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agoodcustomer

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Reply with quote  #1 
I own a few locations and am generally a happy US Foods custkmer. Recently I've been approached by Sysco with some upfront money and an MDA. US Foods has also countered with upfront and a rebate program (no locked in margins, that I can so far tell.)

I was wondering if anyone had ideas of how to negotiate and evaluate these two offers apple-to-apples. All I really care about is the best pricing year-after-year.

Thanks!!
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SCURVYCHEF

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Reply with quote  #2 
Well, coming from distribution thats sad that is the only decision you have to make. What about all the other solutions that a distributor can bring to the table. At the end of the day a few pecentage points on one of your portions won't make or breaK you.

If you are really that concerned about price tell them you want a mark up schedule and do a market basket test. Now remember they have to make money too or else they are not good for you. But soon as you guys can get a transparent scheme on the table you can likely move past this focus on some more valuable things.

Now I work for one of these two companies and I'm not going to tell you which one. although you can likely figure it out from some of the other threads. but one of them will offer you more solutions to control costs and time. At the end of the day price is just one of many things that matters
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MagicChef

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Reply with quote  #3 
We all purchase products pretty much for the same costs. Companies would love to tell u they get a better cost than the other but, depending on how their internal structure is set up (I.E. employee benefits, profit share, shrink, every president has a secretary..., and the corporate distributors have to pay the home office, and if they are publicly traded they need to pay their investors) it only matters when it gets to u. This is all put on to the top of product as what we call pad. As for rebate programs, we all have them. If u get 2% back, it has to come from somewhere and it is in ur price so it's a $5 item coming in ur door or $5.20. Your pricing advantage comes into play on how that company operates and that can be one way one year and another the next. Does that company focus on raising their gross profit margins that year or cut GP to move cases. Each area of the country is different as well, and there are warehouses that are good and some not so good within the same company.

If u find a sales rep u like that u feel is honest and doing the job for u, then work with them. Someone is always going to flash u a low price at ur door cause their on the outside looking in from the street. That being said don't get taken advantage of neither.

If I charged u an extra $100 a week and u broke it out in ur food cost, it would be a blip. I wouldn't be as concerned with food costs unless u are having an issue. As a sales rep we need to make money, we have families and need to make a living. We shouldn't be ashamed at that. You shouldn't be upset that we do, we all have to profit: You, Us, and the Company. Hopefully your rep is genuinely concerned about your business and how to help you to find ways and products for your customers.

It's not the company, it's ur rep and ur drivers. They are the ones u see everyday.

The greatest thing for a sales rep is a loyal customer

PS - I work for an Independent, so I have no stake in if u use US or Sysco

I hope u find what u need for your business.

All the best
Mike

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ISellLettuce

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Reply with quote  #4 
MagicChef said it well.

Look, unless you're struggling financially, "upfront money" is simply money that is being added to your margin somewhere. Consider it a loan. You're paying it back through your cost of goods. Never take upfront money that locks you into a contract without negotiating a set margin schedule that you have the right to audit. I've seen too many times where someone takes money (often times a lot) and then gets hosed on margin and they can't get out of it without paying back the money they were given. By the time they are done with their contract, they've paid that "loan" back ten fold. It's loan-sharking at its finest.

All in all, your best deal will always come from the company (and rep) that you feel are best suited to take care of your business. Negotiate a fair (for both sides), net margin schedule with that company and you'll be in good shape. Always remember any "perks" are always baked into margins somewhere. After all, distributors have a business to run as well, and those type of incentives cost real money.

I'm biased, but I'd go with option #3
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agoodcustomer

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Reply with quote  #5 

Two vendors are trying to get my business. Both have offered a signing bonuses. One has an MDA with locked margins, the other is offering a tiered rebate program. I’m simply trying to figure out how to evaluate them. I’m asking here to figure out the questions I should be asking each party. I’m trying to negotiate the best deal between them.

It's possible neither of these deals are in my best interest. Maybe a multi-year contract gives me less flexibility to monitor pricing. ... no idea! Looking here for help. Thanks! 

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ISellLettuce

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Reply with quote  #6 
I think that many have given you exactly what you should be evaluating. 

First and foremost, if all you care about it the best possible price in your door, then negotiate the lowest possible FIXED margin schedule that you can. 

If you take upfront $$$ or rebates for that matter that's being figured into the margins they are presenting you. So if you don't need the money, tell them to forget all the bells and whistles and come back with the best possible FIXED margin schedule that they can live with.

Might I add that Sysco is notorious for having multiple layers of cost. So when distributors talk percentages, what does that really mean to you? Nothing.  I would give them 15-20 of your top items and have them do a "market basket" based upon their proposed margin schedule and evaluate that. What effects you is the price in the door to you, not a distributor's markup.

Does that make sense? Sorry...I've written and proposed hundreds if not thousands of these types of deals. There's probably not much that I haven't seen.

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agoodcustomer

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Reply with quote  #7 
Thanks!

This started with a market basket. We gave Sysco a usage report of our top 30 items, and they came in 5% lower. (We didn't show them our current pricing, only usage over the year.) Normally, I'd go back to my US Foods rep and let them know it's time to sharpen their pencil, but Sysco also added the big upfront money and an MDA with fixed margins --- I had never heard of this concept. I feel like Sysco has for the first time showed real interest in our account. (They've been trying to get us for years but all the other programs they offered were just not interesting!)

