Ryan Williams
Jeremy Julian

What are Group Purchasing Organizations?

June 21, 2017

Have you ever wondered how small, independent restaurants are able to buy state-of-the-art technology? Or, able to afford high-quality ingredients and materials? Ever thought they are all working together?

 

Well, they are.

 

And their partnership is called a group purchasing organization (GPO). A GPO is an organization that pools the buying power of its individual members to help get the best possible prices and quality on products and services.

 

Some people might be familiar with the idea of group purchasing from the practices of insurance companies and wholesale retail operations like Costco. Both industries use group purchasing to get the highest quality goods and services while keeping costs as low as possible.

 

The large national restaurant chains act as their own GPOs to help them with all of their purchasing, from food items to cleaning chemicals to toilet paper. The combined clout of all of their individual franchisees allow them to bargain hard with suppliers — gaining favorable pricing and first-in-line delivery when supplies are short, among other benefits.

 

Meanwhile, most independent restaurants pay significantly higher prices for the exact same items.

 

The Benefits of Joining a Group Purchasing Organization as an Independent Restaurant

  • They save time. Tracking and comparing prices, vendors and services is overwhelming for most independently owned and operated restaurants. The owner/chef typically handles this responsibility. It is time-consuming and takes away from a restaurant’s most important focus: customer satisfaction. It is also difficult to beat the distributors at their own game.

 

  • There is strength in numbers. Independent restaurants are often at a disadvantage compared to the larger chains, in both commanding a good price and getting the best quality. The big chains have more purchasing power, and better bargaining power for price, access, and quality. They also have entire teams of accountants and specialists going over spending. GPOs combine the resources and buying power of many independents to create a well-staffed and strong bargaining unit for their benefit on a par with the big guys.

 

  • They give restaurants a competitive edge. GPOs should stay abreast of trends and new products, and advise their members about them well ahead of the time of impact. For example, Dining Alliance lets members know of new ways that certain cuts of beef are being used, and other trending menu additions that members may find relevant. In the case of events that affect the entire industry, such as drought, GPOs keep members informed about what’s going to be in shortage, what’s going to happen with pricing, and how to prepare and cope.

 

  • They give restaurants trust and safety. With huge scares and recalls such as the “salmonella in lettuce” disaster years ago, it’s more important than ever for restaurant owners to be able to trace their supplies. For example, Dining Alliance members only sign agreements with suppliers who have traceability. They also make it policy to get members included as a “named insured” on the distributors’ insurance contracts, which many restaurants don’t know they can do.

 

 

It’s a two-way street. The benefits of GPOs are hardly limited to the restaurants who are members. Vendors who partner with a group purchasing organization gain hundreds, if not thousands, of new clients and are able to lock in large contracts with less selling time.

 

What to Look for When Selecting a GPO for Your Restaurant

Make sure you have local representation. Working relationships with local vendors and on-the-ground representatives are crucial to ensure the best quality product and prices. Aside from quality and savings, the sense of community that comes from working locally is invaluable.

 

Make sure that your organization relies on the collective thinking and advice of active local restaurant members to make the right decisions to contract with the best local vendors based on price, service, and most importantly, quality. Anyone can buy a low-grade product cheaply. The best GPOs leverage buying power to improve quality while still lowering prices.

 

Check to see whether your GPO works on a pay-for-performance basis. This model helps ensure that you’re getting the best deals and quality with no out-of-pocket costs to you.

 

Does your GPO offer you a combination of savings opportunities such as rebates, deviations, cost-plus programs, and high-low contracts? If the answer is yes, you’re most likely dealing with an organization that is keeping ahead of the game.

 

Need to pass the time between our next post? Then check out Custom Business Solutions for all your restaurant technology needs!

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