Leverage: How GPOs work
/Trip Wheeler, President SB Value
A group purchasing organization or GPO is a very simple, yet amazingly powerful concept. A GPO is exactly what is sounds like – a group of companies working together to get better prices and service than any single company could get on their own.
Large companies like Lowe’s, McDonald’s and Ford get better prices because they spend a lot of money and thus have spending leverage. Lowe’s buys millions of dollars in 2x4s each year so they get a much better price than when I buy some wood to build a deck. They get a better price because they are buying a lot more lumber than I am. And the seller of the lumber is willing to take a smaller profit margin because she will make a lot more overall profit because the volume is so large.
What’s in it for everybody?
Once the GPO has its members, it goes out and negotiates the lower price using the combined spend of all the members. The GPO simply extends that price discount down to each individual company. And for getting the member a much better price the GPO asks the seller of the product (not you) to pay them a small fee for bringing the vendor so much business. The individual company gets a much better price. The vendor makes more overall profit. And the GPO gets paid by the vendor for bringing it a lot more sales.
GPOs level the playing field so smaller companies can get the same price discounts as massive companies.
Tomorrow if you woke up and your food spend rose to $5 billion and you called to renegotiate your food prices you’d get way better prices than you do now (and a sales rep that might pass out).
Are all GPO’s created equally?
Yes and no. The buying and selling concept is the same, however, when it comes to product choice, customer service, on-line ordering availability, local representatives assigned to you, strict minimums, long-term contracts, non-competes and flexibility in brands, there is a difference.
In fact, when SB Value was negotiating for our contract, we interviewed many GPOs, brought in seasoned professionals in the field for their expert opinion and researched our options for months. So, in essence, we’ve done all the work for you!
SB Value’s ‘big 3’ differentiating factors:
1. Dedicated, personal customer service throughout the on-boarding process and then a smooth transition to a local representative for future support if needed.
2. No long-term contracts or fees
3. 100% complete flexibility to order what you want – we have the largest selection of negotiated pricing of items from protein to paper products and produce to paprika. We will also suggest products that may be of greater quality at the same price you are paying now.
In conclusion, GPOs are brilliant for caterers. They will help you save money from day one so that you can start putting those savings towards other areas of your business! Contact our VP of Sales, Clint Elkins to see how we can help you.
