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LongLiveGPOs

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Reply with quote  #1 
Hello, 

I am interested in GPOs, and would like to understand the landscape and what distributors think of them. There are some powerful GPOs out there that we all know like Avendra, FoodBuy (Compass), Premier and Entegra.

How can they be improved? Historically they have been shown to increase case count share of business, but it looks like a lot of reps are not very familiar with the concept or view them in low regard. Usually takes a BDM or a DSM to actually advocate for a GPO. 

I hope we can get some discussion going on the pros and cons, and the outlook of their partnerships with distributors like Sysco, USF and regionals. Obviously a GPO benefits the customer, but not really the rep trying to make commission.

Is there really no value in using GPOs, especially the ones that dont require contracts, mandates or fees if they help acquire customers, or increase your cases? 

Thanks,
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northernms

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Reply with quote  #2 
I love GPOs... but I'm salaried. If I was commission and my commission was based on GP% and the GPO was killing my GP% on the books I wouldn't mention them ever. I imagine this is what's happening for commissioned reps.

I mostly used them in K12 and healthcare. It gives me an edge because our commissioned competitors do not use them. The idea is you have to be a "program account" giving us ALL the cases. 
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dawg1981

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Reply with quote  #3 
In my experience GPO's like Aramark/Sodexo they "force" in the "spec'd" product where companies like
Entegra "tailhook" on Sodexo programs. Also Premier specs several companies for each category which really does not help promote your product very well if you are not in stock at US Foods, if US Foods does  not have either of the spec'd products they will just sub their brand if it does not reach the minimum levels.

When did a price list stop being a price list?...everybody's hand is always sticking out for a discount!


Dawg
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commoditiesguy

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Reply with quote  #4 
This topic should get Investigator all revved up!
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FoodPimp123

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Reply with quote  #5 
I agree with Northernms, commisioned sales people want nothing to do with these. It should be all inside sales. If your a street sales guy the insde people just steal these types of accounts anyway.

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broadliner

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Reply with quote  #6 
USF moved all the GPO business from street reps to account executives. I no longer have any hospitality business in my book. They were great for cases, but death on commission (.75% of the gross invoice).

Another reason these accounts were moved inside was that street reps would send out private label instead of national brand products. This affected the property's rebate that they got from contarcted with Heinz, Unilever, etc.

Quote:
Originally Posted by FoodPimp123
I agree with Northernms, commisioned sales people want nothing to do with these. It should be all inside sales. If your a street sales guy the insde people just steal these types of accounts anyway.

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dawg1981

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Reply with quote  #7 
Quote:
Originally Posted by broadliner
USF moved all the GPO business from street reps to account executives. I no longer have any hospitality business in my book. They were great for cases, but death on commission (.75% of the gross invoice).

Another reason these accounts were moved inside was that street reps would send out private label instead of national brand products. This affected the property's rebate that they got from contarcted with Heinz, Unilever, etc.



Bingo...


Dawg
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Investigator

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Reply with quote  #8 
Quote:
Originally Posted by commoditiesguy
This topic should get Investigator all revved up!



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atiboy15

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Reply with quote  #9 
Quote:
Originally Posted by commoditiesguy
This topic should get Investigator all revved up!


Investigator has been strangely silent lately since the Board went down for a brief lapse. Say what you want but Investigator brought a lot to the discussion.
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cartright

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Reply with quote  #10 
Out here we have some real solid gpos for mom and pop restaurants. RBG, Leverage.
RBG works with a produce company that also carries most restaurant staples. Dry goods, disposables and some proteins. They are dirt cheap and even beat restaurant depot prices. No minimum for delivery. 
Leverage works with USF on a 7.25% margin. Only has $1000 minimum. Any place worth approaching can blow through 1k.
Haven't had any luck pulling from either GPO.
Purchasing Concepts is another one but haven't heard much on them other than they work with sysco.


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SCURVYCHEF

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Reply with quote  #11 
In my opinion if you have a giant book of business or at least many accounts you need a healthy mix of GPO accounts so you may limit your maitenence. So much of what we push for these days (usf) is online orders. Managing cookbook pricing on anymore than 20accounts is a total nightmare.
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ISellLettuce

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Reply with quote  #12 
---GPOs are going to be more prominent in the industry among independent operators as we progress over the next 3-5 years. That's a reality.
---They've historically been a dirty word in distribution because most, or all, of them affect EI in a negative way. Some more than others. Distributors rely heavily on EI in order to be profitable. That is even truer now than it was 5 years ago as margin pressures are everywhere.
---Most reps don't fully understand GPOs because they have very limited exposure to them. They equate GPOs as distributor negative, and therefore margin and commission negative. That's not to say they're wrong about any of that. But there's nuance to it all. 
---Many (not all) GPOs charge some sort of program fee to the distributor, anywhere between 1-2%. Therefore, it makes GPOs something they use only when they absolutely have to. 
---GPOs are always trying to get as much as they possibly can out of a distributor. They'd be better suited by staying with the model of just passing on a portion (50% or whatever) of the negotiated pricing/rebates  instead of trying to add on program fees on top of that. When you start tacking on fees, it instantly impacts gross margin and therefore is less likely to be embraced by a distributor. 
---Distributors now are chasing independent or street cases at the moment, and have been for the past couple years. It's all Wall Street talks about. I don't see that changing really because it has historically been the most profitable segment, especially from an EI standpoint. In most cases, the Big 3 will take GPO business and classify it as something other than street business. In which case, management and reps alike have no interest in pursuing because all they are getting evaluated on is street business. 

