The Restaurant Operator’s Introduction to Vendor Relationship Management
by Scott Youkilis
Picking the right vendor in a sea of choices can be a challenge when starting a restaurant. In this series on vendor management best practices, we’ll go over five strategies that you can use to build a profitable relationship with your vendors:
- Picking The Right Vendor
- Being Value Focused
- Managing Risk and Challenges
- Negotiating Prices Intelligently
- Using AP Automation to Pay Your Vendor On-Time
A Good Relationship Saves A Bad Delivery
A semi-truck thundered through the tunnel escaping the hard, cold rain for only a moment. The break of dawn was delayed by the new Christmas Eve storm that was building from the west, with reports forecasting 10-15 inches of snow later that afternoon. Without batting an eye, the delivery driver barreled into town, his discontentment simmering at the thought of the twenty stops still left on his route.
The trailer door rolled up with a snap. Unaware that a picker at the warehouse had not secured the pallet properly, his mood went from glum to bummed. Dozens of crates and boxes toppled onto each other, scattered across the crowded truck bed. An unknown reddish liquid oozed out the door. Torn flour bags, broken Coke bottles, and crushed mixed greens were only part of the wreckage.
As the disgruntled driver sorted through the broken pallets he was able to locate the majority of his first stop’s pre-weekend order. He lowered the gate hastily, nearly toppling the stack of boxes. Bitterness boiled in the driver’s veins as he nudged his pallet jack through melted puddles of snow towards the back door of Johnny’s Jump Bar.
Johnny’s is a classic apres ski bar & grill that relies on their broadline distributor to deliver a broad range of products in every category. For over 20 years, the owners of Johnny’s have maintained a great relationship with their vendor and the company’s top sales rep is on call 24/7. But, this white glove service isn’t offered to just any customer. Their large regular orders, open communication, and timely payments are just a few factors that earn them the extra service they deserve.
Turns out that Driver Rick understands the tight relationship between his company and Johnny’s. Heck, he’s been delivering to this landmark restaurant since starting with the company twelve years ago. In emergency situations, Rick knows exactly what to do.
As he pushed the pallet jack through the door, the energetic morning crew sensed trouble immediately. The exchange of goods always started with a friendly greeting and an invoice. Rick’s sullen face would prelude the story about the disaster inside the truck. But to the kitchen manager’s delight, the veteran driver had already begun the process of not only crediting the invoice for damaged goods, but the company had started to prepare a second, same-day delivery to make up for the catastrophe.
Starting a restaurant isn’t easy
Starting a business is one of the riskiest and most challenging opportunities that a person could attempt in their careers. Successful businesses face adversity at every stage of their business; from grandma’s recipe to international restaurant group.
Many start out as small local businesses trying to support their community with a service or handmade good. Many will struggle to find the right location and fail to capture foot traffic. Restaurants struggle to stay relevant as the “new restaurant” buzz wears off and customers seek the next hot concept.
No matter the industry, most businesses fail because they neglect to project just how much it costs to actually run a business. They end up undercapitalized or fail to intelligently manage their expenses. It’s an unfortunate and unoriginal situation many brave people face everyday.
Careful planning, research, and knowing your specialty is incredibly important. As an operator, you deal with vendors and suppliers on a daily basis. Choosing vendors to provide you with the appropriate raw or finished goods to sell at your restaurant is imperative. Whether this is your first restaurant or your tenth, managing your vendors is a critical piece to the ongoing success of your business.
One bad vendor and delivery could do irreparable damage to your margins or even the business as a whole. For example, missing or damaged deliveries could harm your ability to offer a consistent menu of high quality dishes, or it could mean financial ruin if you’re catering for an event and can’t provide the agreed upon menu items. In an ideal state, a healthy relationship with your vendors would mean that you’d have a contingency plan for backup suppliers or alternative menu items based on what can be delivered on-time.
