price. The benefit that they bring to the supply chain is the benefit that is perceived by the operator. The operator sees himself as getting better pricing and rebates. That’s open to conjecture and discussion if that’s really the case. But the appeal for operators about the rebate seems to be what really is driving operators to GPOs.
About the collaborative relationship, how does it fit in with distributors that have their own go-to-market plans, are members of a marketing group, and buy from re-distributors like DOT? What’s the benefit to them at a time when some feel that distributors are redundant?
Manufacturers that are questioning the need for distributors are those that have decided not to engage distributors in a collaborative, transparent go-to-market strategy. However, those manufacturers that are truly engaged with distributors as a go-to-market partner are manufacturers that are doing their best at the distributor level. To generalize that distributors are not necessary is unfair. This creates the feeling among distributors that manufacturers don’t understand the role and complexity of distributors and independent operators.
Indeed, isn’t it correct to observe that distributors are not merely drayage but they offer operators a lot of value-added services?
The number of services and psychology behind those services has expanded exponentially. Those distributors that see their mission, goal and objective as helping operators build their businesses understand their role and bring service to independent operators. That’s why we are in business. When you have that mindset, you do to market differently.
Then in a different light, a distributor could see the benefits of a GPO by taking advantage of it to provide additional price benefits to independent operators and build prime-vendor relationships with them.
Yes, that’s true. On the other hand, when an operator signs with a GPO, that GPO is promoting a particular brand. The operator may or may not prefer to use those brands. If the distributor doesn’t carry those brands, that creates an issue. The distributor then may not have as much leverage with the operator. That’s why it’s a very complex relationship. There’s no one-size fits all distributors, manufacturers and operators.
When you look at the distributor world, when an operator becomes a member of a GPO, the marketing money still goes to the distributor, the primary GPO gets a portion of the marketing money, the secondary GPO takes the balance of the marketing money and what remains goes to the operator.
In the flow of the money, if you cut the distributor out, then the distributor is forced to find ways to make the relationship with the operator profitable. You have DSRs calling on the operator to earn a commission. Within the supply chain, the distributor must eliminate cost to maintain the relationship. Do you reduce the commission of the DSR which will make him unhappy? Do you take the operator account away from the DSR which also creates problems for the DSR? Both situations delegitimize or eliminate the value-added services to the operator that depends on the distributor for services at no charge.
The implications are that the distributor will have to put a price on their value-added services, which is probably something that we should have done at the beginning but we didn’t do it. The operator could also have additional leverage with the distributor so that he can continue to receive all the value-added services provided by the distributor. But that also adds costs to the supply chain.
So, therefore, GPOs have contributed to a complex relationship that needs to be ironed out for the benefit of the foodservice supply chain?
It should be ironed out by determining how to work with GPOs and independent operators. They’re here to stay. I don’t think they’re growing with independent operators at the rate some have expected. But they are growing.
When a distributor sits down with a manufacturer to determine the go-to-market strategy, GPOs should be part of the discussion. They can’t just operate in a vacuum.
GPOs are Here to Stay so It’s Better to Learn to Live with Them – Part 1
Group Purchasing Organizations, or buying groups for independent operators, are growing steadily and causing concern for some along the foodservice supply chain. Food manufacturers and independent restaurateurs appreciate the flexibility and control afforded by GPOs while distributors, caught in the middle, are struggling to find a suitable modus vivendi with them.
According to credible estimates, there are about 100 significant restaurant-specific GPOs, not including small ones. There are also cooperatives and for-profit GPOs and a few ethnic ones. Some 35,000-40,000 independent restaurants are participating in GPO network.
In the wake of a GPO summit, organized last Spring by Pentallect of Chicago, The Food Connector contacted Barry Friends, a partner at the consultancy, and Mike Roach, retired CEO of Ben E. Keith, a Texas-based broadliner and an ID Top 50 distributor, for their observations about GPOs.
The Food Connector: Why is there an air of controversy surrounding GPOs in the foodservice supply chain?
