You may have a great menu, award-winning chef and superstar servers, but if you are paying too much for food and supplies, you can still suffer in the restaurant business. Negotiating with vendors can be crucial to your success as a restaurant. Use our negotiation tips to ensure you do not end up paying too much for your product.
The first thing to note is that, as much as you’re hungry to save money, your vendors are equally hungry to keep you as a customer. What then can you do to exploit this situation in a positive way? You negotiate better prices, quantity, quality or terms with your already existing business contacts. What most business owners will say at this point is that they don’t have the time, and don’t believe they can get more favorable terms from their vendors. The following is a simple, diplomatic and impossibly simple way to barter with your vendors without actually haggling for better prices or terms.
Do a small amount of research on your chosen vendors competitors, don’t bother getting too much information, the goal here is not to leave your current source of materials, just to get a bigger piece of the farm. It’s important that you do not try any harder than ordinary. One of the most brilliant tactics in negotiation is to say less.
Although most people believe that if they build a long eloquent plea for better rates and terms, this will raise their chances in getting a favorable response, this is untrue for one simple reason, people who have more power say less. If you are in the right and you have the power, being chatty and apologetic about your wishes translates as timid.
Let’s say we spent ten pages explaining to you why this method will often bring you better offers from your long-time vendors, the truth is that you would actually have less belief in this method’s validity. Be succinct, be diplomatic and be clear, you’re contacting them out of selfish desire to keep more money in your pocket.
Below are more useful negotiation tips to ensure you do not end up paying too much for your products.
Make the Bulk of Your Purchases with One Vendor
One of the biggest bargaining tools you can have when negotiating with vendors is to give one vendor 85-90% of your purchases. Remember, buying in bulk is often more beneficial for both parties, saving you money. If you are willing to buy a lot from a particular vendor, you may get offered lower fixed prices for supplies and ingredients. Before beginning the negotiation process, be sure to calculate how much food and supplies you will need annually. By giving your vendors a high number, you may leverage an even bigger discount on purchases.
Interview & Research
It is important when negotiating prices that you go into a conversation knowing as much about vendors as possible. Use the internet to your advantage, research reviews of local distributors to get a picture of the quality of their service, and see if you can find any prices online. Another great tip is to speak with other restaurant owners for tips on their favorite vendors. When doing so, be sure to speak with them about the prices they are getting. If a restaurant owner has a particularly low price, you may be able to use this to your advantage when negotiating with that vendor.
Finally, do not forget to research the commodity market prices, this will keep you in-the-know with how prices are currently looking, and best prepare you for negotiations. You should also ask each vendor for a market basket report. This report will outline the estimated costs for a percentage of your food and supply needs. This research beforehand may be time-consuming, but it can save you future costs and frustrations.
Let Vendors Know You Are Shopping Around
Hardly any tool is more powerful when negotiating with vendors than letting the company know you are looking into other businesses. Be sure to also verbally compare prices with vendors – if a vendor’s price is higher than another vendor, it is important to communicate this to the higher bidding company. If you go through this process successfully, you may have vendors fight over you, and your price continues to lower.
Stay Away from Cost plus Percentage
Generally, vendors have two main pricing strategies that can be used, Cost plus Percentage & Cost plus the fixed price. Cost per percentage is a strategy where the price increases in proportion to cost, while cost plus fixed price you pay the food cost and a flat fee. The cost-plus percentage should be avoided because the amount you pay a vendor will increase as food prices increase, meaning you could be charged much higher than the fixed price method.
If you are not able to negotiate a fixed price structure, be sure to negotiate for mark-up percentage, which is generally cheaper than margin percentage (margin percentage is based on the distributor’s profit margin as opposed to a standard mark-up).
Ask for Fewer Deliveries
Buying and delivering food and supplies in bulk is more cost-effective for both the vendor and your restaurant. Instead of getting shipped food nine times a month, try to cut it down to six times a month. By having three fewer deliveries, you will save money on your vendor costs. Just be sure to work on better food storage methods to prevent your items from going bad.
Put all Negotiations in Written Contract
You may have negotiated like a pro, but if you don’t have the terms in writing your terms may be no good. Be sure to prevent any future hiccups by having all terms in a written and signed contract. This way if the vendor does not hold up their end of the bargain, you will be protected.
If you ask most people why they don’t haggle more before they hand over their hard-earned money, they’ll more than likely tell you that it’s because they don’t feel comfortable doing it or they simply don’t have the time. However, there shouldn’t be any reason why asking for a better deal should make anyone feel uncomfortable or embarrassed or like a waste of time.
Want to know why is negotiating a good use of your time and energy? The answer is pretty simple – it is easier to talk for a dollar than work for one. It may not be the case in all scenarios though, so, if your time is however too valuable, you could get an assistant to do your negotiations for you.