What Are Group Purchasing Organizations?Last updated on 10/31/2018
Restaurants have a razor-thin margin for profit, partially due to the high price of food shipments. As a result, many restaurant owners are constantly looking to cut their food costs, and one way that owners can reduce food costs is by joining a group purchasing organization. Continue reading to learn what a group purchasing organization is, the pros and cons of joining one, and what to consider when choosing a GPO.
What Is a Group Purchasing Organization?
A group purchasing organization, also known as a GPO, is an entity comprised of many restaurants that come together to get better deals from food suppliers. Together, the restaurants have access to more money and can make bigger purchases, which gives them leverage and negotiating power when dealing with food producers.
Group purchasing organizations also come in different sizes. There are national-level organizations with hundreds of member restaurants, as well as smaller organizations that operate on a local level. Different sizes of group purchasing organizations will have varying price points and features. For example, a smaller GPO may have higher prices, but they may give your business more attention and be willing to make changes to fit your needs.
What Do Group Purchasing Organizations Do?
Group purchasing organizations will negotiate directly with food suppliers and producers. They will search for the lowest prices. After making a purchase, the group will divide up the order and send it out to all of the member businesses. Plus, you can use a food buying group to source all of your restaurant's food needs, which makes it convenient.
Additionally, group purchasing organizations exist outside of just the foodservice industry. In fact, the idea of a buying group originated in the healthcare industry in the 1970s to drive down the cost of medication.
Pros and Cons of Joining a Group Purchasing Organization
There are many benefits to joining a food buying group, but there can be some downsides as well. Consider these pros and cons and decide if a group purchasing organization is right for your business.
Pros of Joining a Group Purchasing Organization
Here are just a few of the benefits of joining a restaurant buying group:
- A group purchasing organization can help drive your food costs down. The organization is constantly negotiating with suppliers to get the best prices.
- Joining a food buying group can give your restaurant access to fresh produce or exotic foods, which may not be available in your area otherwise.
- Buying your food through a GPO helps your business save time. It takes a lot of time to research different suppliers and find the best prices. Instead, GPOs do the work for you, so you can spend less time searching for the best deals.
- Using a food buying group allows you to easily source where your food came from. This is especially useful in case of a food scare or other food crisis, so you can see if your food came from the affected region.
Cons of Joining a Group Purchasing Organization
Here are some of the potential downsides of joining a food buying group:
- Some group purchasing organizations may have inflexible shipping schedules. As a result, you may have to place larger orders less frequently, which may end up causing some of your produce to go to waste.
- You have less control over the quality of the food. Buying groups will typically choose the cheapest option, and they sometimes sacrifice quality for price.
- Joining a group purchasing organization requires you to pay a membership fee, which can cut into the savings you'd get by ordering your food through them.
- Because orders are placed through the buying group, you can't make any connection with your food supplier.
Joining a Restaurant Buying Group
If you decide that joining a group purchasing organization is right for your business, you can begin searching for what options are available in your area. Decide if you want to join a national organization that has access to the lowest possible prices or a smaller group that may have higher prices, but is willing to adapt to fit your needs.
Additionally, it can be valuable to contact other restaurant owners in your area and ask if they use a food buying group.
With restaurants operating on such a small profit margin, lowering your food costs by purchasing your food through a food buying group may be an excellent choice. Group purchasing organizations and buying groups have many pros and cons, so be sure to consider all of the factors and make the decision that is right for your situation.