With notoriously thin profit margins and rising costs, restaurants can be vulnerable to even the slightest financial turbulence. As a restaurant owner, manager, or chef, one way you may be able to insulate your business from these problems is by negotiating a solid contract with a food vendor.
Securing a good contract can help you source high-quality products that meet your restaurant’s needs on terms that are favorable to your business.
But how can you pull this off? Let’s take a closer look at how to negotiate a contract with a vendor.
1. Research Local Vendors
While price may be the most important point when selecting a vendor, it’s far from the only criterion. Each restaurant has unique needs and is likely to benefit from partnering with a vendor who can meet those needs.
A restaurant that specializes in plant-based cuisine, for example, may prioritize vendors that can offer them fresh, seasonal produce. A mom-and-pop diner may not have the same needs as a Michelin-starred restaurant. Before entering negotiations with vendors (sometimes also known as distributors), you may want to consider your priorities. Then, research local vendors to vet their ability to address those priorities. The more informed you are going into these conversations, the better your outcome may be.
You can search for reviews online or ask fellow restaurateurs in your area. Try to find out about vendors’ prices, product offerings, quality, and service. Being aware of your options can give you more confidence as you go into these negotiations. And if vendors know that you’re well-informed, they may feel more of a need to be competitive in order to win your business.
You may also want to explore current market prices for your product needs. Consider taking a close look at your inventory and then researching current prices for those items. By learning what prices are fair, you can be more confident that you’re getting a good deal.
You can also learn about vendors’ pricing by asking for market basket quotes—line-by-line price estimates for the items that make up the bulk of your orders.
To obtain these quotes, you would start by pulling together a list of the two dozen or so items that you spend the most on or order most frequently; for example, if you run a pizzeria, this list might include the ingredients that go into your dough and sauce along with your most-used toppings. Give this list to your potential vendors. This would allow you to compare pricing alternatives directly and find out who would be best able to meet your needs—and your budget.
2. Recognize Your Leverage
Doing solid research allows you to take advantage of what may be your biggest point of leverage when negotiating with restaurant food distributors—the amount you will buy from them. You’re likely to get better prices if you can consolidate the majority of your purchases with a single distributor.
At this point, if you’ve already analyzed your inventory, you know exactly what your restaurant needs to buy in order to operate. Once you know your needs, you can vet your options based on how much of your order volume they’ll be able to handle. The more business you can offer them, the better the discount you may be able to negotiate.
Another way you may be able to exercise leverage here is by offering to buy certain items in bulk. While you could easily wind up wasting product if you order more stock than you can handle, for items that you use a lot, buying in bulk might help you land an additional discount.
3. Specify Your Terms
Beyond order volume, there may be a number of other points you can negotiate—each of which may have a significant impact on how attractive it is to work with a given vendor.
Of these terms, the most significant may be the cost structure—the method the vendor uses to mark up the costs of their products. Securing the right cost structure may be able to help you weather price increases and protect your business’ bottom line.
Determining Cost Structure
Different vendors may offer different cost structures. The most common are:
- Cost-plus-fixed price: you pay a flat fee on top of the cost of the item.
- Cost-plus-markup percentage: you pay a fixed percentage over the cost of the item.
- Cost-plus-margin percentage: you pay a percentage over the item’s cost that allows the vendor to make a certain profit margin.
Additional terms may include:
- Can you get a discount for paying promptly? Vendors have their own bills to pay, and may be willing to give you a discount if you can ensure prompt, full payment. Some vendors may even get a discount of their own from paying their suppliers on time, and they may be open to passing some of those savings on to you.
- Can you save on delivery costs? Making deliveries costs money; if you’re able to receive more product in fewer deliveries, or to guarantee meeting a minimum cost threshold per order, the vendor may be able to further mark down your costs.
- How will you handle quality assurance? The product you receive may not always match your expectations; this is especially likely with food items, which may be perishable, can be damaged in shipping, or may vary in quality based on the season or source. Consider negotiating terms that cover how you will handle quality checks, returns, and product substitutions.
4. Protect Your Interests
Once you’ve completed your negotiations, you should consider recording the terms in a written contract and having the agreement reviewed by a legal professional. This can help ensure that there are no surprises for either party in the future, and that any issues or disputes can be handled in an appropriate and timely manner.
It may also be a good idea to set an expiration date for the contract. This would give you the opportunity to renegotiate the terms of your agreement from time to time to reflect the changing needs of your restaurant—or to end the contract and find a new distributor.
5. Cultivate a Positive Relationship
Apart from these points of negotiation, it can also be valuable to consider the manner in which you approach your relationship with your vendor. Both parties are likely to get the most value from a long-term partnership, so you may wish to try cultivating a positive relationship right from the start.
This can include approaching these conversations with the understanding that negotiation is a two-way street; rather than trying to play hardball, consider keeping perspective on the importance of this partnership and look for ways it can benefit both parties.
If you form a genuine relationship with your vendor, they may be more likely to care about you and your business and appreciate your needs and goals. This could allow them to offer you better prices, better product, or better terms over the course of your partnership.
By establishing good communication with your vendor, you can also give yourself the opportunity to be more honest with them when necessary. If the needs of your business have changed or if you’re dissatisfied with something, consider letting them know—they may be able to help and prevent a small issue from turning into a bigger problem.
Interested in the Business Side of Running a Restaurant?
Negotiating fair contracts with food vendors is an important part of managing a restaurant. A fair contract can help you control your food costs, which can give you the flexibility to invest in the growth of your business.
An education at Auguste Escoffier School of Culinary Arts—either at our Austin or Boulder campuses, or through our online programs—can give you exposure to the business principles behind running a restaurant and can be a great opportunity to develop those practical skills alongside fundamental culinary techniques.
Financial aid, grants, and scholarships are available to those who apply and qualify, which can help bring the chance to earn a culinary degree that much closer to becoming a reality.