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December 10, 2018 Foodservice Innovation

Across the foodservice industry, contract services — consisting of GPOs (Group Purchasing Organizations), chains, co-ops, buying groups, FSMs (Field Service Management) and the government have transformed the landscape of purchasing. As these organizations continue to evolve and expand their product offerings, foodservice purchases have broadened from food and supplies to include equipment and the repair parts required to maintain performance. In a 2017 Technomics study, over 70% of foodservice purchases will be contracted within the next five years.1 In the non-commercial sector, which includes hotels, hospitals, K-12 schools, and universities, 41% of those who stated that they currently are not members of a GPO are considering joining one in the next one to two years.2

So, what does this mean to foodservice suppliers? It requires you to evaluate how you go to market and adapt to accommodate the volume, transparency, and sophistication of working with large-scale GPOs. The diverse processes and technology platforms that each GPO employs necessitates that distribution partners be flexible enough to “plug-in” without creating a myriad of “one-off” programs that, taken as a collective, can lead to potential service-level issues.

Organizations are attracted to GPOs for a number of reasons according to Sergio Giordano of the blog, “Procurify.” There are the obvious ones like buying power, but also less apparent like knowledge sharing.3 The networking opportunities that GPOs facilitate present opportunities for members to exchange information about pricing, contracts, procurement, and process improvements. This can put pressure on suppliers to extend contracts that may have been negotiated with one group across the entire GPO, eroding margin and commoditizing value-add services. For equipment dealers and part distributors like Heritage, it puts increasing pressure on them to make in-roads prior to GPOs issuing bids in order to have their lines specified in the RFP.

Once accepted as a GPO preferred supplier, businesses must be prepared to quickly employ a simple, straightforward procurement process that is easily integrated on the front end and seamlessly invoiced on the back end. In many cases, suppliers, like Heritage Parts, use a “punch out” strategy that utilizes the GPO’s portal as an entry point. A link “punches out” to the supplier’s website where the customer is already logged in, and pricing has been adjusted to reflect the negotiated member discount. Upon checkout, order details are communicated back to the GPO, so centralized invoicing can be sent to the client’s accounting department. Given the pressure to reduce transactional costs and overall spend, suppliers MUST look at opportunities to streamline the procurement process without sacrificing service — especially if the supplier and member company had a relationship prior to the GPO.

Competition from other approved suppliers and member compliance issues have motivated companies like Heritage to develop onboarding strategies that promote early adoption from GPO members . One strategy Heritage uses is instructional webinars to introduce the company, explain the transaction process, and address member questions in a controlled environment. More traditional approaches like emails, flyers, and tradeshow participation can also be used for member outreach. As a rule of thumb, check to see if the GPO has a policy on member communication. Many GPOs insist on controlling the information flow between their members and suppliers, so make sure you are complying with their directives.

The influence of GPOs on the foodservice industry is undeniable, and it represents a tremendous growth opportunity for suppliers. Understanding member motivations, technology expectations, and promotional opportunities will simplify the onboarding process for member partners and fosters positive relations with the GPO.

1. Henkes, D. (2017, August 17). Technomic's Take: The Changing Face of Foodservice Purchasing. Retrieved from: https://www.technomic.com/newsletters/technomics-take/changing-face-foodservice-purchasing
2. Noncommercial 2022: Outlook and Opportunities [PowerPoint slides]. (2018, January). Retrieved from https://ignite.technomic.com/Reports/View/noncommercial-2022-outlook-and-opportunities-january-2018/grid/?expression=noncommercial
3. Giordano, S. (2015, May 28). 8 Advantages of Purchasing Groups [Blog post]. Retrieved from https://blog.procurify.com/2015/05/28/centralized-purchasing/

 

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