Survey provides insights into operators' online purchasing capabilities and practices, underscores distributor involvement

Nation's Restaurant News,  Oct 28, 2002  by Alan J. Liddle

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About one in three multiunit restaurant operators recently surveyed, or 35 percent, said they purchase items electronically across public or private networks. Most indicated that they had acquired that electronic-purchasing capability for little or no money.

Among the restaurant operators making e-purchases, 94 percent said the practice yielded savings of $50,000 or less during the past year. The other 6 percent did not reply to the question about estimated annual savings.

The e-purchasing survey was completed earlier this month by Cihan Cobanoglu, an assistant professor of hospitality information technology and e-commerce at the University of Delaware in Wilmington, and Lynn Heiberger, managing director of Network Frontiers. San Mateo, Calif.-based Net Frontiers is a for-profit technology industry marketing, consulting and publishing company.

Created to corroborate the theories and findings of Cobanoglu and Heiberger's separate study of more than 20 distributor and vendor e-purchasing applications, the questionnaire on purchasing capabilities and practices was distributed to 1,550 chain-restaurant and hotel executives or managers. Recipients were selected randomly from the 2002 Directory of Chain Restaurant Operators, published by Chain Store Guide, a division of Lebhar-Friedman Inc., parent company of Nation's Restaurant News.

The researchers said the 58 survey respondents represented a 3.74-percent response rate, which they described as a statistically valid sample for the type of study undertaken. Because some of the questions asked respondents to select all applicable answers from among several choices, in some cases the percentage of respondents associated with each answer, when totaled, exceed 100 percent.

"Large savings [from e-purchasing] were not realized" among the survey group, the researchers concluded in a written summary of their findings. At the same time they noted that the free technology or relatively low-cost e-purchasing systems used by most of the companies surveyed contributed to a situation in which "no one is unsatisfied with purchasing electronically."

In all, 46 multiunit restaurant companies operating in a variety of full- and quick-service segments responded to the survey. Thirteen of those companies were categorized as "small," with total annual sales of $5 million or less. Of the responding companies, 16 reported e-purchasing capabilities, including three "small" firms and 13 with annual sales exceeding $5 million.

Ten of the 12 respondents from chain hotels with food and beverage operations, or 83 percent, indicated that their companies had e-purchasing capabilities.

Of the 30 restaurant respondents not engaged in e-purchasing, 43 percent said their own analysis indicated that the estimated savings or other benefits did not justify the estimated costs; 33 percent said their suppliers did not support electronic orders; 20 percent revealed that their restaurants did not have networked computers; and 27 percent cited a variety of other limiting factors.

On average, across both the hotel and restaurant categories, operators using electronic purchasing employed such tools to make 52 percent of all their purchases. The minimum percentage of total purchases executed electronically was 10 percent; the maximum was 92 percent, the researchers said.

More than half of the restaurant respondents using e-purchasing--53 percent--attributed some or all of their estimated annual savings of $50,000 or less to pricing standardization across all units; an equal percentage said order-error reduction contributed to their savings; and 20 percent reported that price comparisons between distributors helped them pocket more money during the past year.

A full 94 percent of the restaurant companies making e-purchases said they would recommend the technology they were using to others. Such a high recommendation rate might reflect the source and cost of the e-purchasing tools being used by many of the respondents.

Asked how much their company had invested in e-purchasing applications and infrastructure, 76 percent of the restaurant respondents said they had paid nothing for the capability. Another 13 percent confirmed that their expenses were less than $20,000; 6 percent reported costs between $50,001 and $100,000; and 6 percent acknowledged that their e-purchasing capabilities came with a price tag between $200,001 and $500,000.

Reporting on the type of e-purchasing application or applications they use, 81 percent of the restaurant respondents said their companies worked with an Internet program provided by a single distributor, such as eSysco, and 19 percent indicated that they had proprietary in-house software with data feedback from different distributors. About 13 percent said they purchased electronically from a Web site representing a consortium of vendors and distributors, and 13 percent characterized their e-purchasing application or applications as "other."