Barry Friends: That’s because GPOs compromise distributor margins. Distributors don’t like that. Distributors like to control customer relationships. Having their customers’ loyalty and as much of the order as they can get is very important to their well-being. So, when a distributor has a GPO in the mix, between it and its customer or even alongside it, it makes them nervous because that brings a level of transparency to the relationship. Distributors aren’t always as transparent with their customers. This may force distributors to reveal with pricing rules about their margins and what products receive special manufacturer-funded allowances, which oftentimes are subtracted from the distributor allowances.
The way distributors do business is extremely disadvantageous to independent operators. Chains don’t have a worry in the world. They can negotiate competitive prices up and down the eco-system. But independent operators take up all the difference. The profit stream for distributors is rich. GPOs as well as Restaurant Depot, Sam’s and the now Internet come in and bring the distributors’ margins into line. Non-traditional sources of food and non-food products for operators have been growing their sales at fast rates year over year.
On-line vendors aren’t interested in frozen French fries but rather high-end products that can be easily shipped via UPS and they’re selling them at prices far less than distributors do. So, when a distributor loses a high-margin case from his order, his banker will be calling next month.
What was the goal of the GPO summit?
The audience was principally manufacturers because they use GPOs to wield some power over distributors. They were trying to understand the relevancy of GPOs particularly in the independent restaurant space because that’s where distributors basically make most of their money. Independents can save real money for themselves by joining a GPO. GPOs for operators is comparable to a marketing group for distributors.
Why did topic of GPOs percolate to the top now?
Hospitals and hospitality and other non-commercial channels are well penetrated by GPOs. Independents aren’t because of the obvious reason that they’re independent. And distributors work very hard through their relationship managers, their DSRs, to discourage independents from joining GPOs.
But don’t the DSRs’ consultative services have any value today and offer them a leg up on the competition?
Consultative services absolutely have value but it varies tremendously from one DSR to the next. Almost 10% of all DSRs are really, really good. Then there is another 20% that are just good and they work hard. The remainder are just going through the motions and they’re not very valuable.
So, of the 40,000-or so DSRs out there, you only have a few thousand that are stars in terms of making profits but also value creation for operators. However, the problem is that they are a very expensive part of the relationship for a distributor. DSRs costs $1.60 a case to the business plan with an operator. The Internet, as an alternative, costs pennies and offers click-through suggestions and advice.
What was the upshot of the summit?
The participants had the opportunity to understand and pros and cons of GPOs based on balanced reporting by the speakers. Another benefit of GPOs is that they provide an antidote for distributor private label. Manufacturers want to know if they are spending wisely by working with GPOs, they’re wondering if I am getting a return on my investment. If they know how to work with a GPO, they can absolutely improve their ROI because GPOs have a vested interest in making sure that their members are buying the right products.
The concept of a GPO in the supply chain is here to stay. It’s not adversarial but rather it should be taken advantage of in a cooperative, friendship building relationship?
Depends with whom? If you’re speaking about distributors, it won’t easily be cooperative and friendly because distributors are most compromised by a GPO since its customer benefits most by joining a GPO. But it’s not all bad. Many GPOs are navigating the space quite nicely because they are aligning themselves with regional distributors and then targeting specifically the national distributors’ customers.
METHODS TO REDUCE KITCHEN WASTE
Waste in restaurant kitchens is a significant industry problem that affects all parts of the foodservice supply chain. The need to control it at all levels is paramount.
We spoke about this crisis with restaurant consultant Stephen Zagor, director of management programs at the Institute of Culinary Education in New York City.
Zagor has more than 25 years of experience in the planning, development and management of a wide variety restaurants and retail food businesses. He is also a clinical associate professor in the College of Food, Nutrition and Public Health at New York University, teaching courses in Food Business Entrepreneurship, Restaurant Marketing, and Hospitality Operational Problems.
After completing a degree at Tulane, Zagor graduated with a Master’s degree from Cornell’s School of Hotel Administration. Zagor began his career with stints for the Marriott Hotel corporation in DC, Philadelphia and St. Louis. He owned restaurants in Houston, Texas. In the course of his career, Zagor has developed and owned a multi-concept restaurant group, served as the general manager of a $10 million New York City restaurant, and owned and operated an award-winning limited service restaurant. For ten years, he was the manager of restaurant consulting services for the Hospitality Group of Laventhol & Horwath, and later for Coopers & Lybrand. Zagor recently participated in a panel discussion on this topic at The New School in New York City.
