E-Sourcing Gains Attention in the Restaurant Industry

By Rick Zambrano, Foodable Industry Expert

Foodable WebTV Network

Foodable WebTV Network

Looking at the complexities of managing food cost and inventories at restaurants, it’s surprising that it’s taken a while for e-sourcing to catch on and start gaining popularity. E-sourcing offers a way for restaurants to submit requests for supplies through an aggregated pool of wholesale suppliers and manufacturers that compete for a restaurant company’s business. This encompasses a range of products ─ from routine office supply expenditures to major food purchasing, like chicken or buns.

From a traditional perspective, restaurant chains leverage sizable purchase quantities to work directly through manufacturers in a manufacturer-direct type supplier relationship. Chains that work directly with manufacturers can typically access better pricing and additional support to ensure specifications, supply and even customization of product. This can lead to some time-nurtured and close-knit relationships and alliances with specific suppliers.

Independent restaurants often rely on a distributor to offer set alternatives that will work for moderate purchase quantities. Independents and smaller chains can also benefit from joining aggregated purchasing groups like cooperatives or GPOs (group purchasing organizations). As restaurant companies grow, they can migrate from a distributor-based sourcing program to a manufacturer-direct program.

Let’s look at sourcing food through e-sourcing ─ first, from a chain’s perspective.

Restaurant Chains Adopt E-Sourcing

Restaurant chains earn significant cost savings through consolidation, competitive bidding, line-item transparency, and attaining higher purchasing volumes with the same suppliers, notes a recent article in FSR magazine. It’s not an easy process to move from a purchasing program that is driven by a few purchasing execs internally within an organization to a new process. E-sourcing, in most cases, forces purchasing managers and executives to rely more on system design, coding and a structure that offers a more open and transparent process and is outsourced by external stakeholders, such as consultants.

E-sourcing firms like Intesource are offering restaurant chains a dynamic system in which several companies compete for a single purchasing need and address requirements, line item detail, minimums, fulfillment capabilities and much more through an electronic platform, supported by sourcing consultants.

In 2012, P.F. Chang’s China Bistro chain expanded its test with sourcing firm Intesource and went national with its e-sourcing platform. At the top of the list of decision-making factors for Intesource was sustainability, safety and quality. The platform played a part in the sourcing of major volatile items, shrimp being one example. Intesource has seen success with restaurant chains and companies with $150M in revenues and higher.

E-Sourcing for Independent Restaurants

Regional players like Foodem are offering restaurateurs more transparency to food and food producers in its slimmed-down version of foodservice e-sourcing for restaurants. Many restaurateurs don’t forge long-term partnerships with suppliers and distributors, instead often switching for nominal percentage-point savings or price-shopping at club stores and wholesale venues, like Restaurant Depot. The idea of building a multi-supplier platform where restaurants can search products and leverage pricing, reputation and delivery information to make better purchasing decisions is definitely well-intended. A recent webinar from food consultancy Technomic, “The Evolving Nature of the Restaurant Industry,” underscored what many distributors already know: Independent restaurants need access to more transparency in pricing to make the right decision for their business.

The success of e-marketplaces like the one that Foodem is marketing heavily in the D.C./Baltimore consolidated trade market will depend on its adoption not only by restaurants, but by wholesalers willing to experiment with gaining business outside the spectrum of broadline and regional distributors. It’s likely that this adoption will grow as Millennial owners and general managers start comprising a larger part of the leadership of restaurants and restaurant companies in the next two to five years, ushering in new thinking on digital solutions and fluid supplier relationships.

Another defining aspect of the value proposition of this process will be payment terms and the ease of which restaurants can establish credit with suppliers through the Foodem marketplace.

E-sourcing is a viable opportunity for restaurant businesses to start gaining insight and savings by expanding their supply chain options and adopting the technology behind these electronic platforms. With commodity prices increasing and fluctuating significantly just this year alone, we’ll see the subject of e-sourcing, which is often smarter sourcing, come into the limelight.