The Changing Nature of Foodservice Supplies Purchases

Changes in consumer dining patterns have lead foodservice operators to update the way they purchase supply items like paper goods, flatware, china and the like. As a result, dealers have had to alter their approach to serving their customers.

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Most would agree the foodservice industry is truly changing, and has been for some time. Thanks to the year-long recession, foodservice operators from every segment have had to rethink and retool their goals, visions, plans, and even basic operations. No aspect of an operator's business was too big or too small to escape management's scrutiny.

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Specifically, foodservice operators made adjustments to their approach to purchasing supplies, and with good reason. Supplies-related costs represent 35.4 percent of a foodservice operator's annual E&S budget, according to FE&S 2010 Industry Forecast Study. The main expenditures include paper goods, smallwares and tabletop items, but the list of supplies-related purchases can extend well beyond these items.

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In response to a softer business climate operators seem to be purchasing less, according to some equipment and supplies dealers. "I don't have those super efficient orders any more so my margin dollars aren't there," says Brad Wasserstrom, vice president of The Wasserstrom Company, a Columbus, Ohio-based equipment and supplies dealer. "My average order size has shrunk greatly and instead of a store manager calling in to say they want three cases of something, they're only ordering two, or maybe they need to replace their mop heads and while they used to order two or three to have extras on hand, now they are only ordering one."

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managing tabletop purchases
Effectively managing tabletop purchases can help foodservice operators keep within their budgets. For example, try to use nicer plates for more than one menu item. Photo Courtesy of Loubat.
Looking ahead to 2010, the outlook for supplies purchasing seems to call for more of the same, meaning less large-scale supplies purchases. For example, 76 percent of the foodservice operators surveyed project their E&S budgets for the coming year will be the same or lower than what they spent in 2009, according to FE&S 2010 Forecast Study. And 85 percent of operators said they expect no change in their tabletops for 2010. Fueling this conservative approach to budgeting is the fact that 53 percent of operators told FE&S they anticipate their 2010 sales levels to be on par with or less than 2009, which was one of the more challenging years the foodservice industry has faced in decades.

So when it comes to purchasing supplies, the net result is that most foodservice operators will continue to tighten their practices. This can be positive in that it will allow operators to emerge more efficiently and enable growth as the business climate improves.

While tightening purchasing practices may be important for many operators, they can't alter their focus on the cornerstone of their business: the menu. "People cannot plan those purchases correctly or strategically without knowing what the menu is first," says Karen Malody, principal of Culinary Options, a MAS consulting firm. "The swooping statement I would make between tabletop smallwares and glass and china is that is an area that people hopelessly underproject in their planning."

After helping her clients first develop, edit and finalize the menu, Malody, formerly a chef, pulls out her next trusty tool: an inventory list that she's developed over the years. This spreadsheet features one column for listing menu items and their projected volume, and an adjacent column for all the equipment and supplies needed for each menu item.

"It's a very tedious process, but you can get really, really close to creating a very accurate list of what's needed for the operation," Malody says. Even salad dressing, for example, needs to be considered. "Do you want a 2-ounce ladle or a 3-ounce ladle? One even has to think of buying spatulas for scraping frosting out of a pan when baking, or getting that vegetable peeler on the list."

The little things certainly add up, and Malody says, it's a lot easier to order ahead of time than have to scramble around to find necessary items once an operation opens or during busy periods. The situation becomes worse if these secondary items add up to costs that require second loans. Malody also has seen operators change their menus to avoid overbuying on supply items.

One would think the menu and restaurant concept would naturally gear those decisions but that's not always the case. A lack of vision in terms of the food, clientele, and volume the business will serve on the part of the foodservice operator can lead to major errors when purchasing supply items.

To help avoid these pitfalls, Christine Briede, president of Loubat in New Orleans, works with the dealership's operator customers starting a new restaurant or location, by preparing a master list that outlines specific pieces of equipment and supplies, and their suggested quantities. Operators can then adjust the list according to their needs. To help them do so, Briede and her team also will ask them a boatload of questions regarding their menu, production volumes and spatial layouts of the operation to customize their ordering plan.

