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