by: Gary Karp
August 8, 2018
In the Pentallect POV published October 18, 2017, we highlighted the purchase of Avendra by Aramark. In that POV we mentioned many of the large foodservice GPOs and estimated Foodbuy GPO managed spend at approximately $20-22 billion, Entegra at $10-12 billion and with Aramark/Avendra combined purchasing they, too, would have managed spend approximately equivalent to Entegra.
Also stated in that POV, we forecasted more change in the GPO power structure … and we didn’t have to wait long for it to happen.
It was just announced by John Davie, Founder and CEO of the Dining Alliance Companies, that he has created a new Source GPO, Buyers Edge Platform (a source GPO is a large GPO that typically negotiates and manages the book of manufacturer and distributor deals for its members). John describes Buyers Edge Platform as a network of support companies offering technology, data services and expertise to its owned and member GPOs, operators of all sizes and manufacturers.
Why is this BIG news?
- Because a new Source GPO has been created, a rare event.
- Because the largest Source GPO, Foodbuy, will no longer have Dining Alliance as an Access GPO significantly impacting their GPO managed spend (an Access GPO is connected with a specific Source GPO, has access to and shares in the Source GPO manufacturer and distributor deals).
- Because Buyers Edge Platform will be launching at approximately $7 billion in purchasing power, an already formidable size, especially considering they do not own a “top 3” contract management company.
- Because this potentially creates a new business model, or platform, from which members and suppliers may customize services.
- And because with a history of creating value from data, as part of the potential new business model, Buyers Edge represents $7 billion worth of purchasing data that can and likely will be leveraged to provide insights to the companies that produce and sell those products.
The Buyers Edge Platform data solution was demonstrated at the May 10th Smoke Jumpers Conference conducted by Blacksmith Applications, where John Davie and Jodi Tobin, VP of Manufacturer Relations, previewed some of their collaborative efforts (then in concept testing with Unilever). John & Jodi shared some examples of greater data transparency, operator specific opportunities and their views of ways in which GPOs and manufacturers could specifically drive compliance and related item purchasing. In addition to the data collaboration shared at the meeting, they provided a listing and timeline of the company development including of some of their “aligned or owned” GPOs, such as Dining Alliance, Buyers Edge, Fresh Concepts, Consolidated Concepts, Source 1, Restaurant Partners, Atlas Purchasing, Axis Group and Delaware Valley Purchasing Group.
What will this mean for trading partners?
This POV will seek to point out only the likely key or notable situations and/or implications.
- GPOs: First, the Source GPO(s), through which Buyers Edge network members had operated as an Access GPO, will no longer enjoy that managed spend, which in some cases is very substantial. Additionally, this provides the multitude of Access GPOs and even local & specialty market GPOs another option for Source GPO alignment. While it is true that the Food Service Management business revenues that reside within their corporately related GPOs is secure, it appears that a portion of the remaining business may be “in play” as contracts expire. And, lest we forget, further consolidation is still likely.
- Distributors: The Buyers Edge member companies each tend to have their own distribution contracts. It is a safe assumption that some distributors will want a larger share of their business. Therefore, as existing distribution contracts expire, Buyers Edge Platform, with $7bn of purchasing power, will have options to consolidate contracts. It appears the Buyers Edge member/customer portfolio has a balance of both independent/street accounts as well as chains.
- Manufacturers (and their sales agencies): Based on the preview presented at the May Blacksmith Applications meeting, the Buyers Edge Platform can potentially be a business model gamechanger in several ways. The opportunities for a combination of collaboration, data transparency and compliance appear to be much further advanced than previous GPO programs and efforts. Data analytics skills and tools will be highly valued. However, since it is unlikely that every manufacturer will benefit, expect competition to determine category “winners” and “losers”.
- Operators: Buyers Edge Platform is seeking to differentiate itself from competition via its diverse portfolio of programs. Operators can benefit from the Buyers Edge deals and services.
How will the competition react?
Without question this is a big development in the GPO space, which was already a very large important part of the foodservice industry. So, this is but the latest and highly dramatic change. We expect all competitors to conduct business in their normal, professional manner. The magnitude and significance of this development ensures that the competitive environment will likely intensify and the key players may wish to identify/update strategies to take into account the new challenges.
Looking forward:
It remains to be seen how well Buyers Edge Platform will execute against their stated strategies and develop their platform concepts. We will watch closely and shall see if the arrival of Buyers Edge will be determined to be “another large transaction” or if it becomes a truly “transformative force”. This is a great example of how a (mostly) unanticipated situation impacts the “status quo”, requiring adjustments by key trading partners. It is 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.