The Food Connector: How serious is the issue of food waste in restaurants?
Steve Zagor: If I’m looking at it as the owner and the chef or someone that is trying to contain costs, I’d be absolutely shocked by how much is actually thrown away. From strictly financial and ethical perspectives, an awful lot of stuff gets thrown away that could be reused. In fact, I did a blog two or three months ago, responding to complaints about how high rents are in New York, and I commented that rents are high, no doubt about it, but at the same time the average restaurateur doesn’t really know how to operate. And most of that involves controlling costs in the kitchen. Operators don’t know how to price a recipe, they don’t know how to understand waste and reuse, and maximizing product usage. There’s just an enormous grey area that the average restaurateurs don’t know about and they don’t know that they don’t know.
The issue of menu pricing has become very acute in recent years. People have climbed the ladder in the industry without going to culinary school, where they would learn about this. While they were climbing the ladder, they spent time learning how to cook, learning how to serve and sell, but they don’t learn how to control.
Which operators are suffering from food waste?
If you looked at the business as a continuum, start with food manufacturers on one side. They know about food cost. When you get into the service world, like McDonald’s, they know how to control costs. They look at chain restaurants, they’re pretty good at it. There’s some table service, there’s some preparation and some central commissary. But they’re still slightly looser. Then there are the smaller chains and individual restaurants that are not that good at it. Next are the specialty restaurants, like ethnic restaurants that are individually owned, they’re definitely not good at it. Then there are the luxury restaurants, and they don’t care about it because they’re making money on the top line. They’re charging a lot. They are primarily concerned with the art of the food rather than the control of it. They look at volume coverage. They’re selling at $300 a person. At that level, they’re less concerned with waste than they are with getting patron to order.
How much is lost in food waste?
Collectively, 30-40% could have been reusable in some form.
How does this happen?
Trimming. The biggest waste is going to be in the items that are trimmed and yield, which is edible portion as purchased versus edible portion. When you buy something in an as-purchased state, you have to trim it or somehow refine it to the edible portion state. That’s the first place. Either the specification isn’t correct or maybe you’re buying something that should have been partially trimmed or partially built into the cost of the product. Or you’re taking items that could have been reused but go into the garbage, or something that is a trimmed off of a protein item that could have been used but goes into the garbage. The cycle starts there and goes all the way through the preparation process with items that could have been multi used. For example, you can take the skin off of an apple and then use it for something else. Creativity is the soul of profits, it really is. It’s taking something that would be called usable trim as opposed to toss-away trim.
What can operators do to overcome this problem?
First, they need to know that there is a problem. They need to have an idea that something’s wrong because sometimes they don’t know. There’s a lot of formal training out there about this on the Internet, on YouTube, in culinary school. The problem is that everyone is so busy. Everyone gets so locked into their routines about what they do. They don’t always take a breath and ask “Can I do this better?” “Is there a way in which I can reshape this?” The real thinkers are constantly looking back and saying “OK, I’m doing it this way, now what can I do to make it better or more profitable? Can I change the specifications?” It’s almost a behavioral change. And behavioral changes are the hardest changes to make. We’ve done things the way we have forever. You have to have an outside eye. Let’s continue but let’s always keep that outside eye on how to do it better.
So education and training is part of the solution? Can consultants, the supply chain, distributors and manufacturers get involved?
But they, the operators, have to want change. They have to know that they don’t know and that’s the hardest part. There are such big egos in this business. We’re all doing it this way so it’s got to be the right way. I’ve worked as a consultant with many restaurants and many chefs and I love them because they’re so creative and interesting. They’re passionate. They’re incredible artists. But sometimes you have to bang their heads. I know you’ve been doing it this way but do you know that you haven’t weighed anything that’s come in the back door in 10 years? And vendors know that and they’re shorting you because they know that you’re not inspecting anything coming in the back door.
