Building Partnerships with Distributors with Edward Zimmerman

SPEAKERS

Edward Zimmerman, Zack Oates

Edward Zimmerman

It’s not different for distributors. They don’t want to spend their time negotiating price they want to spend the time servicing you. giving you ideas, helping you grow your business operators cannot buy their way out of the problem can only sell their way out of the problem.

Zack Oates

(Intro) What’s up? Zack Oates here – author, entrepreneur and customer relationship guru. Welcome to Give an Ovation: growth strategies for restaurants and retailers, where we find industry leaders to share their secrets to grow your business. This podcast is sponsored by Ovation, the actionable guest feedback tool that works on or off premise, and is easy, real-time, and actually drives revenue. Learn more at Ovationup.com.

Welcome to another edition of Give an Ovation. I am joined, for the second installment, with Ed Zimmerman because our last 20 minute episode was about 20 hours too short. Ed’s got so much great advice. I’m really grateful for you to join us again here on Give an Ovation.

Edward Zimmerman

That’s great Zack, thanks. Glad to be back.

Zack Oates

And for those of you who didn’t catch your first episode, go ahead and catch that. It’s a great episode. And today we’re going to expand on that. He gave a lot of great advice to restaurants that first episode, but this one, we’re going to really talk about building a relationship with a distributor. Now if you don’t know Ed, he is the President of the Food Connector and formerly President of pizza.com, Successfoods Marketing, VP of Marketing at Bellissimo foods, the author of dozens of hospitality articles. He’s he’s got close to 40 years hospitality experience. And as I mentioned last time, really interesting fact about Ed, he has done business in all 50 states, including Alaska and North Dakota, which are the two states that – I don’t know how you get there. But we’re still working on that. So anyway, so to kick things off, you’ve had a really interesting career, in that you’re super familiar with both the restaurant side and the distributor side. You’ve seen a lot of inefficiencies, by there being almost a, you know, a contentious relationship at times, between the distributor and the restaurant. Now historically, why is that? Why has it been such a fractured relationship?

Edward Zimmerman

Yeah, sure. Exactly. Again, thanks for having me back. One, if you look at it from the operator’s point of view, so many of the issues that they deal with are about fixed costs and variable costs. So their rent is fixed, their their utilities are generally fixed, insurance is fixed. So the big variable costs are labor and food costs. You’ve got to have a certain amount of labor in in the restaurant to take care of customers to keep the place clean, you know, etc, etc. So the one place where an operator thinks that they can have some pressure in lowering their cost is with the distributor. And so there’s this contention, there’s this cat and mouse game, sometimes that goes on between the operator and the distributor about trying to get the best price. And sometimes it really deteriorates, and can really cause you know, problems and a lack of trust.

Zack Oates

Yeah, and that lack of trust is a really tough thing, right? That’s in business, Stephen, Stephen Covey has a book called The Speed of Trust. And when you lack that trust, it’s so hard to run an efficient business. And so the pennies that you save, maybe from squeezing down, when you ruin a relationship, it costs you dollars on the on the other end of things, right?

Edward Zimmerman

Well, that’s right. And the truth is, operators can’t buy their way out of their problem, they can only sell their way out of the problem. And the best way to sell their way out of it is to partner with the distributor, find out what’s hot in the neighborhood. What are the other hot restaurants selling? What are the trends? Where are the items where a distributor sees an upcoming downtick in price, which would be the perfect place to do a limited time offer or some kind of a promotion, so that the operator really can drive those menu items that are going to have the most profitability and be the most interesting to their customers and lower their food cost? Not how much did I pay per case? But how much did I really spend less on my overall food budget?

Zack Oates

So in principle, what you’re talking about here is how do you leverage the collective knowledge of your distributors and don’t look at them as a vending machine, but look at them as a, you know, as a consultant, right?

Edward Zimmerman

Well, that’s right. And the truth is, is that food cost in a restaurant is going to be in a 30% range. Therefore, a good operator is spending roughly 30% of their time and energy managing it. The other 70% is on employees and customer service and cleanliness and all, you know, building sales and all of those things. The distributor is 100% focused on the food, and they just have better information. So rather than being in a contentious relationship with them, being a partnership with them, let them show you what they have. Let them teach you, you know, where they can help?

