The Proliferation of Operator Deviated Pricing

No less than 10 years ago, what many of us in foodservice now refer to as “the good old days,” the majority of operator discounts and allowances were rebates – this much per case or that much per pound.  For special situations where the volume was large and the operator actually committed to buying your product, you would reluctantly offer a deviated price.  Those prices were well-controlled and were only offered after a thorough analysis and justification process.  The reasons most folks were reluctant to “open the flood gates” back then still hold true today –

• Deviated prices carry higher administrative costs than rebates due to the ambiguity of the effective claim rate.
   
• Uncertainty around how much of the discounted price would ever reach the operator.
   
• Risk that distributors would “go up and down the street” with the hot price, upsetting balance in the market and costing you money for volume that did not require the discount in the first place [the elusive “full list price street business”]. 

Flashing forward to 2010, the new reality is that Chet’s Chevron in Small Fry, Mississippi, now receives multiple deviated pricing offers on just about every category.  The flood gates aren’t open … they have been removed from their hinges and thrown away.  It’s at this point in the conversation that I often hear “that’s just the cost of doing business in foodservice.”  Before we jump to that conclusion, consider the following statistics from a recent survey of the industry:

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