If waste is controlled, what will be the benefit for the operator and the industry?
First of all, less consumption. That would be a very green initiative because you’d certainly reduce the carbon footprint. It would certainly reduce consumption. It would reduce the amount of food that goes into our landfills. It would lower costs. It would put more money in the owners’ pockets. There would be a ripple effect of incredible nice things. Distributors would wonder if operators would then buy less. But I always tell operators buy right, not just buy.
What else can an operator do to control food waste?
Be careful during preparation. Prepare what you need. It’s almost better to run out rather than to over prepare. I actually favor smaller portions. We are a nation of mega portions which contribute to obesity and other horrible conditions. We can all live on less. Maintain your prices but reduce portions.
Is there anything that can be done in the front of the house to control waste?
Of course. Paper goods are one of the areas that drive waste there. Paper goods are enormously expensive. My students are shocked by how much paper goods cost. The percent of sales includes paper goods, towels, wraps, foil, garbage bags, laundry and linen. We, as an industry, are very careless on how we use our cloths. We are very indiscriminate because we look at speed and making the customer happy. We sometimes forget that we have to make money at this. Napkins cost 15 cents to launder and that could be 15 cents that we don’t need to spend. Rather than two napkins, we could give patrons one.
If food waste could be controlled, then that 30-40% could theoretically go back into the operator’s coffers?
A percentage of it at least. There will always be waste. You can’t have zero waste. But if operators could put half of it in their pockets, they could then certainly do creative things with those savings. They could increase their bottom lines by at least 10-20%.
Q&A – MARK TODD, CULINARY CONSULTANT
WHAT IT TAKES TO ESTABLISH A BETTER BEER PROGRAM
WHY IS IT IMPORTANT TO OFFER BEER AT THE RESTAURANT? Interview originally appeared here – http://liguriafoods.com/category/newsletter/
TODD: Since Fritz Maytag rescued Anchor Brewing in San Francisco from bankruptcy in 1965, the craft beer movement has grown. Now, there is a local brewery in almost every city. After Prohibition, there was an expected explosion in the number of breweries in the U.S. – at the beginning of WWII there were more than 850 breweries. That quickly waned and started a long decline, until in 1978, the year of maximum consolidation, we were down to 89 companies making beer in the entire country. Why is it important to have a beer program in every restaurant today? Because that number has grown to the point that we saw our 4,000th brewery open in 2015. The math is simple. Craft beers, and now craft ciders, are where many people today are looking to enjoy an adult beverage.
WHAT’S THE DIFFERENCE IN OFFERING BOTTLE BEER VS. BEER ON TAP?
TODD: In short, draft is usually fresher and more lively than bottled or canned beer. It also affords the opportunity to use alternate gasses to push the beverage, giving the beer a different mouthfeel and aroma. Guinness Stout and Boddington’s Pub Ale have a widget inside their containers that charges the beer with nitrogen upon opening, imitating the taste and texture of a draft beer. There are exceptions to every rule, as some Belgian Style ales and Barley Wines Wines are built to age and are best left in their bottles for proper maturation.
WHICH BEERS PAIR BEST WITH PEPPERONI, MEAT-LOVERS, AND HAWAIIAN PIZZAS?
TODD: There are thousands of varieties of pizza – each will have a soul mate in the land of fermented barley. If we are talking the most ubiquitous pizza in the world, New York-style pepperoni, the answer for me is unquestionably Pilsner Urquell,the grandfather of all Pilsners. The crisp hoppy mouth is the perfect tool to cut through the wonderfully greasy-cheesy unctuousness that makes this pie the King of Pizza. But unlike the overly hopped IPA’s, this beer’s bitter bite stops well short of the mouth-imploding stage, with a nice showing of biscuit-like malt peaking through. And the beer finishes balanced and clean.