"I don't want people to overbuy," Briede says. "The list just gives operators a starting point, so they're not having to come up with that list on their own," Briede says. (See sidebar for more suggestions by Karen Malody for preventing overbuying on supplies).

Inventory Shifting
As operators shift toward a more reactive, day-to-day replacement way of purchasing, they've also downsized their physical inventory space. In turn, many have looked to the dealer to maintain a larger inventory for them. "Our customers are definitely buying the bare minimum these days," Briede says. "Where normally they'd keep a backup stock of supplies on hand, now they may only keep three dozen plates versus five dozen. They're just being more cautious with their spending and buying when they need something rather than maintaining inventory."

In addition, Loubat's customers tend to swap higher-priced items for lower-cost ones more frequently. "I've definitely been asked to shop products around for prices a lot more than in the past," Briede says. "We have long-standing relationships with some of our vendors so when we ask them to negotiate pricing it's putting those relationships in jeopardy." Time is money, too, when it comes to switching product lines, from an administrative-costs perspective, Briede adds.

To offset the financial risk associated with maintaining larger inventories for clients, Loubat has these clients sign written agreements or contracts agreeing to purchase what's stored for them before deciding to switch products or brands or if they seek to do business elsewhere. "For some clients we will keep more than usual, but if they decide they want to switch their china or flatware we're stuck with excess of that original product," Briede says.

Wasserstrom also has experimented with similar written agreements or contracts. In some cases, Wasserstrom has introduced minimum order requirements for new contracts as well as freight discounts and other incentives to encourage his customers to buy more in bulk.

Driving Out Costs
In response to changes in their customers' purchasing behavior, many foodservice equipment and supplies dealers have adjusted their approach to buying and stocking items. For example, 48 percent of dealers say they have lowered the amount of inventory they maintain, according to FE&S' 2010 Industry Forecast Study. In addition, 36 percent of dealers are making smaller, more frequent purchases, just like their own operator-customers. To help get better discounts, 39 percent of dealers report consolidating their purchases with specific manufacturers.

Altering their purchasing habits is only the first step dealers are taking to adjust to the changes in the supplies market. Many dealers report taking steps to reduce internal costs as a way to hang on to somewhat maintain margins. "We've had to adjust to a new reality," Wassertrom says. "The economy has had operators looking to scale down their costs, but my costs don't change as a supplier whether our warehouse forklifts are picking up a dozen high-end spoons or a dozen low-end spoons."

That's because even if Wasserstrom's orders are down, his forklift operator still makes the same rounds in the warehouse, resulting in a higher cost of labor. Moreover, the retraction of new store build-outs has made ordering less efficient in terms of both revenue-generating and labor costs. Now, instead of selling large packages of equipment and supplies all at once for new stores, he's selling smaller replacement parts here and there as chains shift their focus to remodeling or updating existing restaurants.

To offset these inefficiencies, of which he has little power to control, Wasserstrom says he's focused on eliminating those inefficiencies over which he does have control; namely, his own overhead and internal operations.

"We recently started up a new online ordering system to help reduce the number of orders taken over the phone," Wasserstrom says. Back-and-forth calling definitely drives up administrative costs way more than online transactions, which also helps free up those order-takers to do other tasks.

"I think the next generation is really going to make a big difference when it comes to doing more things online," he says. "My generation, we were always more comfortable with phones and fax machines, but in five years when the now-restaurant managers become owners, I can see most ordering going all online because they're more comfortable with that technology."

This change, of course will go back to the operators, affecting how they make their purchases, and how frequently. Changes on the dealer-side in this way, could affect how operators purchase, just as changes in operator purchasing as of late has affected how dealers do business.

"There's no magical way" to determine supplies needs and costs, Malody says, "you just have to sit down and go through everything and really get down to the details," Malody says.

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