A food and beverage procurement strategy usually centers around a Master Distribution Agreement (MDA). These contracts are central to managing costs and quality and enable the operator to focus on running the restaurant rather than tracking price fluctuations and bidding products.

What Is a Master Distribution Agreement?

As a one-stop-shop for restaurants, broadline distributors offer thousands of products, sometimes as many as 15,000. The immense size of their sales and volume of goods means that they can offer their clients volume discounts and pricing incentives.

Specialty suppliers, on the other hand, represent a limited number of product lines and operate within a particular industry niche. They often specialize in hard-to-find items or locally sourced products.

So, where does the Master Distribution Agreement fit into this distribution scheme?

A Master Distribution Agreement (MDA) is an agreement between an operator and their main broadline distributor. These broadline distributors function as the go-between for foodservice operatorsand the food manufacturers. A typical MDA requires at least 80% of a restaurant’s purchases to be made from the broadline distributor.

Without this important contract, operators are missing out on locking in pricing terms and avoiding extreme cost swings.

How Do Operators Get the Most Out of a MDA?

Like any contract, details found within these agreements can weigh in favor of the distributor or the operator. Operators should pay attention to the following points to ensure the agreement is fair and works to their benefit.

• Does your MDA allow for termination for cause and termination for convenience? In order to keep out of courts and arbitration, this clause is vital. Should an operator decide the partnership is not working out, this condition allows them to serve a 60-day notice of termination.
• Does your MDA contain fuel surcharges? Fuel surcharges allow distributors to increase prices based on fuel costs. If diesel raises to a certain strike point, the distributor then raises the price on a per-case basis or on the total invoice. These surcharges should be removed or raised to such a point that they will not be implemented.
• Does your MDA contain an automatic renewal clause? An automatic renewal clause means that, if a distributor is not notified 180 days before the yearly termination of the contract, the MDA is automatically renewed. The operator misses out on the opportunity to renegotiate and may accrue increased fees they are unaware of.
• Does your contract stipulate when the MDA may be audited, or does it carry an open audit clause? Retaining your rights to regularly audit costs and obtain manufacturer’s paid invoices keeps a distributor “honest.” It’s also important to ensure that these audits may be performed by either an outside party or the operator. Don’t lose this right in your MDA.
• Does your MDA contain a drop incentive agreement? It is more efficient and less costly for a distributor to drop a larger load than a smaller one. Your costs should go down as well. Make sure your MDA contains an agreement that your product mark-up goes down as drop sizes increase.
• Does your MDA allow you to release data to a third party or group purchasing organization (GPO)? By releasing data to a GPO, operators receive manufacturer volume allowance funds.
  
  

Why Should Restaurant Operators Pay Attention to Their Master Distribution Agreement?

Remaining aware of the many facets of your MDA can greatly affect product costs and limit supply chain disruptions. With regular audits and price comparisons, an operator can stay on top of market fluctuations and ensure their distributor is doing the same. Options included in an MDA can significantly help reduce price volatility. Do you know your distributor’s margin, base price, and backend markup and service costs?

While large leveraged operators may have developed the internal structure to negotiate with broadline distributors, smaller foodservice operators do not carry that same advantage.

Negotiating a proper MDA can require months of complex negotiations. Consolidated Concepts, the leading purchasing partner in the U.S. for restaurants, works with hundreds of brands which allows them to benchmark and compare MDAs. Their software and electronic invoice auditing capabilities as well as their expertise save operators time, money, and potential legal issues.

For more information on this cost-saving strategy, take a look at Consolidated Concept’s Complete Guide to Your Master Distribution Agreement.  

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As restaurants re-open their doors to welcome guests back into their dining rooms, many are struggling with idea of generating profit amid the challenges of low sales volume and an increase in expenses.  Restaurants are suddenly being asked to do more with less as city and state regulations necessitate an increase in spending on cleaning supplies, single-use menus, portion-sized condiments, disposable cutlery and personal protective equipment (PPE).  Additionally, the sudden increase in demand for off-premises meals means rising spending on disposables and carry-out materials as well as decreasing margins as operators pay 3^rd party delivery service fees.  So… just how is an operator expected to turn a profit all while reducing restaurant costs during COVID?

