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Purchasing discounts are a matter of trust

08 December 2005

One successful contract caterer regularly tells me that you don't have to be a rocket scientist to make money in his line of work. It's a pretty straightforward business, he would say. You supply the customer with simple, honest food, nothing too tricksy and use only the best products.

I agree the formula seems really rather simple and I guess this uncomplicated principle has helped him create a few successful contract catering businesses.

In his formula for what makes a successful contract catering business, he never once mentioned using purchasing discounts as a way to boost margins. I guess his unit managers negotiated hard with suppliers to get the best deals, but I never got the impression that this was a driving factor for growth.

So why have purchasing discounts become such a contentious issue in contract catering circles again?

Indeed, there's nothing wrong with a contract caterer negotiating a discount on a product because of the volume of sales it might achieve. Unquestionably, most operations worth their salt would try to achieve better margins by negotiating lower prices. That seems to make perfect business sense. But as our e-mail debate between two contract caterers on the topic shows purchasing discounts become a problem when they're hidden from the client. It's a question of trust, and for those reasons perhaps any discounts garnered should be passed on or split in agreement with the client.

In these post-Enron days, large corporate clients need to account for all expenses and ensure transparency, whereas for smaller clients, a share of the purchasing spoils might be an important consideration for the cost of their catering.

Contract caterers need to make a decent return in a low-margin business, and companies that hire them should be realistic enough to realise this. Contractors shouldn't be forced into relying on purchasing discounts as a way of driving growth - as this clearly isn't sustainable for their business or their clients.

If purchasing discounts are not considered as part of the revenue-generating element of a contract, then surely contract caterers would be competing in an open marketplace, where good honest food served at reasonable prices wins the day.

By James Garner

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Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

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