Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Reverse Auctions to Lower Supply Costs
Transcript
- Lucas: If you run two, three, or more franchise locations, you know the drill — your distributor sends you a price list, you either pay it or spend hours on the phone haggling. But there is a smarter way, and it's called a reverse auction. Luna: Reverse auction — so instead of you bidding up, suppliers bid down against each other for your business. Lucas: Exactly. And it's not theoretical. I was looking at a case out of Ohio — a five-unit QSR franchisee who started running quarterly reverse auctions for his big-ticket supply categories. Paper goods, cooking oil, protein. He used a third-party platform called ProcurePort, and in the first year, he cut paper costs by 12 percent and protein by 8 percent. That's real money when you're averaging thirty-thousand a month in food and packaging. Luna: Twelve percent on paper alone — that's probably around four to five hundred dollars a month per location, depending on volume. Adds up fast. Lucas: Right. And the beauty is, he didn't switch distributors entirely. He used the reverse auction to get his incumbent to sharpen their pencil. The winning bid came from a regional distributor he'd never worked with, but the incumbent matched it on a few key items to keep the account. So he ended up with a blended supply base — which actually lowered his risk. Luna: I want to get into the mechanics, because I think a lot of franchisees hear 'auction' and imagine something complicated. How does it actually work day-to-day? Lucas: It's surprisingly straightforward. You define the specs — exactly what you need, case counts, delivery frequency, quality grades. You invite maybe four to six pre-qualified suppliers onto a platform. At a set time, they log in and place bids over a thirty-to-sixty-minute window. They can see the current low bid — not who placed it — and decide if they want to go lower. Luna: So it's transparent but anonymous. That keeps the focus on price and terms, not on relationships. Lucas: Exactly. And the platform handles the whole event. The franchisee just reviews the final bids and decides whether to award one winner or split the business. In that Ohio case, he awarded 70 percent of the protein volume to the lowest bidder and 30 percent to the incumbent at the same price — kept the relationship alive while still capturing the savings. Luna: Smart. But I'm guessing you need a certain scale to make this work. If you're a single-unit owner buying ten cases of napkins a month, are suppliers going to bother bidding? Lucas: That's the critical question. The general consensus is that you need at least two to three locations, or a combined annual spend of around two hundred thousand dollars per category, to attract competitive bids. Below that, suppliers won't invest the time. But here's the thing — franchisees can band together. There are franchisee associations and purchasing co-ops that aggregate volume across multiple owners and run reverse auctions on behalf of the group. Luna: That's huge for smaller operators. Instead of fighting for scraps alone, they pool purchasing power. Lucas: Right. And some franchisors are actually starting to facilitate this. I've seen a few QSR brands roll out recommended procurement platforms where franchisees can opt into group reverse auctions for core items like fry oil and chicken. Not mandatory, but the savings are hard to ignore — we're talking ten to fifteen percent off negotiated co-op pricing. Luna: So the franchisor is on board. That must smooth things over with the distributor network. The last thing a franchisee wants is to alienate their primary supplier over a few hundred bucks. Lucas: It's a real risk. If you run a reverse auction and your incumbent loses the business, they may not be eager to help you during a supply chain hiccup. The Ohio franchisee handled this by splitting the award, as I mentioned, and by being transparent with his incumbent beforehand. He said, 'Look, we're going to test a new process. We value our partnership, but we need to be competitive.' That conversation matters. Luna: Did the incumbent push back at all? Lucas: A little. The rep was initially defensive, but when they saw the bids coming in below their list price, they realized the market had moved. In the end, they matched on about sixty percent of the items and conceded the rest. The franchisee actually strengthened the relationship — his incumbent knew he was serious about cost control, and they started proactively offering promotional pricing on new items. Luna: That's a great outcome. But not every distributor will play ball. What if the incumbent walks away entirely? Lucas: Then you have to be prepared to transition. That's why you pre-qualify multiple bidders — you're not putting all your eggs in one basket. The Ohio franchisee had four bidders in his protein auction, three of whom could handle the full volume. He could have switched completely if needed. The key is to run the auction with the mindset that you might actually change suppliers, not just as a bluff. Luna: Right. If you're not willing to walk