Supplying demand

26 May 2000
Supplying demand

The Internet is now firmly fixed in this industry as a marketing tool. One commentator recently suggested that 2% of hotel rooms in London are now being booked over the Internet. That's a small percentage but, if the supposition is correct, it's a significant number of roomnights, and a sign that, despite some glitches, the Internet is here to stay in hospitality.

The next area of our industry where the Internet is likely to make an impact is purchasing. Although McDonald's is unlikely to start sourcing burgers on the Internet, for a growing number of operators Internet use has been, or soon will be, a route to cutting internal costs and buying goods more efficiently and cheaply.

Nowhere does this prediction move more sharply into focus than in the perspective that Ian Burke, chief executive of Thistle Hotels, has on the role of the Internet in purchasing. "Over the next 12 months," he says, "we will achieve on-line purchasing with most of our top 10 suppliers. By 2003 I anticipate 50% of our capital purchasing will be on-line."

In common with other operators interviewed, Thistle Hotels sees a big reduction in the administrative costs of a paper- and phone-based purchasing system as the most obvious financial benefits to come, more so than any dramatic reduction in the price of the goods they will be buying. "We are looking to achieve savings in our cost base of as much as 5%," says Burke, "and a reduction in the number of our suppliers from 6,000 to 4,000."

Scottish & Newcastle has already been down the route of electronic data interchange (EDI), with more than one year's use of the S&N intranet, a system that shares Internet-based stock control and invoicing information with suppliers. Where it has so far fallen short is that, while a pub or restaurant's electronic point of sale system gives a suggested food stocking order to S&N's logistics provider, Wincanton, the placing of a pub manager's order with Wincanton is still done via S&N's telesales system, at a cost that S&N ultimately picks up and would save if the telesales part of the operation was to disappear.

Fully electronic

S&N Retail's commercial director and deputy chairman, Chris Ripper, says that this is a cost that must go. "This is the loop that we haven't yet closed in the cycle of order placing," he says. "In the next 12 to 18 months, we will go fully electronic on the whole purchasing cycle. All our major suppliers are now on-line with us, and I don't see much of a future with S&N for any supplier which is not on-line."

Ripper is also open-minded about using the Internet to source goods from outside the traditional supply base of the UK. "Our company is approaching the size where buying globally for things like vegetables is an attractive opportunity," he says. "We are widening the doorway for potential suppliers. There are specification and delivery issues, but it's an interesting area."

While some operators are enthusiastic about Internet-based purchasing on food, Ripper sees equipment as an area of purchasing equally as interesting. "If, for example, we want a pizza oven, we would know two or three suppliers in the UK," he says. "But it may be that there are a dozen other suppliers in Europe which could supply something similar. This is a wider gateway to purchasing than food is, in some ways. You can do your research sitting at a desk."

Suppliers to the catering industry are equally active in e-commerce development. Glynwed, owner of equipment brands such as Falcon cooking equipment and Williams Refrigeration, has just launched an e-commerce Web site listing 12,000 items of equipment. Within 12 months it is expected to be handling 50% of the company's equipment sales, and within two years it will completely replace the current telesales operation.

Glynwed's investment in this service has been close to £500,000, but chief executive Stephen Rennie believes that the investment will bring a good return. "At Hotelympia this year we did a deal worth £2m a year with Compass for the supply of light equipment and sundries," he says. "The Internet-based ordering system was crucial in the deal."

With this system, individual Compass unit managers can log on to the GFE Web site and order low- to medium-value items such as tableware and light cooking equipment without having to go through central purchasing.

What of the people in the middle of the purchasing cycle, those who broker products between supplier and operator? There is growing competition between them to be first choice as industry e-commerce facilitator.

One of the earliest suppliers in the area of Internet purchasing was Supply Direct, an offshoot of Castle View, the contract caterer owned by Frank Bell. Supply Direct focuses mainly on food procurement for hospitals, but can service any catering operation which has a menu cycle.

Supply Direct business development executive Tony Hewston says that its e-commerce site, Catershop, works like a catering supermarket. When making an on-line site visit, caterers are able to "walk" around the shop and place orders from among thousands of items. The savings, says Hewston, can be very large. "One client previously reckoned to spend three days a week on ordering," he says. "It's now down to 20 minutes."

The Buying Agency (TBA), which is a purchasing organisation restricted to the institutional sector, is being driven into e-commerce purchasing not so much by its own aspirations but by edict from the Government that, by 2002, 90% of Governmental purchasing should be conducted through the Internet. TBA, whose turnover on equipment procurement is more than £300m, put 500,000 items on its purchasing Web site on 4 May. Access to the site is restricted to public service providers.

Standard method

PSL is an independent food purchasing broker which currently buys £132m of food products on behalf of its clients. Managing director Ivan Shenkman is totally sold on the Internet becoming the standard purchasing method for the industry, and expects his e-commerce site to go live within six months, serving not just PSL clients but any caterer that wants to use it. "Our plan is to become the leading e-commerce Web site for the catering industry," he says.

Shenkman says that all sides of the industry will benefit from Internet-based purchasing. By slashing staffing in telesales and field sales, suppliers will get cost savings, while operators will have faster, more efficient and cheaper purchasing. The benefit for PSL will be in picking up a percentage payment for the transaction value done via its Web site.

E-commerce is a dynamic that individual operators are embracing, but there is a further step that may come. S&N Retail's Ripper says that partnership purchasing, where competing companies use the Internet to purchase huge amounts of commodity products from a global market, is nearer than we think. Surely Compass and Sodexho would never work together in this way to get more out of Internet purchasing? Ripper concludes: "It wouldn't surprise me if they did."

FACTS:

Of the businesses mentioned, only two currently have operational Web sites involved in e-commerce:

GFE

New parent name for equipment brands owned by Glynwed, such as Falcon and Williams Refrigeration.

Web site: www.gfeonline.co.uk

Supply Direct

Food procurement and logistics business specialising in the healthcare sector.

Web site: www.supplydirect.com

Source: Caterer & Hotelkeeper magazine, 25-31 May 2000

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