Because all of this planning can be overwhelming for a new restaurateur, we created this guide and follow-up series to help you navigate and build healthy vendor relationships
5 Strategies to Build A Profitable Relationship
1. Pick the Right Vendor
Picking the right vendor in a sea of choices can be a challenge when starting a restaurant. Procuring perishable commodities like milk and chicken invites sales reps from every sized vendor imaginable. Adding fresh dungeness crab to your winter menu could leave you with only one fishmonger.
Restaurants are constantly trying to stay relevant and keep up with trends. Sourcing vendors vary between concepts and can even change throughout the year.
- Farm-to-Table restaurants will focus on local farms and artisans to procure seasonal items.
- Wine bars will rely on boutique wine brokers to offer unique and hard-to-find wines.
- Burger chains will enter contracts directly with beef manufacturers to lock in pricing and maintain a value-friendly menu.
Additionally, choosing to source locally vs going with a broadline distributor is also a function of your restaurant concept and expansion plans:
Sourcing locally means you can offer a menu that is unique to your city or geographic region, features ingredients that are unique and might be of a certain quality. However, you may struggle with expansion beyond the immediate area if your local supplier can’t deliver to your new locations. Additionally, you may struggle with achieving a consistent quality in your ingredients.
Sourcing from a broadline distributor means you can get a more consistent quality, and expand geographically; you may also get better prices and better contract terms, as well as more delivery options. The downside is that you may not be able to source hard-to-find ingredients.
Regardless of concept or size of your business, sourcing is only a fraction of the equation when choosing the right vendor.
Before you select your vendor, use this framework to help prioritize your vendor selection matrix:
Vendor Selection Parameters
Occasionally your vendor might not meet all of these criteria (and that’s alright).
Here’s what you can do:
- Rank your ingredients in order of importance
- Estimate your monthly volumes
- Determine the market value you’re willing to pay
- Then select the vendor that most closely matches your requirements
2. Managing Risk and Challenges
Life and business poses many challenges. When trouble arrives, how you overcome the situation will signify a healthy vendor management approach.
Keeping up with changing seasons and trends, managing multiple vendors, and maintaining minimums are challenges that every restaurant faces. How a business faces adversity is a true tell of their character. Calm, cool, and collected typically wins the day.
The restaurant world is fraught with difficult decisions on a daily basis. Business risk levels have reached a new high in these times and it may seem that making the right decision to survive is more difficult than ever. And, while you started your business knowing about the risks involved, hopefully one risk you consider is working with vendors. A healthy vendor management system should:
- Identify the risks involved when working with a vendor and;
- Build a contingency plan
Identify the risks of working with a vendor
There’s a saying in aviation: Never fly where your mind hasn’t already been before.
When selecting a vendor, you should spend time brainstorming potential risks involved when working with a vendor.
Here are some questions to help you brainstorm:
- If there is a disruption in the supply chain, will your vendor be able to allocate your most important items? A great vendor may be able to source an alternative supply or put you on the priority allocation list.
- What if you are unable to pay a bill on time? Will they stop delivering instantly or will they set up a payment plan to keep your orders coming?
Maintaining a positive relationship, paying on time, and ordering regularly will be key for working through these challenges.
Build a contingency plan
Murphy’s Law basically states that you should assume that if something could go wrong that it eventually will. To prepare, spend some time thinking about how you will react to an unfortunate situation.
Here’s an example:
Say you have a high margin, specialty dish on your menu. Are you prepared to remove that item from your menu or change your menu completely if your vendors can’t source the special ingredient? Perhaps that specialty item is just “too special” for them to keep it stocked regularly.
You may have a couple of options here:
- Prepare a plan that involves back-up vendors to keep your high margin, specialty dish on the menu.
- Have an alternate menu that doesn’t have the special dish, but another kind that is of equal value;
Working with your team to identify these challenges will keep your business uninterrupted and guests coming back for more.
3. Negotiate With Your Vendor Intelligently
Negotiations: It’s more than just getting the best price
Negotiating with your vendor should not start or end with haggling over prices. There are multiple areas of negotiation that could also have an impact on your business margins.
