SPENDIFFERENCE, ENTEGRA ANNOUNCE STRATEGIC PARTNERSHIP

Friday, February 3rd, 2012

Restaurant Chains to Gain More Buying Power as They Struggle with Rising Commodity Costs

DENVER – SpenDifference, the rapidly growing supply chain management company that works with chain restaurants to save money, is joining forces with entegra Procurement Services® to offer clients greater cost savings on a broader array of contracted products.
SpenDifference provides purchasing and distribution support to such well-known chains as Taco John’s, Sizzler, Pizza Ranch, Big Boy and others. It provides mid-size restaurant chains a unique combination of buying power and expertise, while supporting strong adherence to product specifications. Entegra is a subsidiary of Sodexo, providing procurement management services for multi-unit clients in the hospitality and non-commercial industries.
The new partnership, effective February 1, 2012, provides SpenDifference clients with access to entegra’s more than 400 national supplier agreements, ranging from branded food products to paper goods and supplies. “SpenDifference provides a comprehensive supply chain solution to chain restaurants that are struggling with rapid inflation, lack of resources and limited purchasing scale,” said Maryanne Rose, SpenDifference president and CEO. “With this partnership, our clients will have access to an even broader array of products – leading to greater cost savings on quality products that are available for operators to purchase.”
Entegra Procurement Services is an integral part of a global procurement network providing services to over 16,000 sites in the United States. With more than $4 billion in food and related supply purchases in the U.S. alone, entegra provides competitive pricing, extensive product selection, leading brands and responsive service to the customers they serve throughout the country.
Dana Johnston, entegra’s executive vice president, said the two companies complement each other and are bringing a new standard to organized purchasing. “Entegra always strives to partner with industry leaders who create value for their clients and for the manufacturers with whom entegra partners. In partnering with SpenDifference, we believe we are contributing to a unique solution for mid-size chain restaurants that provides transparency while creating economic value and supporting the national deployment of brand specifications.”

About SpenDifference
Denver-based SpenDifference, LLC, partners with mid-sized restaurant companies, providing full-service supply chain services. SpenDifference delivers significant cost-savings, while ensuring clients’ product specifications are maintained. It currently manages more than a half-billion dollars annually in spending for such chains as Taco John’s, Sizzler, Smashburger, Pizza Ranch, Big Boy and others.

About entegra Procurement Services
Entegra Procurement Services, LLC provides procurement management services to a select group of clients across the United States, while ensuring that value is generated for clients and suppliers alike. Entegra is headquartered in Gaithersburg, Md.

What to do about commodity prices?

Thursday, May 12th, 2011

By Dana Tanyeri MonkeyDish
May 1, 2011

You could raise prices. Some operators are choosing a different path.

With many commodity prices hitting new highs and food costs overall expected to rise by 3 percent to 5 percent this year, many operators recently raised the white flag in their battle to hold the line on menu price increases. Led by McDonald’s, which in late January announced it would take a 2 percent to 2.5 percent increase this year, other players soon followed, including Texas Roadhouse, Tim Horton’s, Buffalo Wild Wings, Applebee’s, Morton’s, Cracker Barrel, Panera Bread, Cheesecake Factory and Red Robin Gourmet Burgers.

The move isn’t universal, however. Many others remain committed to keeping higher menu prices off the table as a survival strategy despite climbing commodity prices. With the economic rebound taking longer than anticipated and rising fuel costs taking a bigger bite out of consumers’ disposable incomes, they see menu price hikes as simply too risky right now.

Martyrs? On the surface it may seem so, when you consider just how significant some of the increases in raw materials are and the fact that food costs almost without exception are expected to head higher still through 2011 and into 2012.

Take proteins. Cattle prices for 2011 compared to 2010 are expected to be up nearly 25 percent, hog prices will be up about 26 percent, turkey prices up about 12 percent and broiler prices up about 5.5 percent, according to Altin Kalo, commodity analyst for Steiner Consulting Group, Manchester, New Hampshire. Behind that rising tide, he says, is a volatile combination of sharply rising input costs (e.g., corn and soybeans for animal feed), bad weather in growing areas, soaring export demand and a global population that’s grown by a billion people over the past decade. (For more information see Foodservice Buyer.)

