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 operators\and 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.