US Foods responded with more upfront money and a tiered rebate, but I've not pushed them on fixed margins. Sounds like that's what I need to do.

What's difficult for me is, my understanding is vendors have off-invoice rebates that make these contracts potentially less real.

Also, how does one do an audit?

And you're right, the upfront money and the rebates don't interest me. The best contract pricing is all I care about.
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ISellLettuce

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Reply with quote  #8 
So think of rebates this way (tiered or not). I'm assuming when you say "tiered" that its based on some sort of drop size, especially if its off invoice. Let's say the top tier is 3% back. The top tier would be baked into your margin. So at a 10% margin, giving you 3% back, is a 7% program. Just tell them to give you a 7% program in that case. Believe me, it's easier for both sides to manage.

In terms of an audit, if a distributor has nothing to hide, they'll always allow it. All companies are different in how they handle them, but they will be written into your contract. Example: Once a year you are allowed to audit no more than 25 items of your choosing from a 30 day time period of your choosing. Typically the will provide documentation that states their actual price, your price based on negotiated margins, and the price you actually paid on your invoice. One assumes those last two typically match up, though errors happen from time to time and those will be refunded back if they aren't in your favor. Typically those get caught prior to any customer initiated audit though if you have an honest distributor.

My advice to you from this point is simple.

1) Evaluate who you want to do business with, and who you think is your best partner in helping your business grow and become more profitable. Put 75% weight on that.
2) Ask for their best fixed margin schedule (no money, no rebates) and give them your top 15 items to price out based upon those margins. See how those shake out, and put 25% weight on that.

You'll end up with the best pricing in your door from the company and person that you want to trust your business with, doing exactly this. Never forget #1. Too many people nowadays overlook that in search of the almighty dollar. Partner with somebody who cares about your business and can demonstrate ways to help you grow and become more profitable. A good distributor partner will help you MAKE much more money than you can ever save by pitting one against the other. At the end of the day, that's what its all about.
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Trailboss

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Reply with quote  #9 
goodcustomer, You must be a high volume customer for both companies to be offering a signing bonus. Having said that be sure to protect yourself from the pit falls of a hard contract.

Thus far what others have said is good information to consider when making a decision concerning the future of your business.

Other thoughts you should consider.

1. As one member indicated make sure which "cost" from which your margins are             based. Delivered Cost to OPCO or Sales Cost. Ex: You may get a better "price" at           11% over delivered cost vs 6% over sales cost. 
2. Is the margin schedule based on markup or margin on sales?
    ex: $10 at 10% markup is $11.00
         $10 at 10% margin on sales is $11.11
3. Audit Privilege - Distributor allows you to review their Mfg invoices to confirm your       margin schedule is being maintained accurately. (applies to delivered cost base             only)
4. Manufacture rebate capture for you. Most distributors are aligned with a program that     captures national rebates that you or the distributor may not be aware is in effect. 
5. Open negotiations with manufactures. The distributor will allow YOU to negotiate           directly with the manufacture of a product to set a guaranteed cost on an item either     FOB, Delivered Cost or Fixed Sell Price to YOU.
6. When it is all said and done.... when you have completed your due diligence.... the       toughest question you must ask yourself is which distributor has your best interest at     heart which distributor will work with YOU the best to help you reach your goals and     as someone mentioned earlier.....which distributor representative has or will provide     you with the best service level and meet or exceed your expectations.

Lastly.... have you considered adding a strong regional distributor to the mix? Sometimes being a big fish in a small pond is better that being a small fish in a big pond.

Food for Thought ---- Good Luck
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agoodcustomer

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Reply with quote  #10 
Quote:
Originally Posted by Trailboss
applies to delivered cost base only


What does that mean? Thanks!!!
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ISellLettuce

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Reply with quote  #11 
agoodcustomer - what state or geography are you in if you don't mind me asking?
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SCURVYCHEF

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Reply with quote  #12 
Quote:
Originally Posted by agoodcustomer


What does that mean? Thanks!!!


In simple terms i believe he means (net cost + cost to deliver goods) just to break even.
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laser

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Reply with quote  #13 
If it is a true MDA, the definition of cost and margin will be written into the contract, which can be  misunderstood by someone who is entering into an agreement for the first time. Sysco should explain in the contract, as well, that they have rebates and discounts from manufacturers that are not reflected in delivered cost. Another piece of advice is to get both companies to define the cost your pricing will calculated from. They should be willing to do this. Godd luck.
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laser
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broadliner

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Reply with quote  #14 
another thing to consider, besides pricing, rebates, etc, is what other services are offered. They can be free (like inventory and recipe/menu cost tool on usfoods.com, inhouse specialists and consultants) or at a minimal cost (Avero, Chow Now). These are things I know that Sysco doesn't offer.
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Trailboss

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Reply with quote  #15 
Goodcustomer....

"applies to delivered cost base only"

Means if you are setting up a contract with an audit privilege the only cost you are interested in is the delivered cost to the distributor. Setting the margin over delivered cost is the only way you know the percentages you are being charged are accurate.


 
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Refusetolose

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Reply with quote  #16 
Agoodcustomer,

I noticed you said you were "a generally happy US Foods customer". That would imply you are unhappy about something. Would you share what you are umhappy about?
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