Beyond proteins overall, cheese and dairy prices are also up significantly. “Year to date (early April), we’re at $1.84 per pound on block cheese. This time last year we were at $1.40 per pound,” says Christopher Webb, director of commodity procurement at SpenDifference, a Denver-based supply-chain management firm that does outsourced purchasing for regional restaurant chains. “The price on Class III milk that goes into commodity cheddar is up from $13.31 last year to $16.88 now.”

Animal products aren’t the only ones spiking upward. During the first quarter, fresh produce skyrocketed—in some case up to 400 percent per case—due to weather calamities in key growing areas. While at press time they were coming back down to earth, Webb says produce prices will nonetheless rise overall this year beyond their normal weather-related swings. “For the first time in a long time, we’re seeing growers shift their acreage to commodity corn to take advantage of the strong market and record-high prices. You’ve now got third-generation potato farmers in Idaho switching to corn, for example, so produce supplies could be tighter than normal this year due to those types of shifts.”

Wheat, too, is on the rise. In early April, year-to-date bushel prices on the Chicago Board of Trade were $7.88 compared to $4.72 per bushel at the same time in 2010. While significant wheat acreage was planned this year, Webb said early-season weather had not been ideal and it was too early to predict what the rest of the year might bring.

That’s largely true in the case of corn, as well, which as of early April had more than doubled in price over the prior year and is the one commodity, along with fuel, that dramatically impacts virtually all others. “If we have a not-so-good corn harvest this year—not even a bad harvest, but just a so-so one—we’ll see very high prices for proteins overall going into 2012,” Kalo says. “In the case of cattle, you’re for sure going to see very high prices well into next year and likely beyond because the cattle production base isn’t there. It takes a good three years from the time you make a decision to expand your herd to the time that those calves are going to be ready to come to market. Hog producers aren’t expanding their breeding herds, either, because of high input costs, so you’re not going to see any meaningful increase in pork production through the first half of next year. When the corn harvest comes, that’s when we’ll get a good idea of what will happen for all of 2011 and beyond. But at least in the near future, there’s not much relief in sight.”

While some operators have thus far chosen to forgo raising menu prices, few in the current environment can afford to just sit tight and wait it out. Here’s a look at how five companies are working to beat the heat on commodity prices.

Café Rio Mexican Grill
Salt Lake City, Utah
40 units

Pain points: “Kind of across the board, but produce—lettuce, in particular—went sky high for a while,” says Dave Gagnon, COO. “We were paying two and three times per case more than we normally do, and when the price goes up on lettuce the quality usually goes down. Some of our proteins are up, too. And we just had a fuel surcharge kick in, which was worked into our contract if the price of gas hit a certain point.”

Coping strategies: Don’t raise menu prices; focus on doing a better job at the restaurant level; eliminate waste by prepping smaller batches throughout the day of fresh-made items; double- and triple-check information from
suppliers and work closely with them to make sure that if prices do rise, quality remains consistent.

Togo’s Sandwiches
San Jose, California
240 units

Pain points: “We started feeling it most in the fourth quarter of last year and we expect the pressure to continue through this year. It’s across the board in areas where we haven’t locked in a contract,” says Renae Scott, vice president of branding and marketing. “Avocados, which are a critical component of one of our top-selling items, are way up in cost, about 10 percent per sandwich.”

Coping strategies: Let franchisees substitute a turkey sandwich with cranberries for the one featuring avocado in daily specials promotions; redesign menu boards to showcase a new line of toasted subs with lower food costs; sharpen the pencil against packaging to find cost savings; work closely with suppliers to hold prices down; introduce “Classic Minis,” half-sized sandwiches with better margins; take a menu price increase of an average of 10 cents
per sandwich, but also decrease the price on a few to bring them under $4; purchase supplies from regional sources to save on transportation.

Millennium Restaurant Group
Kalamazoo, Michigan
8 units

Pain points: “Short-term it’s been borderline brutal in produce, with
simultaneous freezes in Florida, California, Arizona and even into northern Mexico. Usually there’s a field somewhere to shift to in the winter, but
with- out a field anywhere to shift to it was acute. But the longer term pain
is in beef and dairy. That’s where we see the biggest rising costs,” says Matthew Burian, chief procurement officer and director of food and beverage for the multi-concept group. “We’re seeing double-digit jumps on
some beef items and on cream.”

Coping strategies: Maintain current prices but focus on providing greater value via gourmet items, convenience, healthy options, great service; talk with vendors about sharing the biggest price jumps, such as the recent 400 percent spike in produce case prices; do more forward buying, particularly on chicken and ground beef; feature more local products, some of which offer cost savings and some of which don’t, but all of which guests associate with higher value.

