LEGAL VIEWS AND NEWS
The restaurant owner’s relationship with vendors is one of the most important areas and yet it is frequently overlooked.
Because of habit, the owner falls into the trap of just ordering or plain laziness, trusting that the vendor is giving them a good deal.
Every vendor should be “bidding” each week and at least each month depending on the terms and frequency of your business purchases. No vendor should be the only source of goods. There should be cross-quoting each time so that the restaurant is always getting the best deal in town on the goods it buys.
Any vendor who knows he or she is the sole source of goods will eventually have the owner overpaying. This is just good business on their part and they are not to be faulted for it. It simply requires that the restaurant owner be constantly vigilant.
Contracts with vendors are usually not long term nor are they closed to negotiation. It is good business practice to keep those vendors on their toes whether it is staples like flour or specialty items like truffles. The fact is the vendor still has to sell the product and that means a restaurant can negotiate terms, delivery and rates.
Have a good scale in your receiving area. Every purchase you are paying for by the pound should be weighed in prior to acceptance by the chef or purchasing manager. I know of one chef who would puncture the bottom of bags of ice that were delivered so water would run out and then weigh them in. It is not good business to be paying the ice price for water from the melted ice.
Sounds like a minor issue? It can mean the difference between your survival in the long run. This level of dedication to being on top of your vendors will get around town and they will be less likely to try to put one over on you.
At first the new business owner may be asked to be on a collect on delivery system. This is an acceptable way to do business and frankly a very effective way to ensure that the business does not get in over its head.
However, once it is clear the restaurant is doing well and the future looks bright, terms should be negotiated and put in place. Most vendors will negotiate terms that allow the business to float their bills for 30 days and take a percentage off for early payment.
Early payment discounts are a great place for a business to pick up savings., By taking advantage of their early payment discount, a restaurant can lower their cost of goods by up to 10 percent. If the business is purchasing $5,000 a week in meat and seafood, that means $500 more a week or $26,000 a year, which will almost pay for a purchasing manager or nice holiday bonuses.
I had one client reduce meat costs $50,000 a year by renegotiating a meat contract that hadn’t been reviewed in five years. That’s a home is some parts of this country. Not a bad profit for a simple review of a contract and some product bidding. (David Pisarra is a partner in the Santa Monica law firm of Pisarra & Grist. He 310/664- 9969 or by e-mail at)
Originally published in the Santa Monica Daily Press print edition on June 2, 2003. Read the original PDF.