Restaurants worry about their bottom line all the time, sometimes not realizing they can increase it by reducing food costs. One of the best ways to reduce food costs is getting better rates from your food distributor. But how to negotiate with food distributors?
While many restaurants feel that the ball is always in the court of the distributor while negotiating prices, the truth is, a food distributor also needs a deal with good restaurants equally desperately to stay in business.
In this blog, we have compiled some of the best negotiation tips, ways to get a discount from your distributor, and ideas to get a profitable food supply agreement made. We are going to answer the following questions:
- How to select food suppliers for your restaurant?
- How to negotiate with food distributors?
- How to get better rates without negotiating?
- Why is it important to have a written agreement with food distributors?
How to select food distributors for your restaurant?
Finding a food distributor for your restaurant is probably one of the toughest jobs, and one you must get right in order to run a successful business. People come to a restaurant to eat healthy and delicious food. Without collaborating with a good distributor, you cannot fulfill this basic responsibility.
The hunt for a good food distributor starts with identifying your needs. Every restaurant will need some common food supplies, but based on your concept and type of restaurant, you will need certain key ingredients.
For this, you need to sit with your recipes and start listing everything that you will need. In addition to this, you will also need the weekly consumption amount of each ingredient. This becomes easier if you have your recipes uploaded in a restaurant management software such as EagleOwl. Once you know exactly what you need, you can shortlist suppliers easily.
If you’re wondering how to get in contact with suppliers, the best way is to talk to fellow restaurant owners to discover distributors in their network. Seek information about food quality, prices, service level, and other key aspects that will help you understand whether or not they will be a good fit for your restaurant.
Apart from this, there are various restaurant forums that you can become a part of to get all the information you need. For instance, in India, you have the National Restaurant Association of India(NRAI) through which different restaurant owners connect with each other over messaging apps.
Another quick and efficient way of finding a food distributor for your restaurant is using restaurant marketplaces such as the EagleOwl Marketplace. You get information about food supplies from various food distributors in one place. Prices are listed along with quantities and area of service, making it easy for you to compare and choose.
When conversing with the owner of a very well-known bakery and patisserie brand from Bangalore, we discovered that they work with almost 10-15 suppliers. When asked how they have managed to do this and still deliver excellent taste, they said that they work with only reputed suppliers who have a proven track record.
But how do you get in touch with such reputed suppliers? When a restaurant has been in the industry for quite some time and has earned a name for itself, suppliers will reach out to them.
“If you are an established restaurant that’s doing good, suppliers come finding you,” says Chef Gurudath, Corporate Executive Chef at The Pizza Bakery. “Suppliers will send their sales team with brochures. If you are interested, you can request samples and then decide whether or not you want to work with them.”
When you are new to the industry, you will have to know how to contact distributors and experiment with a few of them. Once you have established good terms, you can start negotiating the prices with them. Food distribution pricing negotiations take 6-8 months which allows the supplier to develop faith that they will get good business from your restaurant and timely payments.
When it comes to the number of suppliers a restaurant must have, Chef Gurudath says:
“A lot depends on how big your establishment is. If you are a very small restaurant catering to only 30-40 people daily, you can choose one vendor for each – one for vegetables, one for meat, one for dry goods.
But if you are a bigger organization you will want to see and explore different vendors in the market to see who is giving you a better price and quality of the product. Because the volumes required are bigger.”
How to negotiate with food distributors?
Every restaurant wants a good rate from a distributor, which is why multiple negotiations happen. But not all distributor pricing negotiations will end in your favor. So always be certain about what outcome matters the most to you and what aspects you may be willing to compromise at.
With this understanding, you will be able to steer the negotiation in the right direction. Once you know this, here are some of the best tips on how to negotiate with food distributors and crack a win-win deal:
1. Research prices beforehand:
To start with, you need to know what you’re talking about when you initiate a negotiation with a distributor. Get an in-depth understanding of how much a raw material typically costs in the local market.
You can enquire fellow restaurateurs too to understand how much they are paying for a particular raw material. At the same time, enquire about their food quality, quality of service, packaging, and delivery timelines.
This knowledge gives you an upper hand when you start negotiating prices. It may not always work in your favor, but when you come prepared with information the distributor will know that you cannot be fooled with any random pricing.