One key factor will be how well the operator gets creative about reducing and offsetting their costs.  One of the simplest things that restaurants can do maximize their cost savings potential is join a Group Purchasing Organization or, if they are already a GPO member, optimize their use of GPO savings that are available to them.  GPOs like Consolidated Concepts offer optimization services that can compare a restaurant’s purchases to their GPO contracts to find new products on which to save and earn rebates.  Easily-swappable, non-emotional items such as garbage can liners, gloves, frozen chicken breasts, and pepper can be subbed out and help operators earn additional rebates, which equate to cash back to the restaurant’s bottom line.  Additionally, many manufacturers are currently offering special pricing to GPO members on items that are in high-demand, such as disposables, portion control packs, and grab-and-go items.

GPO savings don’t begin and end in the kitchen.  Consolidated Concepts’s “Beyond Broadline” programs offer a wide variety of savings opportunities on non-food expenses such as uniforms from Chefworks, DirecTV packages, Skechers footwear, equipment suppliers, paint retailers and technologies like credit card processing, 3^rd party order consolidation, and telephone services.  All of these programs carry exclusive pricing for GPO members that restaurants would not otherwise have access to and are crucial expenses to trim back in order to offset the costs of other materials and services.

Labor utilization is also a key factor in controlling restaurant costs.  Given the nature of Paycheck Protection Program loans, it makes sense for operators to think about their employees and hires as ‘full time staff members’ as opposed to individual positions such as ‘line cook’ or ‘server’.  Restaurant staff should be expected to serve multiple functions: line cooks may also perform expediting duties and help sanitize areas of the restaurant, servers may also help stock the walk-in and take phone orders, and managers may perform duties such as washing dishes and helping to re-paint parts of the restaurant space.  These expectations should be clearly communicated to employees and should even be signed-off on so that staff members understand that for a certain period of time, their duties will extend beyond the confines of ‘normal’ restaurant roles. 

Cross-utilization certainly applies to ingredients as well as team members.  Successful restaurants will take the opportunity to re-tool their menus to focus on the biggest revenue-generating items and remove those that are adding unnecessary costs.  Menu items that utilize a lot of ingredients whose sole use is for that one dish should be carefully considered as food costs should be kept to an absolute minimum and food waste must be essentially eliminated in order to focus on profitability. 

Lastly, if there is one thing that restaurants should be investing in, it is technology.  This is the perfect time for restaurants to spend some of their loan money upfront to improve their processes for ordering food, tracking recipe costs and inventory, integrating with POS systems and managing cashless payments – all of which will result in better cost controls down the line.

There is now doubt that 2020 is going to be a tough year for every restaurant in the industry, but it is also a year for restaurants to focus on being smart, agile and lean. Those operators who keep their focus on their bottom lines – controlling costs and maximizing profits and reducing restaurant costs during COVID – are going to be the ones that not only survive, but capitalize on the available market share from those that ultimately wind up closing down. Questions or concerns? Contact us today.

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Combing through the 200-plus commodity markets may seem like a task worthy of stockbrokers and traders rather than restaurateurs but identifying trends and future predictions can have a strong influence on your costs and pricing strategy. Knowing how market changes can impact your product costs is one of the prime considerations when it comes to making optimal purchasing decisions. Here, then, are the most important considerations when delving into commodity reports.

Agriculture & Livestock Commodities

Agriculture and livestock commodities are staple crops and animals that are produced or raised on farms or plantations. These include grains, livestock, and dairy as well as peas, beans, corn, beets, and other fruits and vegetables. With food costs accounting for, on average, 30 percent of restaurant sales, these commodities are some of the most important to focus on.

In May, the World Agricultural Outlook Board (WAOB) released the USDA’s initial projections for crops and livestock for the coming 2019/2020 year. Their initial assessment showed abundant corn, soybean, and wheat supplies in the U.S. and around the world with corn expected to fall to $3.30 a bushel, the lowest since 2007.  

Beef, pork and chicken are prime candidates for cost fluctuations. The past five years of declining feed costs have prompted record supplies of beef which has led to a drop in prices. This, however, is not the case for popular cuts such as beef brisket.