A meat-lovers pizza depends to some extent on the meats involved. Smoked meats like bacon prefer malty beers, such as Belgian Doubles or German Doppelbocks; spicy meats like chorizo or coppa prefer a clean German-style lager, so it depends on the meats. Hawaiian is not really pizza, even though I do secretly love it. Chefs in Naples cringe when they even hear the term. But for my taste, if you are going Hawaiian, go Hawaiian and have a Kona Longboard. To be honest, though, I had a real dry apple cider that was absolutely awesome with it.
LIGURIA MAKES 25 DIFFERENT PEPPERONI. FOR BRAVO GUSTO, WE ADD A DRYING CYCLE IN OUR REDWOOD SMOKEHOUSE TO IMPART A SMOKY FLAVOR. WHICH BEER DO YOU RECOMMEND WITH IT?
TODD: As I stated above, smoky meats in general, like the sweetness of malt as a foil for the intense umami flavors in smoked meats. It is possible to have high hop beers that pair well also, but these are best checked in person, as generalizations are not accurate. One Golden beer I love with smoked meats is Chimay Cinq Cents, a Belgian Tripel clocking in at 8% abv. With a golden-orange hue and the quintessential “rock head,” this beer is so beguilingly mild – one would never expect it to carry a sledgehammer in its back pocket. Aromas of yeasty bread and raisins give way to a cascade of bright crisp, somewhat citrusy flavors. A clipped finish leaves the palate ready for more.
ANOTHER FAVORITE IS OUR ROSSO PEPPERONI WITH EXTRA RED CAYENNE PEPPER – HOW WOULD YOU PAIR BEER WITH THIS?
TODD: Also noted above, spicy meats are at home with beers showing a more pronounced bitterness. It takes this more flavor-intensive style beer to get through the sensory-overload of capsicum. Capsicum has a skeleton key for every taste bud, and can overwhelm the tongue’s ability to distinguish flavors. Hops are almost as overpowering and will stand up for themselves in the flavor wars.
WHAT IS YOUR PERSONAL FAVORITE BEER AND PIZZA PAIRING?
TODD: My personal fave … Hmmmm. Well, you asked. Tatre Flambee dough, generous spreading of Mascarpone, cubed Dolce Gorgonzola, candied pecans, caramelized onions and shaved 70% Valrhona Guanaja Chocolate (added after cooking) with a deliciously funky Saison Dupont.
Mark Todd has worked extensively in the foodservice and the retail sides of cheese promotion and education, and has made spreading the word about cheese his professional life’s goal.
Mark Taylor – An L.A. Original
Sales and marketing guru, Mark Taylor, has worn all of the hats associated with foodservice – from restaurant operator to owner/executive of a distribution company to independent sales consultant. He currently owns a food brokerage company, trades with a local trading company and manages the sales for Santini Foods, Inc. http://www.santinifoods.com/
The Foodservice Blog talked to Mark about market trends and how he sees the current state of the foodservice industry:
Q: What’s your favorite part of the foodservice business?
The beauty of foodservice as opposed to retail is that restaurants count on reliable sourcing, availability, and consistency of their products. It is less about the packaging and price, but rather about that quality, integrity and value that drives the business. I like that everything I sell is of the highest quality and not necessarily the least expensive. Foodservice people rely on that consistency and quality in order to succeed and I am proud to be able to provide that.
Q: What’s the most important change you have seen in the last three years?
I’ve seen an explosion of interest in local sourcing for food products, coinciding with the expense and difficulties associated with imported foods. I see this trend continuing with more and more European companies setting up production in the U.S.
Q: What are you most proud of in your career?
I can manage this business as a sole operator with the aid of modern technology and with a memory that hasn’t totally faded yet. That I can put my kids through college as a sole proprietor and that the industry shows me the support and respect to thrive professionally. I have evolved and held many positions so I am happy that my experience and relationships still serve me well.
Q: What’s the best new product you seen in the last three years?
I would say it not just one product but the improvement in the quality of gluten-free products and their adoption by major food companies. I say this somewhat selfishly because my daughter suffers from Celiac disease and is also lactose intolerant.
The technology has improved so the quality of the finished product mimics the traditional item especially in the baking and prepared foods category. Gluten-free products have come a long way and now many of them resemble their traditional counterpart.
