‍Never act on advice from anyone who earns a commission at your expense

The vendors and distributors you pick to service your restaurant are critical partners in your operation. Good prices, strong service, and a trusted relationship with a vendor can relieve a lot of headaches for restaurant owners, GMs, and chefs. But…always remember that distributors and Distributor Sales Reps (DSRs) are in business to make money too, and their incentives are not always the same as yours.

It can be valuable to keep in mind the old adage, “Never act on advice from anyone who earns a commission at your expense.” Most Distributor Sales Reps get paid almost entirely on commissions and incentives. 

The DSR’s pay structure can be a double-edged sword for restaurants.  On the one hand, it provides some alignment between the DSR, you, and the needs of your restaurant or bar. If the rep doesn’t keep you happy, they risk losing your business and seeing their commission checks go down. Unfortunately, the commission and incentive model can also create misalignment with your goals in a variety of ways.

First the commissions a DSR earns are typically dependent on a combination of total sales and “gross margin.” In other words, it’s not just how much you buy, but how much you’re willing to pay for it. The rep is not looking to get you the best price. The rep is incentivized to get you the highest price you’re willing to pay without taking your business elsewhere.

Second, given that some products will be higher margin than others, and that the distributor may have other incentives for pushing a certain set of products, the rep has an incentive to point you to products that will give them a higher paycheck, and those products may or may not be the best for your restaurant.

With these points in mind, we’ve prepared a short guide on distributor tricks and incentives you should know when managing relationships with your DSRs, distributors, and other vendors.

Subbing in high priced items

Covid-19 has wreaked havoc on supply chains, so substitutions are turning into the norm instead of the occasional occurrence. Substitutions aren’t just a nuisance because you miss out on the exact product you want. Substitutions can also cost you more than you expected to spend, and your distributor rep has an incentive to substitute in products that are higher priced than the product you normally buy.

For example, if you normally buy a case of canned tomatoes for $25, and the distributor is running low, or out-of-stock, they might sub-in a case of canned tomatoes that costs you $30. You don’t get the product you want, you’re out $5 per case, and the distributor and the rep both make more money.

Product substitutions will happen, and you may prefer to have any product rather than no product, but your restaurant’s bottomline shouldn’t suffer because the distributor decided to manage their inventory too tightly. 

Negotiate terms, or come to an agreement with your rep on substitutions ahead of time. A substitution can be okay, but take away the distributor rep’s incentive to make you the restaurant that gets short-changed. Ask that if a substitution is necessary, that you get it at cost as compensation for your inconvenience.

Exorbitant markups on certain categories

You may think you’ve done a great job negotiating prices on the items most important to your food business, but your distributor is likely finding ways to margin up on products you think less about and might buy more impulsively.

For example, we spoke with a DSR for a large national foodservice distributor who was told he was not allowed to offer cleaning products to restaurants for less than a 300% markup. He found that even if his restaurant customers were good negotiators, the chef might watch food prices closely, but wouldn’t give a second thought to prices of trashbags, cleaning supplies, and other non-food products.

Pay attention to the prices for all your products, not just food, and understand what share of your total costs each category represents. It may make sense to move some of your non-food purchases away from your broadline distributors.

Note: Dashy Dash will automatically categorize each line item on your invoice. Automatic line-item categorization comes with the free version of our product.

Price creep

When your restaurant starts a relationship with a new distributor, or starts ordering a new item, you’ll come to an agreed upon price with the distributor. Lo and behold, after a month or two, you starts to experience “price creep.” The chicken breast that was $4.50 per pound is now $5.75 per pound. Obviously, this margin expansion pads your DSR’s paycheck. It’s so common, one foodservice expert we spoke with called catching unexpected price increases, “catching your DSR speeding.”

If you don’t regularly monitor your invoices for price creep, you might over spend for months. Sometimes prices move up for legitimate reasons like seasonal fluctuations or manufacturer price increases, but if you do catch a price increase on your invoice, hold your distributor to task and demand an explanation. You might be surprised to hear, “Oh, yeah, I forgot we agreed on a lower price.”

Manually monitoring every line item on your invoices can be time consuming or require a lot of coordination. Restaurants can automatically monitor their prices with Dashy Dash Price Watch.

Managing your “selection set”

Sometimes the higher price you are paying isn’t obvious to you because you didn’t even know there was a better price option available. Foodservice distributors, and DSRs have a lot of control over the products you learn about. If your DSR only shows you the 3 highest priced skus of hot sauce, you might not learn that they also stock 2 other skus that are better priced and more appropriate for your business. 

Alternatively, the rep might push the distributor’s private label product instead of other products you might prefer because the DSR receives extra incentives to get you to switch to their house brands.