Foodservice GPO Business Model Morphing

by:  Gary Karp | Barry Friends  

September 19, 2018 

In the Pentallect POV published March 9, 2017, we highlighted the initiation of a foodservice Distributor GPO (DGPO) being started by UniPro, Unity Advantage Group, to enable their distributor members to better compete with other distributors aligned with traditional GPOs. In that POV we stated, that if properly executed, we believed the DGPO concept could gain momentum and could shift or make a difference on “marketplace leverage”.

Unity Advantage Group LLC (UAG) has taken their program to a new level.  It has been announced that an agreement has been reached between UAG and Foodbuy, LLC creating a direct (Access) GPO relationship between the two organizations covering food, equipment and supplies, as well as indirect spend provider programs.

Why is this BIG news?

1. An alliance with Foodbuy LLC certainly provides UAG access to a broader and more robust “book of discounts and allowances” than they had while operating Unity Advantage Group as a standalone (DGPO) entity.
2. This somewhat alters the traditional trading partner landscape and competition between distributors and GPOs (to determine who can most influence operator purchasing behavior) by creating a “hybrid” model of a DGPO/Access GPO.
3. Depending on the structure of the relationship, this may be the first time a distributor-related entity could have joint access to both distribution trade deals and GPO incentives.
4. Foodbuy LLC, while not literally changing eligibility criteria for what determines who can qualify to be an Access GPO, enables a new business model or platform from which independent distributors may be able to better compete with other distributors aligned with traditional Access GPOs.

What will this mean for trading partners?

This POV will seek to point out only the likely key or notable situations and/or implications.

1. GPOs: This represents an expansion of the Access GPO model, which itself comes in many styles, but to date, has always centered around aggregating the volume of end users (operators) to negotiate better rates for goods and services. Traditional GPOs that have been aligned with UniPro members may find their business with those distributors at risk.  Additionally, other Source GPOs may follow Foodbuy’s lead and enable other distributors to similarly establish their own Access GPOs. In any case, this creates still more competition among GPOs.
2. Distributors:  For UniPro members this can, as originally intended, provide a means of being more competitive so they may better compete with other distributors aligned with traditional GPOs.  For non-UniPro distributors, this activity will bear close scrutiny and consideration, as it may have an influence on FS operator decisions and ultimately lead to further competitive responses, including the establishment of additional distributor-owned GPO alliances. For the “Big 3” corporate distributors, new GPO-fueled competition from UAG-enabled UniPro members may accelerate counter strategies.
3. Manufacturers (and their sales agencies):  This represents further “trading partner blur.” Manufacturers have dealt with distributors, and they have dealt separately with GPOs.  Now, they will have to develop operating guidelines for a hybrid model of an Access GPO.  As with other Access GPOs, manufacturers will have decisions to make on deal extendibility and how to manage deals with LLOs.
4. Operators: An expansion of the GPO footprint will provide some operators with access to a GPO and still others with new choices of GPOs with which to affiliate.  Operators may do additional “GPO deal shopping.” It is worthy of note that in theory, operators are not supposed to be in multiple GPOs nor collect multiple allowances on the same cases purchased through various GPOs.  This added complexity will only heighten scrutiny yet, at the same time, holds potential for “cleaning things up”.

Looking forward:

The Pentallect POV is, as mentioned above, UAG and Foodbuy LLC have taken a significant step by aligning directly with each other.  However, the success of UAG, as an Access GPO, will depend upon how the Unipro members, Foodbuy and UAG execute against their strategy.  As they say, “the devil is in the details.” Everyone will be watching to see the extent of governance that will be instituted with regard to membership qualifications, performance requirements (order volumes, brand compliance) and deal extendibility.  However, as this has been worked on and debated for some time, it is assumed that UAG has clear operating guidelines.

How will the competition react?

The magnitude and significance of this development ensures that the competitive environment will increase in complexity, and the key players may wish to identify/update strategies to account for the new challenges.

This move will surely intensify the competition among GPOs and distributors, adding further complexity into the foodservice ecosystem.  Therefore, it is safe to say, we anticipate substantial competitive reactions, some short term, and others as the situation plays out.

This is but another substantial example of how a (mostly) unanticipated situation impacts the “status quo” requiring adjustments by key trading partners and is, again, a great time to review and possibly revise your “go-to-market” strategies.

If you would like to discuss implications in greater detail, please contact us .

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SUMMIT 12/4/2018 | CHICAGO

FOODSERVICE DISTRIBUTION ISSUES, OUTLOOK AND IMPLICATIONS