Restaurants are creatively weaving dairy free and gluten-free items into their menus, which means families can deliciously eat out together without worry. I see this trend continuing to evolve as more foodservice operators add gluten/dairy free alternatives to their offerings. It is a very exciting time to be in the food business.
Pizza 360 Interview
One of our team, Ed Zimmerman, was interviewed by PMQ Magazine’s – Pizza 360 regarding trends for pizza for family dining and schools.
Joe Christopherson, Liguria Foods Vice President of Operations
State-of-the-Art Food Safety Management
Joe Christopherson, Liguria Foods Vice President of Operations, brings more than 29 years of experience of food safety management to the manufacturing facility. In his second year at Liguria, Joe comes directly from Hormel Foods where he had worked for 18 years. Prior to that, the University of Minnesota Economics and Finance graduate worked at ConAgra and Farmland in operations management.
We asked Joe to share the food safety fundamentals that have turned Liguria Foods into a leader in its field:
What are most important factors of Food Safety in today’s manufacturing world?
- Microbiological Sanitation – At Liguria, we take a proactive approach by managing food safety through sanitation chemical suppliers. We work with our suppliers to make sure we are always a step ahead in food sanitation.
- Operational Sanitation – This involves our process and procedures. We always want to take the right steps towards handling and keeping a clean environment. The cleanliness of a manufacturing plant is driven by HACCP (Hazard Analysis and Critical Control Points) and SSOP (Sanitation Standard Operating Practices). We design the food safety program tighter than what is required by government regulatory agencies. A lot of what we do is designed towards risk mitigation.
- Allergen Controls in Labeling – This is today’s biggest issue amounting to the number one reason for recalls. We have to be on top of that and we have to have people on our team who are trained in those avenues. Fortunately, the most frequent allergens are not used in our products, but we still have to be very aware of the procedures to keep control of potential allergens.
How do you go about training your staff?
One thing we do is to actually personalize our training in order to make sure we have the cleanest facility possible. We ask our employees, “Would you want your family to eat this product?” That goes to training and retraining. We always keep food safety in front of our employees. It is not the new flavor of the month but is imbedded into the culture of the work environment.
What has Liguria done to live up to food safety standards or to set them?
We go beyond what is regulated by the government. We are SQF certified Level 2 for food safety and we are working towards attaining Level 3 Quality Program certification. We have it in place now but should pass the audit by the end of 2015.
What food safety certifications does Liguria maintain?
The USDA certification is no. 1. We are always in constant communication with USDA because it is a partnership rather than an adversarial relationship. Liguria Foods maintains a good working relationship with USDA. They update us on new rulings or concerns, and we talk about our upcoming initiatives. We go well beyond the spirit of the rules which is how we look at food safety – because the risk of a recall far outweighs the savings you may try to gain. Besides the USDA certification, Liguria also is SQF Level 3 Certified.
Where do the Liguria Foods management team and sales staff fit into your food safety program?
The wonderful thing about our company is that our management team is open to change with the times. As tech changes, as new procedures arise, they are open to implement what is needed to the highest levels. It makes keeping up with changes and implementing changes far easier. Liguria Foods maintains a culture that is founded in food safety. Everyone is trained and kept up to speed on food safety procedures. We educate our sales and marketing staff so that they get an annual review as part of our plan. They know how food safety affects products in a positive way so they can talk about it in an educated manner. They also have full access to the operations team which can answer questions quickly and knowledgeably.
When it comes to food safety, what does Liguria Foods do differently or better?
One of the keys to best practices in food safety is our partnerships with vendors. They play a key part because they understand the requirements needed to shape and support what we are trying to accomplish. Our success equates to their success.
What future improvements are in store for food safety?
You can always make facility upgrades geared to improved sanitation. We look to bring in the latest equipment with the highest level of sanitation criteria that is easy to disassemble and clean. We also make sure that our layout and product flow are simple, efficient and in line with food safety procedures. We seek to minimize cross-traffic and cross-contamination issues by monitoring the product flow.
For more information, contact Joe at:
1515 North 15th Street
Humboldt, IA 50548