Blog / March 28, 2023
Restaurant GPOs: Can They Help Your Business Save Money?
From produce to paper goods, inventory makes up a whopping 25% to 40% of a restaurant’s operating costs. Unfortunately, inventory prices are going up due to supply chain issues, labor shortages and inflation, making running a restaurant increasingly expensive. The good news is, by joining a restaurant group purchasing organization — a GPO — you can leverage collective purchasing power to save on inventory. Here’s how.
Table of Contents:
- What Is a Restaurant GPO?
- How Do Restaurant GPOs Work?
- Restaurant GPO Pros and Cons
- What to Look for in a GPO
- Restaurant GPO Recommendations
- GPO Frequently Asked Questions
What Is a Restaurant GPO?
Restaurant GPO, or restaurant “group purchasing organization,” is an alliance of independent restaurants and smaller, multi-unit restaurant groups that leverage its collective buying power to gain access to lower inventory prices. GPOs can save restaurants between 10% and 30% on inventory costs.
Suppliers can typically offer large restaurant chains products at a lower price per unit because they order such high volumes. Independent restaurants that place smaller orders usually aren’t privy to these discounts. GPOs benefit smaller restaurants because they allow multiple smaller-business members to combine orders that unlock lower inventory prices and, in turn, greater savings.
How Do Restaurant GPOs Work?
Restaurant GPOs order high volumes of inventory at bulk pricing and then divide the purchases among members. They also offer savings through other programs, such as manufacturer rebates.
Most GPOs are free to join. In general, suppliers pay GPOs a fee to make their products available to members. Behind the scenes, GPO staff partner with large distributors, negotiate with vendors and monitor things like weather and supply chain issues, which could affect prices. GPOs also advise members on how to pivot when items will be out of stock due to unforeseen circumstances. Most independent restaurants don’t have the manpower to do this, nor the volume of inventory needs to warrant doing so.
GPOs typically obtain the highest discounts on produce and paper products. Seasonality can limit what produce is available when, and GPOs can help members access imported goods at cheaper prices. Paper products, like napkins, paper towels, and toilet paper, typically have high margins and restaurants can secure better prices through a GPO.
Pro tip: Restaurant GPOs vary in size. Larger, national GPOs can help you access more inventory options at better prices, but they typically pay less attention to individual members. Smaller GPOs provide more attention but provide lower discounts than larger ones.
Pros and Cons of Joining a Restaurant GPO
If a GPO sounds like it could benefit your business, weighing these pros and cons could help you with your decision.
Pros of Joining a Restaurant GPO
By joining a GPO your restaurant can:
- Save up to 30% on inventory, which can lead to higher profit margins and lower food cost percentages
- Gain insight into supply chain trends and available inventory without having to hire a employee to do this for you
- Save time by allowing the GPO negotiate deals directly with its industry connections
- Access inventory you may not be able to find easily locally, such as out-of-season produce
Cons of Joining a Restaurant GPO
Consider these downsides of joining a restaurant GPO:
- Possible membership fees can reduce your savings margin
- Changes in your procurement process can be disruptive
- You’ll need to learn a new ordering platform, as most GPOs have their own systems
- No direct relationships with vendors
- Rigid shipping schedules mean you may need to order more than you can use at once, which could lead to food waste
- Reduced inventory quality, as GPOs favor the best prices over quality
What to Look for in a Restaurant Buying Group
The right restaurant GPO can help you save significantly and shop faster, but you’ll want to ensure their ordering and shipping processes align with your business. Keep these factors in mind while looking for a GPO to join:
- Savings vs fees: A GPO’s savings should outweigh its membership fees, and give you access to lower prices than those you could get on your own.
- GPO size and reach: Smaller GPOs will offer more personalized attention, but fewer savings. Bigger GPOs tend to come with greater savings but less individualized support.
- Niche expertise: Find a GPO that fits your needs. For example, if you run a fine dining restaurant, you might want to join a boutique GPO that can give you access to higher-quality, local ingredients and personalized service. If you run a fast food restaurant, joining a national GPO may be more advantageous.
- Minimum order amounts: Choose a GPO that meets your ordering needs. Some have minimum order amounts that could affect your bottom line. Ask whether you can adjust order amounts as demand dictates to keep budgets in check.
- Shipping schedules: In addition to order amounts, compare GPO shipping frequencies to ensure they meet your inventory management strategies so you can avoid wasting food or having to supplement shipments with last-minute grocery store run.
FYI: As you would with any business decision, do your research and ask questions. Make sure the GPO has a good track record of navigating crises and supply chain shortages.
Restaurant GPO Recommendations
Below you’ll find some of the most well-known restaurant GPOs in the United States. To find one that meets your needs, run through the above list of considerations while evaluating GPOs, and ask local restaurant owners and operators for recommendations.
Leverage Buying Group
Leverage Buying Group is free to join and members typically save 10% on inventory through discounted pricing and manufacturer rebate programs. Beyond cost savings, members also get in-depth purchasing reports and business support services.
With $17.5 billion in purchasing power, Dining Alliance is a restaurant-focused GPO that offers free memberships. Dining Alliance helps members save by giving them rebates on up to 165,000 line items from the biggest manufacturers. They also have programs to help restaurants save on non-food items like office supplies, recycling services and more.
With 80,000 food and beverage, healthcare and gaming clients, Foodbuy has $27 billion in purchasing power in the US. Foodbuy gives members access to discounted inventory, as well as audit, procurement and culinary consulting services, which could come in handy if you want to engineer your menu based on food popularity and availability for better profit.
Entegra is one of the largest food GPOs in the world with $24 billion in purchasing power. Entegra’s restaurant clients include Hard Rock Cafe and the Cheesecake Factory, though it also helps businesses in other industries. The GPO advertises saving businesses up to 30% on inventory.
Is a Restaurant GPO Right for Your Business?
With so many fluctuations in pricing due to supply chain issues, inventory can be expensive. If you have the bandwidth to source and negotiate deals with vendors, and you want to personally ensure inventory quality, then keeping procurement in-house might be a better option.
But if you want to access cost savings you can’t get on your own, are fine with meeting order minimums and following shipping schedules, and want access to other services, it might make sense to join a restaurant food buying group. Before you sign any contracts or agree to terms and conditions, however, read the fine print and ask about any hidden costs or fees, order minimums, or exclusivity clauses to ensure you know exactly what you’re committing to.
Restaurant GPO FAQs
1. What are the Largest Food GPOs?
The largest food GPOs in the United States are Leverage Buying Group, Foodbuy, Avendra, Dining Alliance and Entegra.
2. What Does a GPO Do?
A group purchasing organization leverages collective bargaining to unlock discounts on inventory for its members.