Vendor Markups

[mrkona]

I threw this topic out a little while ago, however, didn’t get any response back… So I thought I would try again!

I am wondering what percentage mark-ups you guys have with your vendors. Are they different for different categories of items, or do you have a “blanket” percentage markup for all food items?

If you do have an agreed upon markup, how do you do checks and balances to make sure your vendor is holding up their end of the bargain?

As always, thanks in advance for any advice!

 

[bodegahwy]

No idea and would not trust them to stick to them. The whole price structure is far from transparent with pricing changes at several stages (raw material, manufacturer, broker, internal margins at vendors and finally the mark that the rep sees)

I have had instances where I got 10% on something from the broker and the vendor kept their margin the same. I also know that there are kickbacks, slotting fees, rebates or overrides for the vendors based on hitting volume that are not taken into account in markup agreements.

It is all Voodoo. Pay attention to how much you are PAYING not how much some rep tells you they are marking things up.

 

[CaptSammy]

No idea and would not trust them to stick to them. It is all Voodoo. Pay attention to how much you are PAYING not how much some rep tells you they are marking things up.

Great piece of advice

 

[mrkona]

Of course you have to pay attention to what you are paying, but ignoring mark ups would be foolish. How many operators here are on a cost plus pricing structure with vendors for cheese?.. That is essentially a mark-up - whether it be a percentage or a cents over cost structure, it’s still a mark up. I know that the CME is a good way to gauge that, but there has to be some way to get an idea for the rest of your products.

I know it’s darn near impossible to know for sure what the vendor cost is, but can’t you ask them to open their books for you if you are an “A” account? Maybe I’m being naive…

 

[perfect_pizzas]

You can ask them to open their books and they very well might do it. However, this still won’t tell you the whole story. Lets assume that you wan’t to purchase a case of snails to put on your pizza. You food distributor has offered to sell you anything you want at cost+10%. The snail manufacurer needs to get $10 for the case of snails to stay in business. However, when they started selling them to your distributor back in 1999 your distributor demanded $1 per case for a marketing/slotting fee. In addition, the corporate headquarters of your distributor has an agreement in place that any item this manufacturer sells to any of it’s distribution houses the manufacturer has to rebate corporate $1 per case. So the snail manufacturer sells the snails to your distributor for $12 so they can net $10/case and stay in business. Your distributor adds 10% and sells them to you for $13.20/case. Along comes the local family owned distributor. They tell you we can sell you the same brand snails for cost = 12%. However, they only charge the snail manufacturer .50/case for a marketing fee. So the cost to you would be $11.76. In thus case 12% would be better than 10%.
Other factors that can make a big difference could be shipping and buying power. One distributor buys snails by the pallet. They pay more per case and much higher shipping than the second distributor that buys snails by the truckload. If you get big enough to where you can source snails directly from the manufacturer, cost plus becomes more important. You talk to 5 different snail companies and ask for the price shipped into the distributor of your choice for 500 cases of snails/month. They sharpen their pencils to get you their best price and you use the distributor with the best service and a reasonable mark up.

 

[Piper]

mrkona:

I am wondering what percentage mark-ups you guys have with your vendors. Are they different for different categories of items, or do you have a “blanket” percentage markup for all food items?

I’m on a cost plus system with both of my broadline distributors. I have different markups for different categories. There’s a produce, dairy (excluding cheese), cheese, paper, canned foods, dry goods, chemical, etc.

Like was said above, a cost-plus system doesn’t necessarily save you money or even give you a lot of information. There’s way too many backroom dealings to know what’s really going in to the distributor’s landed cost. And the term “landed cost” can include a lot of different things - it’s not just the price they paid from the broker. They can play with rebates, purchase timing, slotting fees, labor and how freight is allocated on a truck (do you assign the freight based on item count, or weight, or cubic volume?)

Even with all of the above being equal, the distributor can still take measures to make more money - a set markup doesn’t mean a set profit.

With respect to purchasing the distributor has an incentive to buy at a higher price, so they may delay a purchase when they know the market is about to rise. If you have a 10% markup on a $100 case they’ll score $10 in markup. If they wait to get that case at $110, that same 10% just yielded them $11 in markup. Same markup, more profit - and you just paid an extra $11 per case.

The reason I like the system is because it takes the rep out of the pricing. My rep’s laptops have our prices locked and they can’t be changed. I don’t want to play those games with a rep every week. His incentive is now to find ways to sell me more, not to find ways to maximize the price I’ll pay before I jump to the other distributor. Mine and my rep’s interests are aligned in this scenario.

 

[mrkona]

Thanks for all the input Piper and PerfectPizzas! I truly appreciate the time and energy everyone puts in here to help each other out! I have been making some good headway with my vendors since the beginning of the year, and am just trying to work out the best system for both of us. I believe that my vendor and my interests are pretty well aligned…We have worked together for a few years, and our rep is a good guy (bends over backwards whenever a mis-pick or shortage happens, he even supplies me with their company’s weekly commodities forecast report). I’m just trying to get an idea of how everyone else’s pricing structures are set up… Thanks for the wealth of knowledge!

 

[Roger]

perfect pizzas:

Lets assume that you wan’t to purchase a case of snails to put on your pizza.

How much does one charge for a snail topping?

 

[royster13]

Must be a “premium” topping…

 

[bodegahwy]

“but can’t you ask them to open their books for you if you are an “A” account? Maybe I’m being naive…”

Yep.

Call me a cynic I guess:

“I believe that my vendor and my interests are pretty well aligned…”

How so? Their intrest is for you to buy as much as possible at the highest price and pay on time. What are your interests? Warm fuzzies are nice and the food service companies train the reps on happy talk about intrests being aligned.

“our rep is a good guy (bends over backwards whenever a mis-pick or shortage happens…”

Good for him. Our reps (both US food and Sysco) are both nice people too. I don’t consider fixing their own mistakes to be extraordinary service. I would rather that the mistakes did not happen.

“…he even supplies me with their company’s weekly commodities forecast report)”

That is why they publish the thing and give the rep copies to hand out.

“I’m just trying to get an idea of how everyone else’s pricing structures are set up…”

I sounds like you are doing a sole source contract. If the service level makes it worthwhile for you, fine, but I can assure you that you are paying significantly more for your food by doing so.