away, you're negotiating from weakness. Lucas: Exactly. And the savings aren't just on the winning bids. The process itself forces you to get very specific about what you need. A lot of franchisees don't realize they're paying for premium specs when a standard grade would work fine. In the paper category, for example, the franchisee discovered he was buying 'heavy-duty' napkins when 'standard' met his customers' needs. That alone was a 6 percent saving before any bidding happened. Luna: So the reverse auction doubles as a procurement audit. You clean up your specs, you benchmark pricing, and you end up with lower costs even if you don't switch. Lucas: Exactly. And I think that's the hidden value — the discipline. When you run a reverse auction every quarter, you stay close to market prices. You're not drifting for years on a price list that crept up 3 percent annually. You reset the baseline regularly. Luna: Are there any categories where reverse auctions don't work well for franchisees? Lucas: Anything with very thin margins or high customization. Fresh produce, for example, is tricky because quality varies day to day and delivery windows are tight. You can run an auction, but the lowest bidder might show up with bruised lettuce. Similarly, specialty equipment or branded packaging — the franchisor often mandates specific suppliers, so you can't auction those. But for commoditized categories — cleaning supplies, disposable goods, basic proteins, cooking oil — it's almost always worth exploring. Luna: What about the frequency? You mentioned quarterly. Is that the sweet spot? Lucas: For most franchisees, yes. Monthly would be too disruptive — suppliers hate constant re-bidding, and you lose relationship stability. Annually is too infrequent — you miss market shifts. Quarterly gives you a good rhythm. You can stagger categories: run paper and chemicals in Q1, protein in Q2, oil and dry goods in Q3, then a full review in Q4. That way you're not overwhelming your team or your suppliers. Luna: And the cost of the platform? ProcurePort and similar services usually charge a subscription or a percentage of savings. What does that look like for a small operator? Lucas: Most platforms charge a flat monthly fee — anywhere from fifty to two hundred dollars — or a small transaction fee, like 1 percent of the auction value. For a multi-unit operator saving thousands per quarter, the ROI is almost immediate. Some platforms even offer a free trial auction. I'd recommend any franchisee with three or more units run one trial auction on a high-volume category and see what happens. Luna: I'm sold on the concept. But I'm wondering — are there any legal or franchise agreement considerations? Some franchisors restrict where you buy certain items, especially branded goods. Lucas: Good catch. You have to check your franchise disclosure document and operations manual. Most franchisors allow you to source approved products from any supplier as long as they meet specs. But some have exclusive distribution agreements — if that's the case, reverse auctions won't help for those items. However, you can still use the process for non-branded supplies. The Ohio franchisee's franchisor had an exclusive on the fry oil blend, but not on the other cooking oils. So he auctioned the rest. Luna: So you pick your battles. That makes sense. Lucas: Exactly. And honestly, even saving on one or two categories can pay for a lot of other things. If you're a franchisee running tight margins, every bit of procurement optimization goes straight to the bottom line. Luna: This is one of those episodes where I feel like I should be taking notes. If you're a multi-unit franchisee and you're not even looking at reverse auctions, you're probably leaving money on the table. Lucas: That's the takeaway. And if today's conversation moved the needle for you — gave you a concrete tool to think about — that's exactly why we do this show. We keep it ad-free, listener-supported, so we can focus on what's actually useful. Luna: Yeah. If you got something out of this, the best way to keep it going is to throw a few bucks into the hat. Buy me a coffee dot com slash fexingo — all lower case. Seriously, it's what keeps us independent and zero-ad. Lucas: Anyway, back to the supply chain. One last thing I want to mention — if you're not ready for a full reverse auction, you can dip your toe in with a simple request for proposal process. Send your specs to three suppliers, ask for best pricing, and let them know you're comparing. You might not get the same competitive intensity, but you'll likely still beat your current price. Luna: That's a low-risk starting point. And from there, you build toward a full auction when you're comfortable. Lucas: Exactly. The main thing is to start. The market is more competitive than most franchisees realize, and the only way to capture that value is to invite competition. Luna: Alright, next week we're diving into something I've been curious about — how some franchisees are using shared employee pools across multiple brands in the same complex. Lucas: That's a good one. Cross-training labor across concepts. See you next time.