For example, is your driver always late and interrupts lunch service? Try to negotiate a better time slot that’s to your advantage without incurring additional fees. Most vendors offer “dark drops” for free and can be very beneficial for breakfast and lunch concepts.
Another example: Leveraging your payment history to get better credit terms. You’ve been paying on time for 12 months and your business is booming. Negotiating a higher credit limit and longer net terms would be hugely beneficial to your cash flow.
Use data to your advantage
Restaurateurs are always striving to improve their margins and there are many ways to do it. However, negotiating with your vendor without having a record of price histories means you’re going into this blind. Using an Insights platform like Ottimate could flag SKU price changes, help you stay on top of price changes and keep your vendor honest.
Don’t swap vendors constantly
Most restaurant owners don’t know the different ways to lower their food costs. Switching vendors like Steph Curry switches hands is an ill-advised way to keep your costs on budget.
This is because having multiple vendors for the same items and shopping for the lowest price will only cost you more in the end. Remember, your vendors rely on regularity especially for perishable goods. If you stop buying 20 cases a week without prior notice, you’ll be sure to hear from your vendor. Ghosting your vendor does not give you any leverage when it comes to negotiating a better price. Be transparent with your vendor about how important that item is to your business and that you’re relying on the cost to be fixed at $X.
Lock in pricing with a contract
Have you ever considered locking a price through a contract? Buying directly from the manufacturer is another great way to get the lowest cost of goods for your highest volume purchases. Some vendors may even help facilitate the introduction, consult on the agreement and purchase, store it, and deliver when in demand. Your best vendor wants to keep you as a customer and will do what it takes to keep you buying regularly.
4. Be Value Focused
People don’t buy goods that provide zero value. Ever consider how your vendor prices the goods they sell? While cost, supply and demand all come into play when pricing a good, the quality of service also plays a large part in pricing. For example, there may be dozens of vendors selling romaine hearts in your city. You’ve probably gathered price quotes from several and chose the cheapest one, with a deal to buy 10 cases a week. But more often than not, the romaine arrives crushed and wilted. Customer service never responds to your complaints and the driver is always rude when you return the boxes.
Clearly this is not a relationship that is working.
Finding a vendor who provides value beyond just delivering cheap lettuce will establish a partnership for years to come. From specialists who help source high quality produce to same-day delivery options, there are numerous ways a great vendor relationship built on trust and great service will grow both your businesses together.
5. Use AP Automation to Pay Your Vendor On Time
The restaurant industry has been automating many aspects of the business for years, but it’s still very much a human-driven process. The advantage (that you can use to your benefit) is that humans thrive on positive relationships. A great relationship with your vendor can go beyond friendship; it can be handsomely profitable.
Paying your vendor on time is the easiest way to maintain an A+ rating with your vendor. Many restaurants struggle with this due to no fault of their own – managing multiple vendors and invoices manually means that a few invoices will invariably fall through the cracks. Forgetting orders, running a sales rep ragged, not being flexible with delivery windows, and ordering inconsistently will also surely put you on the “you know what” list.
Using an AP automation platform like Ottimate helps tame the chaos by making it easy to upload invoices, manage approval rules and set up scheduled payments with ease. With Ottimate VendorPay, you can skip mailing checks that arrive late and pay your vendors electronically.
Unfortunately, there aren’t a lot of Driver Ricks out there. His deep understanding of vendor relationships and the complex management systems in place makes him an MVP at his company. Restaurants could only wish every vendor could be as well-managed from the bottom to the top.
While it’s nearly impossible to foresee all the things that could go wrong, focus on the areas you can control.
Create a process and system that allows you to
- pick the right vendor for the job,
- create a positive relationship to facilitate negotiations,
- use automation to pay your bills on time,
- value service over price as much as possible, and
- identify and manage risks early
Doing this will help you to avoid challenges that could harm your vendor relationship or even worse, your restaurant.
Scott Youkilis is a former restauranteur. His unique perspectives as an operator helps his peers leverage AP to manage their businesses.
Stay up to date on the latest news in AP automation and finance