Average margins restaurants pay for food ingredients

The Restaurant Boss Ryan Gromfin and foodservice sales vet Dave Miesse reveal unwritten rules about average margins your local distributor applies to the food products you buy.

Average margins video transcript

Is there an average margin?  I’ve asked this question before  and I’ve got different answers, but I’ve heard and I’ve seen it that when a new restaurant is opening… they’re an independent never operated a restaurant before… and the rep gets assigned to the account… and rep’s manager is going to say something along the lines of “put these guys at about 18 percent.”

Or when the corporate guys are buying from Sysco… or when Chili’s is using Sygma as their distributor, they’re buying at 6 to 8 percent.

Is that conversation happening where distributors are saying… “operator, you’re a pain in the butt… going to be driving you crazy… I don’t want to see your ticket come in less than X percent.

Street business is what they call it at a distributor versus a multi-unit or national account… or contract business as you might call it.   But street business is the big door prize for every distributor.

U.S. Foods just came out with their annual report here a couple of weeks ago for the investor meeting.  You’ll see in there the street part of the margin and all of the things they’re doing because of the margin they make on the  street versus the margins they don’t make on the contract business.

Yeah it’s it’s huge.  And what I would say if you look on the U.S. Foods website and they’re up to about 20 percent.  Sysco is around 18.9 or something like that.

So my numbers are correct…  they’re trying to get 18-20 percent out of street accounts?

Or more!

Why average margins for chains are so low

And where is the corporate rate roughly?

About 10 points less than that because they’re not paying a rep. You have guaranteed business.  It’s more of a drayage service because most, like Chili’s you mentioned, all have deals made with the manufacturers.  All Sygma is doing is being the delivery service.  They really don’t have any cost really except  the transportation and warehouse storage facilities.

In a broad line distributor warehouse selling street business, you’ve got 10,000 products.  And I’ll say 50 percent of those products are slow-moving items.  That’s the single biggest problem that every distributor has… lots of products that are not moving.  Every Friday or Monday sales reps get the slow moving or discontinued list.

The reps are then told to go out and try to sell more of this stuff.  Well, nobody wants to buy that stuff. That’s why it’s slow moving!

The whole model of  broad line distribution really needs to be revamped and I think with the Internet and with Amazon and Restaurant Depot that the distributors are saying, “oh what are we going to do next and what’s it going to look like.”

I get asked all the time about the future of the DSR, or the future of the broad line distributor…  will everybody be ordering everything online.  The answer is no.  But I do encourage operators to order online… especially if they have a bad rep.  There’s nothing worse than a bad rep… because they cost you money.

Those reps mark your stuff up even more because they think I’m bad and I’m not selling new accounts… so, I’m going to jack up what I am selling.  And they have the freedom to do that… no sales manager that I know is going to say “Dave, lower the margins on that customer!”