Zack Oates

And what are some of those good questions? I know, you mentioned some of them, but the next time my food distributor carts in some food, how do I approach this conversation? Maybe we haven’t had that, you know, trust relationship before? And I really, from what you’re saying, I mean, it makes a lot of sense to build this relationship with them. How do I approach it, conversation one?

Edward Zimmerman

Well, I think that the first thing is to recognize: how does a distributor make money? And they too, have fixed and variable costs. So there’s a fixed cost, or an average cost of what it takes to take the order, pull it out of the warehouse, load it on the truck, driver to your door delivery, collect the money, and the distributor has to make enough money on that order to cover those costs. So when you’re fighting over the cost of each different item, the distributor has to find a way to get to whatever that number is, $80 or $100, or $120.

So the better thing for the operator to do is to sit down with the distributor, and the distributor ought to be explaining this and say, let’s partner, I’ve got to have $100 of gross profit to service you. So rather than let’s try to figure out where to play cat and mouse on each item on the invoice, why don’t we start with “If you give me 70 or 80% of your purchases, I can lower the cost on everything. “And so rather than trying to negotiate on each line item, negotiate on the value of the order. And if that’s the perspective, if there’s the understanding that the distributor must make money in order to come in and service them, then it’s a better place to start.

And then the conversation goes to not what is the price of everything, what is the cost of everything, but that there’s the understanding of what the service is that they really provide, which is much more than just rolling the cart of, you know, the hand truck full of food into the restaurant. It’s those other things, it’s those looking at items that are best to promote, it’s looking at menu trends, it’s looking far ahead, across the markets about what’s happening with beef, or seafood, or lettuce, you know, that we see coming up over the next two weeks, three weeks, six weeks, and really forming a real conversation about, how do I menu, the right items and promote the right items that are going to overall make my customer happy for buying it, but give me the best overall food cost.

And when you’re in a contentious relationship with a distributor, they’re not going to spend that much time with you there, they’re going to they’re going to take your order, they’re going to make sure they get their $100 or whatever it is that they need to do it. And then they’re going to go and spend their time with the customer who’s made a commitment to them. In some ways, it’s like dating, you know, if, if two people are in a dating relationship, and you’re in a committed relationship, and you’re loving each other, and you’re sharing with each other, and you’re honest with each other, you know, versus someone that’s dating two or three or four people, and there’s just not that commitment. So you get some of the goodies, but you don’t get the whole ball of wax.

Zack Oates

I totally agree with you there. And finally, someone talks about a dating analogy so I can understand things. But you know, I think is one of the questions that I had to ask you though, is that, I know that because a lot of these, especially the smaller shops, if they have a little too much empathy for their distributor, they may not want to ask them these questions, because they’re like, look, I know I’m not spending a lot of money with this person. And so what would you say to those people that maybe feel like I don’t want to ask because I’m not spending a lot of money, and I’m not a big enough customer for them to even bother taking the time to answer my questions or to strategize with me?

Edward Zimmerman

Yeah, so the key word there is “time.” A distributor sales rep and a distributor in general has a pretty good understanding of what someone buys. They know that a single store sandwich shop is not doing what a full service steakhouse is doing in terms of revenue and therefore purchases. So what a distributor wants to know is do they have the lion’s share of the order that’s possible? And rather than, rather than negotiating over the bits and pieces of it, they know what you can do. And again, if you’ve made a commitment to them, and they’re getting the lion’s share of that order, then in that 10 minutes that they have when they’re in on a weekly basis, rather than spending the time negotiating the price of sliced black olives, they’ve got those five or six or seven minutes to pass on some of that market information and some of those trend informations that we were talking about, rather than negotiating the price of trash liners.

Zack Oates

I think, yeah, that’s a great idea, right? They may not have the time to sit down with you for an hour and a half and strategize annually. But you can, you know, walk and talk with them, right, you use that time be there with them, because they’re seeing how many other restaurants are they seen? in a given month? I mean, lots.