Extreme Pizza
San Francisco, California
40 units

Pain points: “The two categories that we’ve noticed the biggest increases in are cheese and flour. They’re up by high double digits, 50 percent to 70 percent from what were almost historical lows the past year or so. While they’re not at all-time highs, they seem to be headed there,” says CEO Todd Parent.

Coping strategies: Release newly updated menu with no increases to base pizza prices and with decreases to some topping prices to help boost competitiveness and traffic; offset higher commodity costs with higher volume and better labor cost; focus on providing a great customer experience; keep the menu fresh; promote exciting new gourmet vegetarian items; negotiate with primary distributor to remove additional fuel surcharges; have more frequent conversations with all vendors to keep everyone on the same page.

Sizzler USA
Culver City, California
260 units

Pain points: Known for its steaks and bountiful salad bar, Sizzler is
working to manage increases in beef, produce and dairy, in particular, through SpenDifference, its third-party purchasing agent, according to
Mike Branigan, vice president of marketing.

Coping strategies: Plan key buys and lock in pricing well ahead of
commodity market swings; pool volume on some items through purchasing cooperative; maintain menu flexibility; create a new signature attraction with underutilized tri-tip sirloin steak; balance rising costs on beef and other items with switch to fresh preparation of soups; don’t wait until contracts
are about to expire to begin negotiating favorable renewals; maintain a holistic approach to menu pricing and how consumers use the brand.

SpenDifference Purchasing Team Grows

Thursday, May 12th, 2011

In May, the SpenDifference Purchasing team will add a new Purchasing Coordinator to the line-up. Jennifer Wright will join SpenDifference May 23, 2011. Jennifer is coming to SpenDifference after holding Purchasing Manager positions with both Champps Americana and Red Robin.

SpenDifference Gains Technology Muscle with New Partner ArrowStream

Monday, October 11th, 2010

SpenDifference, a Denver-based full-service supply chain management organization, representing 11 restaurant companies, 16 brands and almost a half billion dollars in purchasing spend, has just signed a contract with ArrowStream a leading provider of supply chain management platforms and logistics services for the foodservice industry. ArrowStream has become the long-term solution provider of choice for foodservice restaurant chains, distributors and manufacturers. Its unrivaled $20 billion logistics network of more than 7,000 trading partners, combined with their best-of-breed technology and logistics innovations give businesses end-to-end, real-time supply chain data that better informs strategic decision making, improves operations, and reduces food costs, as well as logistics costs.

“As our business has evolved so have our technology needs. ArrowStream offers the robust end-to-end, real-time data and solutions our clients have come to expect from us. This partnership will help us further assist our clients as they make strategic decisions, as well as improve their operations, and reduce food and logistics costs.” Said Donald Halloran, Director of Technology SpenDifference.

“We are thrilled to welcome SpenDifference and their restaurant chain partners to ArrowStream OnDemand. SpenDifference immediately understood how ArrowStream can provide tremendous value integrating their supply chain to help their customers succeed. We look forward to a winning partnership,” said Steven LaVoie, CEO and Chairman of ArrowStream.

Midsize operators team up for purchasing power

Monday, August 18th, 2008

By CATHERINE R. COBB

(Aug. 18, 2008) As the economy continues to wither and commodity costs remain sky high, operators looking to cut costs and avoid menu price hikes are seeking strength in numbers as it applies to purchasing.

The bulk of Rock Bottom Restaurants’ purchasing department recently left to start an independent purchasing group called SpenDifference LLC.

Across the country purchasing groups that harness the buying clout of smaller and midsize companies as well as independents are gaining favor as they help take some of the sting out of purchasing through buying efficiencies and reduced freight costs.

At Rock Bottom Restaurants in Louisville, Colo., the bulk of the purchasing department recently left the casual-dining company to start an independent purchasing group called SpenDifference LLC. Rock Bottom will outsource much of its purchasing to the company, with just a skeleton purchasing department remaining at headquarters.

SpenDifference, led by Rock Bottom purchasing veterans Maryanne Lewis and Susan Waldman, intends to save clients money by combining the clout of small and midsize chains. The Denver-based company, which has been in the works since November 2007, had three clients signed up when it opened its doors in early August, including Rock Bottom, Eateries Inc. and Dream Dinners Inc.

