Envisioning a Virtual Marketplace

John Lawn

This editorial column originally appeared in the October, 1999 issue of Food Management.

I have been thinking a lot about the future of foodservice purchasing lately, and Bob Myhr is one of the reasons why.  

Myhr, formerly director of foodservice programs at Premier, the largest group purchasing organization serving the healthcare industry, left that company earlier this year to join Scott MacLellan, a former executive of Alliant Foodservice, to help form Foodbuy.com, an internet-based company that’s been attracting a lot of attention since it incorporated a few months ago.  

Together, Myhr (vice president of operations) and MacLellan (president/CEO) have been beating the dot-com market drums for what they say will be a revolutionary new service-providing entity in foodservice. 

Whether that description is accurate, of course, remains to be seen. Some in the industry see it as a straightforward attempt to migrate the traditional GPO model to the world wide web. 

Others see the company as a would-be “demand aggregator”—a buzz-phrase used to describe business models that consolidate the purchasing power of buyers from previously non-aligned groups. (Foodbuy says it will serve operators in many segments including healthcare, schools and colleges, cruise lines and the military). 

Many are focusing on Foodbuy’s promise of a distributor-independent web-based order entry system, and the extensive rebate-tracking services it will offer. Myhr is also talking up  other services he says will eventually be available on the site.

“We’ll be a vertical portal for anyone in foodservice who orders food and food-related products,” he says. “Eventually, that could include everything from insurance to worker’s compensations services to temporary help,” as well as a variety of information services Foodbuy would provide to its manufacturer partners.

He also envisions the site as a “community ” where, for example, suppliers could auction off excess product, operators could post RFPs for planned equipment purchases, and others could exchange ideas and dollars in a virtual marketplace.

“This is a $135 billion industry at the operator purchasing level,” Myhr notes. “We think about $80-90 billion of that could be a potential market for us.”

That’s an ambitious statement, given that up to now Foodbuy.com has existed more as a business plan than an actual entity. But it took a significant step forward recently, when it acquired Affiliated Purchasing Services, Inc. (APSI), a California-based firm that is a leader in providing rebate-tracking, reporting and fee transfer services to the industry. 

Still, Foodbuy is a long way from offering the range of deals, services and purchasing programs it has proposed. And there are many questions it will have to answer before it can open its virtual doors as it says it plans to do in the fourth quarter. 

For example, while Myhr proclaims Foodbuy’s intention to be “distributor neutral,” it’s hard to see how that’s likely to play out in reality. 

“We’d like each customer to still place its order with its distributor of choice,” he says. But doing so will require that the distributor exchange  all its transaction information with Foodbuy for tracking purposes. And the distributor community, at least at first, is likely to view this as an infringement on existing customer and marketing relationships. (More likely, Foodbuy will end up striking alliances with distributors with which it negotiates mutual interest agreements.) 

Other sources are skeptical about how successful Foodbuy will be at consolidating the purchasing power of independent restaurant operators, or whether, for large operators, it’s likely to offer any advantages beyond those already available from a GPO.

Still, Myhr is pretty good salesman and the vision he’s projecting has a lot going for it. It’s my bet that a year from now, Foodbuy.com won’t look exactly like the model now proposed, but it will have made enough real headway at matching up customers and services that it could be well on its way to being a real player in the marketplace.

Up to now, the basic data streams from the millions of transactions that occur in foodservice have largely been disconnected. For many reasons, manufacturers, distributors, brokers, operators, GPOs, buying groups and other service providers largely maintain separate systems and proprietary databases about the transactions with which they’re involved. 

Where the transactions overlap, the reconciliation of these data streams has been the exception, not the rule. 

But we are rapidly approaching a point where the need for standardization—of UPC product and bar codes, EDI transaction sets and other system compatabilities—will make possible a much more data-dependent and data-driven industry than we have now. In that kind of environment, a company like Foodbuy.com would be well positioned to collect, manage and market that data in ways and forms we can only begin to imagine.

So whether Foodbuy succeeds as it plans or not, the issues its model raises are big ones for foodservice