Pizza Today - February 2024 - 28

company that brings you your food)
that sets the exact margin the distributor
will charge you above their
cost. The contract usually separates
these margins into categories,
for example Cheese, Meats, Dry
Goods, Produce, etc. A contract
may read like this:
Cheese = .25 per pound
Meats = 8%
Dry Goods = 10%
Produce = 15%
The contract requires you to purchase
most of your food and supplies
through that primary vendor,
usually at least 80 percent of your
total purchases, and specifies the
'drop size' meaning the minimum
dollars required for them to make a
delivery. This means you may receive
a delivery once per week or even
once every two weeks. Distributors
know how much it costs them for
every stop, and factor that into the
drop size. The idea is to create a
win-win where you get good pricing,
and they still make a profit. By
signing this contract, you eliminate
the middleman; there is no longer
a commissionable salesperson. This
saves the distributor money which
they can pass along to you.
Selecting a Primary Vendor and
getting a contract signed is Step 1
to flexing your buying muscles.
Group Purchasing Organizations
As
an independent, or small
chain pizzeria, having a PVDA is
not enough. The Distributor does
not have the resources to 'go to bat
for you' with the manufacturers.
For this reason, your next step is to
become a member of a GPO.
A group purchasing organization
is a platform that allows any
business to join a group of other
buyers who are interested in the
same products. The GPO has buying
muscle because they represent
a lot of small independents, whose
total purchasing power can equal, or
28 / PIZZATODAY.COM / FEBRUARY 2024
even beat, a national chain operation.
The GPO negotiates pricing
and members benefit by paying
much less than if they purchased
the products on their own. GPO's
are very specific to the type of
member. For example, pizzerias
benefit by buying together because
they all purchase flour, sauce, cheese
and toppings. A GPO for fine-dine
restaurants would not help a pizzeria.
Membership to a GPO is often
free. The GPO makes its money by
retaining a percentage of the Deviation
they get for you. The GPO
has already negotiated with many
manufacturers to get a 'Deviation',
that is, a price that is less than their
list price. A GPO will manage all
your Deviation Programs. Some
examples of GPOs that can help
pizzerias are Entegra, Source1 and
Restaurant Buying Group. However,
your Primary Distributor can
also find you the right GPO. You
would provide them with a Letter
of Intent which would empower
your Primary Distributor to contact
GPOs on your behalf.
Becoming a member of a GPO
is Step 2 in flexing your buying
muscles.
Manufacturer Deviations
Which brings us to defining
'manufacturer deviation'. A manufacturer
deviation is a discount off
the regular price. Manufacturers will
give customers who order lots of
their products this discount. These
'deviation agreements' require some
management. They may expire every
six months or one year. They require
the submittal of Usage Reports
on a regular basis. Your GPO will
manage these agreements. Here is
an example of how the savings work
for you. I'll use a common ingredient
for pizza, pepperoni. Let's say
you purchase pepperoni, and the
manufacturer case price is $100.
Your GPO has negotiated with that
pepperoni manufacturer to get their
members a $10 deviation. If your
GPO charges 1% of your purchases,
in this case $90, they will retain .90
per case and you will save $9.10
per case. Combined with the savings
you achieve with your PVDA
Agreement, here is how that savings
looks for one case of pepperoni:
No PVDA & no GPO
Manufacturer = $100
Distribution mark-up of 12% =
$12
Price to you = $112
With PVDA & GPO
Manufacturer = $90.90
Distributor mark-up of 8% =
$7.27
Price to you = $98.17
A savings of $13.83 for every case
of pepperoni!
Working with your GPO to align
your products with their manufacturers
is Step 3 of flexing your
buying muscles.
Cliff Notes:
Step 1: Sign a Primary Vendor
Distribution Agreement
Step 2: Become a member of a
Group Purchasing Organization
Step 3: Align your products with
your GPO's negotiated manufacturers
Now
you are buying like the
Big Boys. By eliminating price as
a factor in your customer's buying
decision, you may focus on what
truly differentiates you from your
competitor!
DAN COLLIER is the founder of Pizza
Man Dan's in California and a speaker at
International Pizza Expo.
http://www.PIZZATODAY.COM
Pizza Today - February 2024

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