Just a few quick thoughts of my own. 
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JustAnObserver

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Reply with quote  #13 
One that intrigues me (although I've never been a member or supplier of theirs) is Foodbuy. Sounds like they drive a hard bargain but have also become much more creative in the past few years. Smart, progressive culture, etc. Anyone have experience with them?
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Investigator

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Reply with quote  #14 
Quote:
Originally Posted by ISellLettuce
---GPOs are going to be more prominent in the industry among independent operators as we progress over the next 3-5 years. That's a reality.
---They've historically been a dirty word in distribution because most, or all, of them affect EI in a negative way. Some more than others. Distributors rely heavily on EI in order to be profitable. That is even truer now than it was 5 years ago as margin pressures are everywhere.
---Most reps don't fully understand GPOs because they have very limited exposure to them. They equate GPOs as distributor negative, and therefore margin and commission negative. That's not to say they're wrong about any of that. But there's nuance to it all. 
---Many (not all) GPOs charge some sort of program fee to the distributor, anywhere between 1-2%. Therefore, it makes GPOs something they use only when they absolutely have to. 
---GPOs are always trying to get as much as they possibly can out of a distributor. They'd be better suited by staying with the model of just passing on a portion (50% or whatever) of the negotiated pricing/rebates  instead of trying to add on program fees on top of that. When you start tacking on fees, it instantly impacts gross margin and therefore is less likely to be embraced by a distributor. 
---Distributors now are chasing independent or street cases at the moment, and have been for the past couple years. It's all Wall Street talks about. I don't see that changing really because it has historically been the most profitable segment, especially from an EI standpoint. In most cases, the Big 3 will take GPO business and classify it as something other than street business. In which case, management and reps alike have no interest in pursuing because all they are getting evaluated on is street business. 

Just a few quick thoughts of my own. 


As usual your assessment of "earned income" is all backwards. First of all you attribute this practice of "earned income" as being the child of "margin pressure". But if you look at how it's all constructed your assessment just  makes no sense. I assume margin and pricing (cogs) are related. So you're telling me when a distributor is under pricing or margin pressure they "INFLATE" the cost of goods? And further more they don't increase their mark up, instead they embed 20% more in fictitious or fraudulent cost and then force the operator to pay for a cost that was never even incurred by the distributor. You act as if "EI" as you call is some kind of a separate deal that harms no one and that's false.

And this "EI" practice is the same thing GPO's do. They have the operation they're contracted with pay "inflated" prices which allows them to "skim" the spreads. Nursing homes, colleges, K-12, all these formerly independent businesses are now under control of a few Wall Street front companies that in turn help drive more illegal cash for Wall Street by aligning themselves with Sysco or USF. I believe the founder of Premiere, the large healthcare GPO was Bernie Madoff's first business partner.

You keep believing the distributors don't make money. Who gives a rip what your ROI is when you can get your hands on all that illegally generated cash flow. 


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ISellLettuce

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Reply with quote  #15 
And as usual, you misconstrue and interpret things in the most idiotic ways. 

Nowhere did I say that EI is the child of margin pressure. First of all, that doesn't even make any sense. I'll get to that later. I assume you know what EI actually is comprised of, but maybe you don't, which explains your post above. Very simply stated, EI is is money that manufacturers pay distributors as a cost of getting in the door, positioning their products to be promoted by reps, incentives for growing lines, marketing monies used for promotions, shows, etc. It's a pay for play type thing. There's both EI on the national (corporate) level, as well as on the local level. That's not to say that it's a clean and transparent practice either...it's quite the opposite and certainly has a shady underbelly quality to it. There's no denying that. Like I said, it's a pay to play practice that distributors try and throw right to the bottom line. In one aspect, you can equate this directly to retail and grocery stores, because they use the same practice, and as part of that, they use "slotting allowances", which is the price manufacturers pay to get on the shelves. Do you somehow think that the slotting allowance is being deducted from the cost of goods and passed along in its entirety to the consumer? Of course not. 

Second, the point I was making above regarding margin pressure is simply this. As selling margins become more under pressure or declining (again, on the sales side), that takes more $$$ of out distributor profits. Protecting EI is an important element to distributor profitability. It would be LESS important, is selling margin was 25%+ like it used to be 20 years ago. But in reality, that margin has been cut in half or more. I made the connection in my previous post because GPOs tend to have a negative impact on a distributors EI and therefore historically have not been embraced. 

Lastly, you are either willfully ignorant or worse, at evaluating distributor profitability. I know that you can't be part of any senior level staff at a distributor, otherwise you'd simply know better, but you can however read any earnings report from the Big 3. Food distribution is not a high margin business. I don't know what else to say about that because it's just about the most obvious fact out there. That's not to say they don't make money, they certainly do, but you're talking about single digit EBITDA. Guess what largely contributes to that EBITDA number??? You guessed it...EI. Or perhaps you don't realize that million and billion dollars companies also have tons of expense involved with conducting this business. 


So at the end of the day, you can continue to rail against the practice of EI and how its causing the end of humanity as we know it. The rest of us who are actually successful in this industry and run companies can handle the stuff that you obviously have no grasp on. That way, you can work hard at uncovering the next conspiracy theory.   


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Retired President

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Reply with quote  #16 
Well said IsellLettuce. You are correct and in fact many times the operating companies EI percentage is higher than the EBITDA percentage so without it, they are in the red.
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