Edward Zimmerman

That’s right. I did purchasing for a wholesale bakery for many years. And to me, if a sales rep called and said, ‘I’d like to come in and see you,’ I almost always said yes. Because I figured that person’s calling on 100 bakeries, and I only had one. There was something I could learn from them.

Zack Oates

Yeah. And, and it goes back that whole, like you said, building trust. And one of the reasons that we see trust being diminished at times, is because certain items will increase in price. You place the same order, and then all of a sudden, it’s cost a lot more one week to do it. What would you say to these restaurants who are like, you know, they feel frustrated, because they’ve been burned by distributors before by things doubling in price and not being clearly communicated? And then all of a sudden, they get a higher bill, and they don’t realize they’re paying twice as much for the sliced black olives that they used to? How do you, how do you manage the the pricing and keeping track of that?

Edward Zimmerman

Sure. So it comes back to that to that commitment. So again, if the distributor is trying to get to that $100, they’re going to find a way to get there where they can service the account. So when you’ve got that commitment with a distributor, you can sign what’s called a master distribution agreement, MDA for short. And then what happens is, there’s a set markup for every item. And it’s usually done by class: dry, frozen, refrigerated, you know, that type of thing.

Distributors can’t manage markets. If cheese prices go up 20 cents in a week, they’re paying 20 cents more as well. So these are global commodities that a local distributor, or even a national distributor, cannot manage, cannot affect on their own. Markets do what markets do. But if you’ve negotiated the markup, then yes, as cheese goes up, as beef goes down, you’re going to naturally see those those swings go up and down and stay within what is reasonable and fair to charge with that product, you know, that particular week.

Zack Oates

Yeah. Now, this has been super enlightening. And I really appreciate you kind of flipping the script on this. Any last piece of advice that you would give to operators about building that relationship with their distributors?

Edward Zimmerman

Sure. Distributors want to service restaurants. They want you as a customer, they want you to be a profitable customer, just as you want to have a profitable customer that walks into your restaurant. I mean, if, if, if a customer walked into a operation and said, I’ll have a tuna fish sandwich, but I really want to pay $5 for it, even though your menu price is $6.99, that’s not a customer you want. It’s not different for distributors. They don’t want to spend the time negotiating price, they want to spend the time servicing you giving you ideas, helping you grow your business because if you can grow your business with them, that drop size, that $100 naturally goes up. So you know, be in a relationship where you’re talking about how to grow the business rather than how to lower the price of individual cases. Because as I said, operators cannot buy their way out of the problem can only sell their way out of the problem.

Zack Oates

Love that. Here are my five takeaways:

Number one: let’s start with where we began and ended which was you can’t buy your way out of problems that you need to sell your way out of problems. I think that’s brilliant.

Number two: partner with your distributors. Look at them as a partner, as a consultant. Get trends from them and build that trust with them.

Number three: understand and really look at it from the distributors perspective and how they make money. Look at the fixed and the variable costs and look at the at the total order. Not necessarily nitpicking on each items because sure you may be able to save a few cents on an item. But by building that relationship and developing it, you could be making 1000s more dollars by seeing what’s what’s coming down the line.

Number four, consider signing that MDA. The master distribution agreement to keep prices manageable, and at market rate.

And then lastly, remember that you guys are on the same team. They want the same thing you want. Yes, which is to be profitable and successful. So how do people find you/follow you?

Edward Zimmerman

Sure. We are thefoodconnector.com. You can find me on the web, you can find me on social. And I’m Ed Zimmerman or The Food Connector. And we’re here to work with, with anybody in the food industry, help them build their business, help them, see marketing more clearly and use that as a way to drive business. So Zack, thanks, always love being here and appreciate what you do.

Zack Oates

(Outro) Glad you were with us today. And thank you! Thank you to the risk takers, the troublemakers, the crazies who are keeping this world clothed and fed. You’re the ones who deserve an Ovation. Again, this podcast was sponsored by Ovation! To see how we can help you grow your business, go to Ovationup.com. Don’t forget to subscribe, and as always, remember to give someone in your life an Ovation today!