Rock Bottom operates 34 Rock Bottom Brew Pubs, four Chop Houses and approximately 97 Old Chicago restaurants, 33 of which are franchised. Its units are scattered throughout the country, often resulting in distribution challenges, said Gary Foreman, senior vice president for Rock Bottom. Despite having about 80 percent of products contracted for good prices, the company had hit a wall in terms of further reducing costs.

“It was as good as we were going to get at our size, but with the cost pressures we needed more, and we knew that we could not get much better until we grew to significantly higher scale or found a way to join hands with others,” Foreman said. “Maryanne and her team proposed to us their new company as a way for us to save costs. We thought it was a great idea.”

SpenDifference plans to work with casual-dining companies that spend between $10 million and $120 million on purchasing. The goal is to get customers the best costs and vendors as well as transparent contract fees, Lewis said.

“It’s a new direction for small to midsized casual-dining chains,” Lewis said. “We look at it as a way to combat inflation and move the model from competition to cooperation.”

She noted that the model differs from regular group purchasing organizations by offering customized strategies to customers. SpenDifference is paid through administrative fees added to individual contracts, she said.

“We manage all aspects of a supply chain, and we help manage risks, understand market trends and give them business intelligence,” she said.

Costs will be reduced through fewer SKUs, vendor synergies and freight consolidation, which should also result in greater product accessibility, especially for small chains with just a few units in markets spread out nationally, she said.

“When people go to chains, they expect the same products everywhere, so chains have to make that happen, oftentimes very expensively because of distribution issues,” she said. “We aim to fix that.”

Webster, N.Y.-based Dining Alliance has specialized in helping independent member restaurants leverage their purchasing power for close to a decade. John Davie, president and co-founder, said the company’s membership, which has more than $450 million in purchasing power, has grown from 1,200 members a year ago to 1,700 today in seven major markets, including Pittsburgh, Rochester, N.Y., Miami, Boston and the New York cities of Saratoga, Albany, Syracuse and Buffalo.

The rollout this year to Boston has been the most successful so far, with 190 restaurants signed up for its programs.

Davie believes that in the past dining groups had not taken off because of the chefs’ perception that they purchased junk that the group’s administrators bought cheap and stuck in some warehouse. That perception is changing, and the tight economy is forcing everyone to look at how to reduce costs without sacrificing quality, he said.

“We don’t warehouse anything,” he said. “What we do is all about negotiating the best cost for the best product. We are actually able to go with the more expensive, higher-quality suppliers and save money because of our size and buying clout. This goes not just for food products but for disposables, credit card fees and with local vendors.”

Davie added that vendors could benefit, too.

“What they sacrifice on margin, they make up on volume, so they love working with our large group as they care about how many locations they get to service,” he said.

This year the company rolled out a second program, Consolidated Concepts, specializing in purchasing programs for smaller regional chains with more than $50 million in food purchases.

Davie noted that many smaller and midsize chains were struggling to get the best costs and looking to save money, particularly those with units spread out in multiple geographic regions. Consolidated Concepts thus far has roughly 100 members, though Davie said that is growing daily.

The Columbus, Ohio, chapter of Dine Originals, which disbanded as a national confederation last year after an audit by the Internal Revenue Service saddled disgruntled members with back taxes and penalties, recently unveiled a preferred provider program for its 39 members, said Diane Warren, the president of Dine Originals, Columbus, and owner of Katzinger’s Delicatessen. The program currently involves just one supplier that offers discounts based on sales volume.

“For instance, if our group purchases, say, $275,000 in a quarter, we get a certain discount and a kickback to Dine Originals,” Warren said. “If we purchase $250,000, the discount is less, and so on. If this works out, we’ll move on to other suppliers, but we want to get it right.”

The Sarasota Manatee Originals group on Florida’s west coast also is testing group purchasing strategies. While the 50-plus-member group is too diverse in its offerings and volumes to group purchase most items through large vendors, the group’s broad-liners and linen service companies give a percentage back to be used for marketing. The group also has negotiated with credit card and insurance companies, and recently began testing a group-purchasing program with a local
fish purveyor.

Michael Klauber, owner of Best Foods and Michael’s on East in Sarasota, Fla., said the bulk of members serve seafood like shrimp, mahi mahi and grouper, so the purveyor is working to negotiate a price for the group based on a six-month commitment. Next, the group will attempt to negotiate pricing on wine and spirits.