Accelerate your recovery from COVID-19
Re-bidding service contracts across your restaurant network
Introduction
The speed with which the novel coronavirus has upended the global economy is unprecedented, and few industries are suffering as much as the restaurant industry. Dine-in operations are closed; layoffs and furloughs are widespread; initiatives are being deferred; and sales are down 70–80% or more.
Executives and operators are appropriately consumed with doing whatever it takes to ensure their businesses can simply survive — supporting takeout and delivery sales, conserving cash, and more. And while it is difficult in this crisis moment to envision the world starting to move again, we will work through the challenges in front of us, and the economy will begin to rebound.
As it does, there will be an opportunity to significantly reduce the cost of local services. Ready and willing supply will be available in volumes much greater than demand, which will provide restaurants with a unique opportunity to competitively re-bid service contracts and attain lower quality-adjusted prices.
Our view is that the restaurants that capitalize on this opportunity will recover more quickly, more profitably, and be better positioned for long-term success.
Overview
Restaurants spend millions of dollars each year on local services such as hood cleaning, snow removal, carpet cleaning, landscaping and window washing. Due to the COVID-19 pandemic, most have already instructed their vendors to pause or significantly scale back these services at their locations. This makes both practical sense and economic sense.
But once this national emergency is behind us, we project that most restaurants will restart this work with their incumbents under the same general terms. A smaller subset will capitalize on the shifting marketplace dynamics and aggressively work to reduce the costs of these services.
The temptation to maintain the status quo is understandable. Executives and operators currently have no shortage of items on their to-do lists, and purchasing these types of services is difficult to manage because they are numerous and geographically distributed.
However, this effort is long overdue.
Most restaurants do not go through a rigorous sourcing process when purchasing services. Instead, they often choose to work with their incumbents year after year and provide little ongoing motivation for them to ‘keep their pencils sharp.’ Both common sense and empirical results indicate that sustained ‘vendor tension’ will ensure that quality remains high and pricing stays competitive.
It also makes more sense now than ever before.
The key to surviving, recovering, and thriving in this environment is managing cash flow and reducing costs. Re-bidding service contracts is a high leverage action in support of this goal. Cost savings are immediate and substantial — approximately 10%, on average, per Supplier.ai research — and flow directly to the bottom line.
Getting Started
Do not wait to begin this process. Here are some tactical actions you can take now.
1. Gather the relevant data
- Find out who is servicing which restaurants at what price and at what frequency. Additionally, identify 5–10 other potential vendors (name and contact information).
- Incumbent vendor information is often dispersed across the organization. Capture and centralize this information by creating a simple survey for individuals to fill out. Collect the following fields: Restaurant Number | Name | Contact | Service | Pre-Tax Price per Servicing
2. Determine what services to re-bid
- Not every service needs to be re-bid immediately — particularly when just getting started. Begin with routine, scheduled services and then move to services that are less predictable.
- Landscaping, carpet/floor cleaning, hood cleaning, window washing, and HVAC preventative maintenance are good services to begin with.
3. Define a biding strategy
- Rather than bidding nationally or at the individual unit level, bid regionally across multiple locations in order to avoid unnecessary middlemen and increase your bargaining power. Additionally, offer longer-term (e.g., 1 year) contracts to receive the best possible quotes.
- National service providers generally subcontract to local service providers. Save unnecessary fees and go directly to the local service providers. Avoid bidding at the individual unit level. Leverage scale — number of locations and contract length — to further reduce costs.
4. Begin contacting vendors
- Reach out to all potential vendors in order to increase the number of quotes you receive. Increased ‘bidder density’ leads to lower overall costs. Also, use multi-round negotiation tactics to drive to vendors’ ‘best and final’ prices.
- Be sure to include your incumbent vendors. More often than not, they will reduce their prices to prevent losing your business. Assuming you are satisfied with your incumbent’s work, one good outcome is to remain with them at more advantageous pricing.
Conclusion
COVID-19 is having a devastating impact on the restaurant industry. However, we remain confident that great companies will find a way to first survive and then to recover faster than their peers.
The unprecedented ‘buyers’ market’ that will arise on the back end of this shock will offer a unique opportunity for restaurants to reduce their costs by competitively re-bidding service contracts across their network — and we believe this will be a key strategy to help businesses emerge on more solid financial footing.
About Supplier
Supplier.ai helps restaurants reduce costs by applying artificial intelligence and process automation when purchasing goods and services. Our software leverages the most effective purchasing strategies and manages each step of the purchasing process — including vendor identification, qualification, outreach, and negotiation — with minimal human interaction.
About the Author
Venu M. Amar — COO, Supplier.ai
Venu is a Vice President at Supplier.ai. Prior to joining Supplier.ai, Venu was at Nike, where he designed and led the integration of Zodiac, an AI startup the firm acquired in 2018. Previously, Venu was a Vice President at Zodiac and a Principal at Applied Predictive Technologies. Venu received a B.S. in Economics, summa cum laude, from the Wharton School at the University of Pennsylvania.
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