2. Understand different pricing structures:
Making yourself familiar with the different pricing structures prevalent in the food supply chain is paramount to getting the best possible deal for your restaurant. Food distributors mainly structure their pricing in two ways:
- Cost+Percentage
- Cost+Fixed price
The cost+percentage strategy requires you to pay the price of an ingredient along with a percent.
For instance, let’s assume you finalize that you will be paying 10% for an ingredient. When the price of that ingredient goes $50, you will be charged $55. And when its price goes $75, you will have to pay $82.5 for the same item.
The cost+fixed price strategy means regardless of the change in the price of a given ingredient, the fixed price will remain constant. If you have negotiated a fixed price of $2 for an ingredient, you will only be paying for the hike in the price of the ingredient. So if we go back to the above example, you will be paying $52 and $77.
As evident from the example, cost+fixed price is cheaper and turns out to be a more reasonable strategy. Since food prices fluctuate as per seasons and generally always keep rising, cost+percentage is never a good deal.
3. Get your orders in order:
A lot of times restaurateurs bargain with suppliers quoting low prices that are being charged to other restaurants. It is important to understand that a supplier will always give better rates to a restaurant that purchases large quantities.
Purchasing in bulk benefits both you and the supplier. For instance, if you tell them that you will be needing approximately 100kgs of a particular ingredient daily, they see a huge chunk of their products getting sold effortlessly at one place.
This will compel them to reduce their prices for that particular ingredient. So before you start negotiating, get clear about the volume of ingredients you will be ordering from them to sway the deal in your favor.
4. Stick to one main supplier:
A great way to get a discount on food supplies is by ordering most of them from one main supplier. Although depending on just one vendor is never recommended, it can help you get really good rates.
When you divide your supplies between multiple vendors, you end up buying a small number of items from each supplier. Since this makes your entire bill very small, suppliers don’t entertain requests for discounts.
If you’re happy with the quality, quantity, and variety of supplies provided by a supplier, go ahead and order 80-90% of supplies from them. Ordering such high volumes gives you a major advantage during the negotiation process.
5. Let them know you’re exploring other options:
Ask any restaurateur what makes their distributor come and discuss pricing themselves, and they’ll say it’s when the distributor finds out you are enquiring about new partners. Knowing that you are willing to walk away makes them alert and facilitates negotiations.
Identify other key players in the market and talk to them to get their best prices. In addition to their prices, evaluate their quality as well as proportions to make the comparison fair. Let your existing supplier know you have quotes from other suppliers and are comparing them to get a better deal.
Keep in mind that this works when multiple suppliers are selling the same raw material. If a supplier runs a monopoly, this strategy will not have much impact on them since they have ample customers and low competition.
6. Renegotiate wisely:
You don’t want an unhappy supplier. So when you are looking to negotiate with food distributors, it’s always best to find a middle ground that will help you both get the best deal. Once you have finished an initial negotiation, you will have a fair idea about what the supplier is willing to offer.
You will also have an understanding of what aspects you may have to compromise on. But to win a deal, never share that you will be willing to compromise in the early stages of negotiation.
Before re-negotiating, list what aspects you are not happy with. This will help you feel more confident and communicate in a more positive way. Tackle each aspect one by one to avoid confusion and get the supplier to agree to your terms.
7. Be careful with your counter offers:
The key to getting good rates from a distributor is closing a deal that’s mutually beneficial to both parties involved. So when you give a counter offer while negotiating, don’t stoop too low as it may come across as disrespectful.
Always remember that you need a good distributor as much as they need you. If they feel you’re being unreasonable with your expectations, they may back off and decide not to work with your restaurant.
So suggest reasonable prices that don’t harm your or your partner’s business. After all, they are also running a business and wouldn’t want to lose money by offering an unrealistic discount.
8. Sign a written agreement:
A verbal discussion holds very less value if there is no written record of it. So once you have negotiated with a food distributor and gotten them to agree at mutually beneficial prices, get them to sign a written agreement.
This agreement should include all the discussed terms in detail right from the quality of raw material to the quantity, the delivery schedules to the credit period as well as the return policy in case of sub-standard goods received.
9. Put your best foot forward:
When you think about how to negotiate with food distributors, it’s important to think like them. Just like restaurant owners, distributors also need the assurance that they are working with good people who will stay fair, loyal, and make payments on time. So before you get into any food distribution price negotiations, share your plus points.
Think about what a distributor looks for in a customer and pitch yourself accordingly. If you have good terms with any of their regular customers, mention them to earn credibility. Share your positive track record in the industry and testimonials from other distributors.
