Over the past couple of months, we have received a number of inquiries from the media, food suppliers and equity firms regarding foodservice GPO activity. With the scarcity of labor, inflationary pressures and a shortage of product in the foodservice industry, Group Purchasing Organizations (GPOs) are once again garnering industry attention as operators look to cut costs while also trying to maintain patron satisfaction.


This means manufacturers must be prepared to handle this important but complex trading partner in the foodservice value chain, which accounts for nearly $25 billion in operator purchases annually.


For clarity, a (GPO) is an entity formed to leverage the purchasing power of many operators to obtain better pricing for its member businesses. Since many businesses purchase the same types of products, by collectively purchasing they can reduce the per unit price. GPOs can be known as co-ops, collectives, consortia, leveraged buying or procurement groups. Some of the largest GPOs are Leverage Buying Group, Dining Alliance, Foodbuy, Avendra and Entegra.


E-Procurement is a GPO Capability


In addition to the benefits of purchasing optimization, distribution management and culinary solutions, GPOs are tapping into the digital foodservice economy by expanding eProcurement services. Foodbuy and Entegra – two of the largest GPOs in foodservice – have explored data and digital tools to boost client performance.


Top Foodservice GPOs


GPO Facts
Leverage Buying Group Founded: 2008

Purchasing Power: $2B

Number of Members: 2,000

Segment Focus: Restaurants

Dining Alliance Founded: 1998

Purchasing Power: $6B

Number of Members: 19,000

Segment Focus: Restaurants/MCOs

Foodbuy (Compass) Founded: 1999

Purchasing Power: $10B foodservice

Number of Members: 2,000

Segment Focus: Healthcare/Hospitality

Avendra (Aramark) Founded: 2001

Purchasing Power: $5B foodservice

Number of Members: 8,000

Segment Focus: Hotels/Hospitality

Entegra (Sodexo) Founded: 1999

Purchasing Power: $10B foodservice

Number of Members: 30,000

Segment Focus: Healthcare

Source: Food Management, The Eatery Buying Group


GPOs began as a buying consortium for healthcare providers for medical supplies, but over the past decade institutions have used GPOs to include foodservice purchases. While penetration of foodservice GPOs is largest in the healthcare segment, hospitality, education and restaurants also participate in GPOs.


Reasons Operators Use GPOs


There are a number of advantages for operators to use GPOs in addition to the savings. This includes marketing and market insights as well as increased menu options and variety. Still, there are drawbacks such as bulk purchases that may result in storage problems and minimum case ordering.


Operator Pros and Cons of Using GPOs


Pros Cons
  • Buying Power: By placing orders as a group, the distributor sees an increase in sales that translates to volume-buying cost savings. 
  • Member Alignment and Agreement. Operators get better prices if they choose to buy in volume rather than variety, so it’s important for members to agree on similar products, which doesn’t always happen.
  • Increased Menu Variety:  As part of a larger buying group, operators receive discounts on new products or better quality products.
  • Delivery and Storage Limits: With GPOs, a school may get fewer deliveries with larger quantities, and that may present storage problems.
  • Labor and Product Savings: GPOs often work with major distributors such as Sysco, GFS. USFS and others.
  • Minimum Orders: Certain GPOs require a minimum number of cases to be part of a bid.

Sources: GFS, Foodservice IP


Manufacturers Must Be Vigilant 


While GPOs are largely a “win-win” for operators, manufacturers (and distributors) must be careful when working with a GPO. The drawbacks for suppliers include margin pressure, multi-dipping on rebates, chargebacks/fees that can be 1.5 to 2.0 percent of sales and other administrative headaches.


Pros of GPOs Drawbacks of GPOs
  • Use GPO business to earn a strong position with broadliners
  • Buying advantage if the GPO is highly compliant
  • Large volume opportunities
  • Tight margins
  • Strong possibility of paying allowances on existing business
  • Double-dipping on rebates
  • Extendibility issues
  • Complexity of business
  • Strong-arm tactics for manufacturers to comply with GPO pricing requests
  • Administrative-intensive

Source: IFDA


Learn to Work Together


Because the foodservice economy is stretched thin with labor and supply chain shortages, the importance of GPOs will continue to increase rapidly as a hedge against higher prices. Manufacturers serving many segments must be prepared to understand how to work effectively with GPOs because they are not going away.

Tim Powell is a Managing Principal of Foodservice IP. Tim serves as a trusted foodservice adviser to management at several food companies.

To learn more about FSIP’s Managing the Digital Foodservice Economy study, click here.

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