Poultry has seen a low with prices expected to bottom out. This is another protein that procurers may benefit by locking in contract pricing.

Pork, on the other hand, is unstable, at best. Many of you have heard about the African swine fever—the disease that first appeared in September of 2018 and has decimated the Chinese pig population, destroying an estimated 300 million, half of China’s pigs, by death or culling. China also happens to be the world’s biggest pork supplier. Currently, the disease has spread to more than 50 countries with experts in the U.S. preparing for a possible outbreak.

Not surprisingly, pork prices have seen some volatility this year. Surprisingly, prices have not escalated as expected due to smaller-than-expected exports. Many experts still maintain, however, that this devastating outbreak is certain to have an effect on pork prices in the coming year as supply lessens. John Barone, a commodity analyst, spoke with Restaurant Business, “This is unprecedented in my career—a shock of this magnitude.”

Experts are also expecting a trickledown effect to other proteins including grinding meats and chicken.

For those restaurants with an emphasis on this protein, such as those focused in on the bacon trend, now may be the time to lock in your pork supply and prices. Keep in mind that commodity pork and sustainably raised pork are two different supply chains that are affected very differently.

What You Can Ignore

Certain commodities such as oil and lumber—though still having an effect on the restaurant industry—do not have the same impact on pricing that agricultural and livestock commodities have. Of course, if your business is planning on building out and expanding, the price of lumber will have a significant impact, and if your establishments are out-of-the way destination venues, oil pricing will, down the road, affect consumer’s ability and desire to travel.  Many Master Distribution Agreements contain language pertaining to rises in fuel prices and if prices spike, this can have a significant impact on the prices that operators pay their distributors for their ingredients and supplies.  It’s important not to overlook this detail when negotiating and MDA. 

Today’s Market

Acting fast when commodity prices rise by applying an established menu strategy can mitigate at least some of the negative effects. Smart menu engineering involves steering customers to menu items that are profitable and offering specials with pricing in mind. If the crystal ball shows an upward trend coming, consider raising prices incrementally instead of aggressively. Of course, if you’ve looked far enough ahead, locking in product and pricing is your best option.

According to Buyers Edge Freshly Picked Market Report on October 17, 2019, the following information should help those in the industry develop a game plan for the remainder of the year:

Some farmers are taking advantage of inflated lettuce prices by harvesting early, and avocado prices are expected to remain steady. Cheese markets remain high; however, an increase in milk supplies should temper this price growth and influence lower cheese prices in the weeks ahead. Beef is remaining steady with a potential for seasonal increase.

Pork continues to see record outputs with little effects noted from the crisis in China. Pork bellies, being a current trend, are expected to raise in price as well as ham as the holidays near.

Chicken breast meat is at its lowest price in over two decades for this time of year. Wings continue to remain steady. Sharper prices are expected at around the time of the Super Bowl with a downward trend into the end of the year.

As is evident by the information contained in commodity reports, staying up to date on current data is essential for operators looking to ensure food cost advantage. If knowing when to lock in pricing is out of you or your manager’s comfort zone, Consolidated Concepts can assist at any stage of our clients’ projects from discovery and negotiation to implementation and assessment.

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Most operators who have scaled up to multiple locations have found the benefit of pursuing a Master Distribution Agreement, or MDA, with their main broadline or grocery distributor. This vital contract offers operators the opportunity to lock in pricing terms on their order guide items, and avoid drastic swings in costs and terms from their primary distributors. [Read More] via QSR

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With week No. 1 of the current professional football season in the rearview mirror, QSR operators must have an action plan for capturing American football fans’ hearts and pockets in the months ahead. After all, football is this nation’s sport, with the vast majority of respondents (37 percent) in a December 2017 Gallup poll saying they preferred football over any other pro sport, including basketball (preferred by just 11 percent) and baseball (preferred by 9 percent ). [READ MORE] via QSR

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Buyers Edge Platform, launched by Foodservice GPO entrepreneur John Davie, offers contracts, technology, data services and expertise to Manufacturers, Consultants, Group Purchasing Organizations (GPOs), and Operators of all sizes. [Read More]