This is "Supplier Agreements" by Sven Almenning on Vimeo, the home for high quality videos and the people who love them.
It’s often the case that what pays the bills is in the rails. Here, Sven Almenning is back with tips on how you can negotiate yourself a better deal from your suppliers.
MANAGING costs is an important, if perhaps somewhat unglamorous, part of any business. And in the bar world one of our greatest costs is our cost of goods (COGS) and so negotiating the best possible deals you can get with your suppliers is paramount to any business that wishes to be financially viable. That said, I am acutely aware that there have been rumblings in the trade about bars and brands that “pay to play”, and that the practice of charging brands to feature on cocktail lists or in promotions may shut out smaller brands that don’t have the budgets to support your venue.
Personally, I believe every bar needs to strike a good balance and to ensure that they are putting forward the best possible product at a commercially viable price. The following piece shows how we do this at the Speakeasy Group. Hopefully you’ll find it helpful..
Don’t sign it all with one company
Although more or less every large drink company wants to sign a contract that basically monopolizes your cocktail list and speed-rail, I would advise against it. There are a great number of reasons why I don’t find this to be good practice, but the main one is perhaps that it will limit your drink offering and potentially negatively affect the quality of the products you are serving.
What I am open to, and the way we do things at the Speakeasy Group is that we’re happy to contract 70% or so of our list to one supplier. What you are basically doing is signing up for a volume discount. By promising that you’ll deliver volume from a supplier, you’re given better pricing and financial support. The value of doing this is significant.
Forecast your volumes in detail
At the Speakeasy Group, we prepare a very detailed document that forecasts our turnover for the year. This may be hard when you are opening a new venue, however, we have found that we can quite accurately forecast our takings as long as we break everything down into minute detail.
To me, this means creating a document which breaks down your sales into each individual spirit category as well as beers and wines. The forecast also shows what volume comes from the cocktail list and what volume comes from the speed rail. (Whilst I am no Excel guru, you can find the documents I have developed for this as a free download here).
A well-structured forecast is a necessity of well-prepared negotiations with your suppliers.
Our forecast then creates the basis for our tender document which is presented to all the different drinks companies we want to talk to. This document also includes details of any specific activities or promotions we are planning to run in venue such as masterclasses, whisky clubs, appreciation societies etc., each one with a forecasted volume attached to it.
For the 70% component of our list it may only be 2-3 companies that we feel are able to compete, however for the rest of our cocktail list, and offering (think display cabinets, masterclasses, drinks trolleys etc.) we tend to go quite wide as there are so many distributors we want to work with.
Calculate the cost of each SKU to you
In my years in the industry both as an importer of spirits (back in the olden days) and as an agency owner (Behind Bars Industry Services) I have witnessed some crazy deals made by bars. One that really stood out was a venue that chose their “cocktail pour vodka” based on a contribution to the venue for branded aprons. They were cool looking aprons, but, the total spend on them for the venue cannot have been more than $400. In return the bar was now pouring a vodka that was $0.30 more expensive per nip (that’s an additional $ 7.50 per bottle) compared to the vodka they had previously been pouring. This venue was doing three cases of vodka per week. At 36 bottles, at $ 7.50 per calculated over a 12-month period results in an additional cost to the venue of $13,650… Those were some pretty expensive aprons in the end.
When I get my offers back from suppliers I make some very simple calculations. I add up how much money I will be spending on each product, and with each supplier for the year; using the same volume figures I presented them with. I then deduct any support they are giving us. The final figure then guides me in my decision. I am not saying you should always choose the cheapest option, but, be aware of the cost involved in going for a more premium priced product. Is it worth it to you to pay an additional $ 8,000 per year to use a specific rum in a specific cocktail? If so, sure choose the more expensive. At least now you know the cost of your decision.
Structuring your deal
When we negotiate our pouring deals, prices and supplier support we tend to approach it from two different angles: first, volume and price, and second, marketing support.
Price and volume is the domain of the sales rep you are dealing with. They have to justify all the support they are giving you based on the volumes you can deliver. Any money invested back into your business, be it in the form of up-front cash contribution, rebates, discounts, glassware etc., must (normally) be covered by the volume you are delivering for them.
My preference here is to go for a best price off invoice rather than having to deal with rebates. The former means you get their best price on the invoice, the latter means the supplier will give you a cash reimbursement based on your volume. Rebates are fine and we occasionally do sign up for them as some suppliers are able to provide a better price this way, however they are a lot of work as you need to diligently track your volume and then reconcile this with your suppliers and wholesalers.
Marketing Support is a bit different, and also a bit harder to get. However, if you are a bartender or a bar owner with a good reputation in trade and you are someone who can take a creative approach to business you might find there are pockets on money available to you via the marketing department that your volumes may not justify.
For example, when we opened Eau De Vie we asked liquor companies to pay an annual fee to have their whiskies displayed in our display cabinets. No volume was attached to this, however brands received great exposure in venue, and a number of companies were happy to pay for this. Another example is our cocktail videos that we use to promote our venue to our guests on social media. Any company who wants to feature on
our cocktail list need to contribute towards these videos above and beyond their cash contribution and price deals that we make with them.
Cash up front
When you are opening a bar getting some up-front cash from your suppliers can be real handy. And to be honest, I always ask for cash contributions when opening a new venue. That said, if a supplier is giving you cash up front they will need to make this back on what they sell you and you will most likely not receive as good a price as if you simply go for an off-invoice option.
Secondary trade partners/suppliers
Once we have secured our main supplier, we then open up the remaining of our cocktail list or speed-rail to brands we really want to work with. However rather than just selecting a few brands and throwing them on there, we negotiate both price and support with each brand. There can be some decent volume to be had here for the brand, and I want to make sure we are getting as good a deal as we can on every product.
We have cocktails on our list that we sell hundreds of a week that sit outside our main pouring agreement. If we can save $0.30 on each 30ml nip over a year, this adds up. (100 cocktails at 50ml base spirit with a $0.30 saving per 30ml equals a cool $ 2,600 in additional profits for the year. Not huge, but worth having a chat about with your supplier). The $0.30 saving per nip also means you can sell the drink at a lower price, which in turn often will drive higher volume.
Secondary trade partners are also asked to support us with cash from their marketing budgets such as videos, photography, glassware, etc. These are all sales drivers that will help promote their brands and thus create sales in venue. A fantastic example of this is the Balvenie Thor’s hammer that was created for Mjølner. I mean WOW. This is a thing of beauty and nearly every guest we have in the venue will photograph it and share it with friends creating buzz both for us and for the brand.
Regardless of what you end up doing and who you end up signing, do your best to adhere to the deal you have made, and make sure that the suppliers are honouring their end of the bargain as well. In the end we both need each other and there are a lot of benefits in working closely with your key suppliers. Both financial and otherwise.
Good luck & much love, Sven.
• Sven Almenning is the founder of Eau De Vie and the Speakeasy Group as well as online hospitality training platform Ananas. He was Bartender Magazine’s recipient for the Outstanding Contribution Award in 2009 and has been in the top 5 of Bartender Magazine’s bi annual Most Influential List every year.
• Please note the advice given in this article is general in nature and not to be considered specific legal or financial advice and isn’t a substitute for professional advice.