This may sound like bragging, but when you quote how another partner is happy about working with your restaurant it works like magic. It assures the distributor that you are trustworthy and worthy of entering a partnership with.
10. Do your due diligence:
Lastly, before you go ahead and sign a written agreement with a food distributor, make sure you have done a thorough background check. This means ensuring they will hold up their end of the bargain through and through.
Speak to their existing customers to verify the supplier’s work ethics and way of operating. Are they punctual in their delivery? Is their delivery person disciplined and knows how to handle raw materials correctly? Are their raw materials often damaged?
Having this information beforehand is crucial to saving yourself from unnecessary supply delays and long QC sessions every day. An established and trusted supplier will ensure you get exactly what you want the way you want.
How to get better food costs without negotiating
Negotiations always work, but what if there was a way to get what you want without having to have multiple rounds of discussions? While you may be constantly wondering how to negotiate with food distributors, here are some tactics that don’t need negotiations. The following ways may not be quick to show desired results, but are very effective in getting you a good discount from your food supplier/distributor.
1. Pay on time:
Yes, it’s as simple as that! Paying your food distributors on time helps build trust and encourages them to give you an extra discount just to keep the cycle of quick payments running. After all, they also need money to survive and thrive.
The restaurant industry is notoriously known for its unstructured payment cycles. Distributors deliver the ingredients on credit and don’t receive payments for long durations. Sometimes it requires frequent follow-ups to get even a small payment processed. This makes them anxious and fearful which ruins your chances of getting a better deal.
When a restaurant makes timely payments, suppliers favor them and entertain requests for extra discounts. For example, The Pizza Bakery from Bangalore is known for its prompt payment to all suppliers.
Naturally, their distributors would give them preference over other restaurants when it comes to any urgent supply requests. Also, distributors will not hesitate from giving them better rates as compared to other restaurants. All this is possible because The Pizza Bakery reduces the risks involved for their partners.
2. Maintain good connections:
Again, a very simple tactic that goes a long way in earning discounts from your food distributor. Just like you network with other restaurateurs, network with distributors too. They contribute majorly to your business’s success and developing good connections can only benefit you.
Suppliers value loyalty and support more than anything else. Show them support by introducing them to more restaurants. Try out their new items. Keep communication channels open. Understand their issues and be responsive so it becomes a win-win association.
Doing something as simple as discussing their challenges and suggesting mutually beneficial options will make them feel you are interested in their growth. Of course, this is not something you do every day. But these small actions eventually help you build a healthy rapport and get you favoritism from your supplier.
3. Learn their language:
No, we’re not suggesting learning their native language, but their jargon. Most distributors see restaurateurs as lacking the basic knowledge of the raw materials they are coming to buy from them.
This will come with practice and experience. The more you talk to different food distributors and suppliers, the more in-depth knowledge you will gain. You’ll also understand how they refer to a particular product in their supplier circle.
Learn the terminologies they use for raw materials and ingredients. Using these insider-like terms will earn you brownie points from the distributors as it will show that you have sufficient knowledge about what you’re seeking. Once you start to think and talk like them, it will definitely give you an upper hand while negotiating prices with them.
Why is it important to have a written agreement with food distributors?
While you may know how to negotiate with food distributors, it’s essential to put your agreements on paper. We highly recommend getting the distributor to sign a written contract with all the terms and conditions as well as the stated discounts mentioned clearly. Do not forget to add a termination clause in case the supplier does not live up to the expectations.
A lot of suppliers hesitate from signing a legal contract but without one, you can easily get duped and will have no way to hold them accountable. A written contract signed by the supplier reduces the chances of any surprise costs being added to your bills later.
Most suppliers agree to a 3-month or 6-month contract after which the prices are renegotiated. The bigger establishments prefer a yearly contract to reduce the number of negotiations. This also gives them the power to get much lesser prices regardless of the fluctuations.
The prices and payment terms finalized and mentioned in the contract hold true till the tenure of the contract. These prices will be renegotiated again within the tenure only if a raw material becomes extremely expensive.
Conclusion:
We hope this blog has helped you understand how to negotiate with food distributors and go to a good deal. When negotiating with food distributors, always think things thoroughly and never agree to something you are unhappy with. If they’re resorting to pressure, tell them you will not be making a hasty decision. Take your time to understand their terms and don’t hesitate to seek full clarity.
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