Realizing that it could not only rely on menu price hikes to protect margins from rising product costs, casual-dining operator Parasole Restaurant Holdings said it consolidated its vendor list for significant direct and indirect savings.
The Edina, Minn.-based company generates annual sales of about $65 million – approximately $45 million from food alone – from 14 restaurants and a handful of bars. Among its restaurants are Burger Jones, Chino Latino, Good Earth, Il Gatto, Manny’s Steakhouse, Mozza Mia, Pittsburgh Blue Steakhouse and Salut Bar Americain.
GOAL: Improve administrative efficiency and gain better pricing by consolidating its vendors.
SOLUTION: “The solution is ongoing, but it really kicked into high gear 12 months ago,” Michael Larson, Parasole’s vice president of purchasing, said.
Larson said part of the challenge at Parasole is that it fields a dozen different concepts – all of which have unique product needs.
For instance, he said, the company’s The Good Earth restaurants use 25 different vendors that supply natural and/or organic items that the company’s broad-line distributor cannot carry because of the low volume.
“The trick on the corporate level has been identifying like items across the company and then trying to get volume pricing on those items,” Larson said.
After analyzing needs and vendor offerings, Larson makes streamlining recommendations to the company’s senior management team. If a potentially beneficial move is identified and approved, he works with the company’s chief financial officer to negotiate or renegotiate terms with vendors.
“In most cases, we have been able to stay with the brands that we preferred,” he said.
Through the process, Parasole has been able to cut its core vendor list from about 85 to 75. Along the way, Larson said, the company increased its reliance on its broad-line distributor while reducing its buys from small suppliers.
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“Last year we purchased 54 percent of total food items from our broad liner, versus 68 percent this year,” he said.
“With volume [buying] incentives and [distributor] drop-size incentives we have been able to get buy-in from our stores. This has meant less deliveries, less invoices to process and less bills to pay.”
Parasole currently purchases more than 250 items on a deviated-pricing basis, or at a discount tied to the volume of purchases. “Our goal is to pick up another 100 this year,” he said.
The discounts resulting from giving the company’s broad-line distributor more business totaled about $70,000 on an annualized basis, or about half of a point on consolidated food costs, he said.
Though it is difficult to put a dollar amount to other forms of residual savings tied to the vendor consolidation program, Larson said they are significant. For example, the amount of time restaurant chefs spent dealing with produce vendors and handling their invoices was greatly reduced by agreeing to use one supplier for 40 key produce items.
Such invoice-reduction wins have also contributed to the company’s decision to eliminate the once standard bookkeeper position at some of its restaurants and reduced the invoice-related chores of employees at the company’s headquarters.
Parasole has seen its consolidated food costs generally trending downward in recent years despite rising product prices in multiple categories. From 33.5 percent and 35.3 percent of sales during the recession in 2007 and 2008, respectively, the company's consolidated food costs decreased to 32.6 percent in 2009, 32.5 percent in 2010 and 32.0 percent in 2011, according to Larson.
"We held off on raising the prices [during the recession and initial recovery] because of the economic conditions," Larson said, "and even though we have raised prices over the last few years, we continue to hold the line on many items."