As part of our series on restaurant cost-saving ideas, the BlueCart team has prepared a blog post with tips on negotiating contracts with vendors. Although previous articles on reducing operating expenses were centered around restaurant businesses, this one offers advice that applies to multiple spheres of business. Negotiating contracts with vendors is not only a major element of a restaurant’s success but is also important for the majority of companies. It can help businesses maximize profits and be a step ahead of their competitors.
Key takeaway: During the process of negotiating contracts with vendors, businesses need to use various bargaining strategies in order to get better deal terms. Make sure to prepare by understanding your business needs and the positions of both parties.
Vendor Negotiation Strategies
There are multiple techniques that can be used while negotiating contracts with vendors. The main things you need to know are the strengths of your position and the needs and expectations of the other party. For example, if you’re dealing with a new and small produce supplier it can be much easier to bargain favorable terms compared to negotiating with an established broadline distributor. Here are some popular strategies used when negotiating contracts with vendors.
Bringing New Value
This is especially important when negotiating contracts with vendors that are established and powerful. If you bring new and different value to the deal, this can be a reason for their side to offer favorable terms. This can include things like:
- Access and exposure to new markets;
- Marketing partnership. This means mentioning the distributor on various marketing channels and including their logo on your website;
- Reduced risk for suppliers. The risk can be reduced by establishing flexible pricing policies that benefit the distributor.
Share Your Future Plans and Establish Trust
An established supplier is likely to offer favorable terms to clients who plan to scale their operations and increase order value. Whether you’re negotiating contracts with vendors of restaurant supplies or other goods needed in day-to-day operations, showing your willingness to grow can be the key to a successful deal. Keep in mind that the goals and objectives should be realistic. If during the negotiation process, the other party considers your plans to be unreasonable, they might see this as a bluff to score a better deal.
Sharing your future plans while negotiating contracts with vendors can also help establish trust. And that can be a major factor in bargaining a win-win deal. Furthermore, while negotiating and sharing the future plans of your enterprise, you might show interest in the future plans of your distributors. Perhaps you can help them achieve their goals and offer additional incentives to strike a good deal.
Improve Your Position Before Negotiations
In order to have better leverage, businesses can do a lot to improve their negotiating position before the bargaining phase. This could be done through showcasing previous success or including other incentives for wholesalers to offer a good deal. For example, if your company is part of different business networks, you might offer the other party to share their contracts with other local businesses. This gives them an additional incentive to negotiate a good deal with you.
Weaken the Other Side’s Position
If you come from a position of strength and you know that the other party needs this deal more than you do, there are multiple ways to achieve excellent contract terms. Here are some examples.
- Compare their terms with propositions of other distributors;
- Share your interest in long-term commitment and your expectations to get better terms as a result;
- Explain your alternatives. Say that you’re considering to work with other vendors or directly with manufacturers;
- Show what you bring to the table and what you expect from the other side.
Use the Carrot-and-Stick Approach
Some suppliers in the restaurant industry tend to prioritize the requests of clients they don’t want to mess with. So make sure to build trust but at the same time show you are willing to take legal action if necessary. While negotiating contracts with vendors, you can offer them to be the top priority for your company when it comes to paying invoices to suppliers. However, you expect the same when it comes to deliveries.
Renegotiating Contracts with Vendors
The fast-changing pace of the world means that deals need to be renegotiated every now and then. Restaurant managers should be careful when renegotiating contracts with vendors. The main factors to be taken into account are the current state of the market, the expected trends in supply and demand, and the satisfaction of the services for both parties.
When renegotiating contracts, take into account whether the distributor has shown a willingness to be flexible and to support your business. Wholesale prices should not be the only benefit of working with suppliers. Instead, they should offer various technological and automation solutions that ease the ordering process and can be integrated with restaurant technologies.
Renegotiating contracts with vendors is usually focused on prices. Most distributors want to keep their flexibility and their clients want to get more favorable terms. Before the time of renegotiations, you can improve your position by paying as soon as possible (or even in advance), increasing order volumes, and consolidating orders. This will make you a more valuable customer for the distributor. Retaining a current client is much easier compared to the customer acquisition process. Use this to your advantage.
Frequently Asked Questions about Negotiating Contracts with Vendors
Business negotiations can be tough. Whether you’re an experienced negotiator or you haven’t had much dealings with negotiations, the answers to the commonly asked questions below will help you.
What Are Other Restaurant Cost-Saving Ideas?
There are multiple ways to reduce restaurant expenses. Automation and investments in technology that can reduce labor costs are among them. Here are some additional ways to reduce restaurant monthly expenses.
- Improve inventory management. Poor inventory management can lead to losses due to spoiled food products. Improving the conditions of a restaurant’s storage will also help your staff be more efficient.
- Reduce food waste. Implementing policies aimed to reduce food waste in restaurants can be an easy and environmentally-friendly way to reduce costs in a dinery. It can be achieved through portion control and better communication between waiters and diners.
- Invest in modern software. There are numerous technological solutions that help restaurants cut costs. Some varieties analyze the data and recommend changes in the menu and other policies. Other software solutions like robot chefs and waiters can reduce a restaurant’s labor costs and needs.
What Are the Stages of Negotiation?
Usually, negotiations go through 4 stages. They are preparation, bargaining, closing, and evaluation. Let’s briefly examine each stage.
- Preparation. During this stage, customers analyze their needs and aim to find suppliers that can offer the right solutions.
- Bargaining. The exchange of information between the two parties starts at this stage. When negotiating contracts with vendors, the majority of negotiation tactics are used in this stage.
- Closing. Right before the deal is closed, both sides are expected to make small requests in order to improve their terms.
- Evaluation. As the contract is being implemented, both parties are expected to evaluate the deal. Suppliers calculate the profits of this deal and customers look to see how they can renegotiate contracts with vendors in the future.
What Is Posture in Negotiations?
A person’s posture is shown to influence negotiations. Although we are rational beings, the negotiation process doesn’t include only numbers and facts. Things like posture, confidence, respect, and openness can play a big role when negotiating contracts with vendors. That’s why business owners sometimes try to artificially inflate their bargaining power in order to improve the final outcome. That can have a negative impact on negotiations if the other party realizes the bluff.