You're Still Going to Need Napkins

I was talking to a new restaurant owner not long ago, and he was very proud of the system that he had for finding the best deals from his food vendors. He explained how he talks to all of his vendors each week, has them submit bids, fills out a spreadsheet with updated pricing, and then splits up his purchases line-by-line. Based on the story that he told me, I can only imagine that it takes a few hours each week to find the best deals on all of the items that that restaurant needs to run: chicken, lettuce, etc. While the timing wasn't right to disagree, I do in fact disagree with his system.

I've worked for several large companies throughout my career, and all of them had one thing in common. They all worked with a couple hand-picked, and contracted vendors. You see, the companies that I worked for realized that it was best to review pricing once per year, and then pick the vendor with the best mix of service and price, and then get back to focusing on running our own business. A mentor of mine that I worked for years ago used to say, "You can't save yourself to profitability", and he was exactly right. 

Let's say you are looking at paper costs and want to buy a cheaper disposable napkin. You could hunt around each week and find out which company has the best price in the market for napkins, but in the end you're still going to have to buy napkins. It's impossible to bring the cost to zero. And while you are hunting around, burning your time, and comparing costs, what are you really saving? It's quite possible that any cost savings that you uncovered were completely devoured in your time spent, or the fact that you needed to drive to pick-up the napkins instead of getting delivery. Not to mention the fact that while you were crunching numbers there may have been food quality issues, service issues, or worse that weren't addressed because you were looking at a computer screen.

There's another issue with this system too: none of those vendors that your squeezing are really giving you their best price. And since there isn't a contract between you and your vendor, there probably aren't any limits on what percentages the vendor can raise prices. This can become extremely costly when the market price spikes on a particular item like coffee, chicken, beef or bacon (as is expected to happen next year in 2013).

You really can't save yourself to profitability. You can only cut so much. I propose that a better strategy is to "shop" vendors once per year and then sign an agreement with whichever vendors you choose. Then get back to work on things that really do improve profitability like a smart marketing plan, excellent service, a quality product delivered consistently, and building strong relationships with your guests and your community.