Sleeping with the enemy

We know it’s tough out there but the key thing is what are companies doing about it? Many are attempting to strike the balance between focusing their people on an unrelenting drive to reduce cost, whilst also trying to keep the top line moving forward. Doing both at the same time is a tough act to pull off. While operators prefer to talk about how to fill bars and restaurants, leaving the finance department to worry about the less sexy issue of margins, there are signs that some companies plan to adopt an innovative approach to tackle the well-documented raft of rising costs. Some groups are considering sleeping with the enemy. A clutch of the biggest groups in the UK chain restaurant market have come together to conduct a pilot study to assess the likely returns from the establishment of a joint buying group. “Cooperation” has been around for a long time, but until recently there have been surprisingly few examples of genuine success in delivering long-term sustainable cost reduction through working with the competition on buying. Some examples do exist though. Away from the eating and drinking-out market, the Star Alliance has made great progress. Originally conceived to improve the revenues and yields for its now 20+ airline members, it now buys the majority of members’ jet fuel worldwide. In the hotel business, eight groups including Radisson, The Real Hotel Company and Guoman & Thistle Hotels have pulled together their UK buying operations into a buying syndicate, worth more than £50m. It is the single largest collaborative group in the foodservice world. A little more than a year in, it is well on track to meet its 6% improvement goal. Initially, the project – called the Mayfair Buying Group – picked the least contentious area of office supplies first, producing a 24% improvement against a 7% target. The project has since been widened to include food and beverage, chemicals, disposables, water and waste. A similar collaborative has been established in the private hospitals sector including groups such as Classic Hospitals, HCA and Nuffield Hospitals. For the restaurant and pub sector the challenges around specification and competitive edge make collaboration more challenging. The key is where companies choose to work together. Nando’s is unlikely to ever consider buying its chicken – a clear USP – with other groups, nor Starbucks its coffee. The supply chain is a key part of their competitive advantage. A buying group will always concentrate on areas of common supply where working with a competitor or group of competitors does not present an issue. For every Nando’s chicken wing (or peri peri sauce), or for every Starbucks coffee, there are other F&B items that can be bought jointly and a raft of other costs such as chemicals, disposables and utilities that can be reduced. It seems certain that more and more groups will look at coming together to tackle the issue. It would be no surprise to see some fierce competitors joining buying forces on non-contentious items. One of the critical factors in making a buying group work is to find a third party with the specific expertise and knowledge to run it. One such company is called Prestige Purchasing. Writing in the latest issue of M&C Report, David Read, its chief executive and a former operator, says: “In the fight against these global forces it may well be that working with the ‘enemy’ is what is required to win the war.” David Read will be speaking about this issue at M&C Report’s prestigious high-level seminar and networking event Restaurant 2008. For more information on this event, which is to be held in London on November 6, 2008, or to secure a place please call 01293 846536.