What is a Group Purchasing Organization (GPO)?

A group purchasing organization (GPO) is a collective that leverages the combined buying power of its members to secure better prices and terms from suppliers.Buying in bulk will almost certainly save you money, whether you’re shopping for groceries, batteries, or grass seed. For example, buying a 24-pack of paper towels could cost as much as 30% less per roll than buying them individually.

Imagine that you wanted to maximize this opportunity by buying 1,000 rolls of paper towels. The per unit price would be even lower. Obviously you would have trouble using 1,000 rolls of paper towels, but what if you were to purchase them with a group of friends or neighbors? You may only use 18 rolls in the next 12 months, but collectively your group could use 1,000. By combining their purchasing, all group members realize the savings, even though individual spending is only a small part. GPOs operate under this principle: the more a collection of members can purchase together, the lower the individual cost.

How GPOs Can Help

If you’re in the food industry and wondering what a GPO is and what it can do, think of it as a strategic partner that helps foodservice operators team up to get better pricing, streamlined procurement, and access to a wider supplier network. Since many businesses, including restaurants, hotels, resorts, and healthcare facilities, purchase the same types of products, combining those purchases allows each business to reduce per-unit costs. GPOs can be known as co-ops, collectives, consortia, food GPOs, grocery buying groups, leveraged buying, or procurement groups.

How GPOs Can Help

If you’re in the food industry and wondering what a GPO is and what it can do, think of it as a strategic partner that helps operators team up to get better pricing, streamlined procurement, and access to a wider supplier network. Since many businesses, including restaurants, hotels, resorts, and healthcare facilities, purchase the same types of products, combining those purchases allows each business to reduce per-unit costs. GPOs can be known as co-ops, collectives, consortia, food GPOs, grocery buying groups, leveraged buying, or procurement groups.

Additional Benefits of GPOs for Operators

Beyond cost savings, members of a foodservice GPO often enjoy a range of operational and strategic advantages, such as:

Connections to a broader range of suppliers and products through a network of vetted regional and national vendors
Improved procurement efficiency through streamlined ordering processes and centralized purchasing
Enhanced quality assurance, as GPOs often only work with suppliers who meet strict quality and safety standards
Access to value-added services, like culinary and menu consulting, staff training, waste-reduction strategies, and inventory optimization

Types of GPOs

Group Purchasing Organizations exist in many industries, including healthcare, foodservice, utilities, and manufacturing. There are two main types of GPOs: vertical and horizontal.

Vertical GPOs serve customers within a specific industry and have great purchasing power in relevant categories. For example, a vertical foodservice GPO might concentrate on sourcing restaurant supplies, pantry staples, or commercial kitchen equipment.
Horizontal GPOs have members in many different industries. They leverage buying power in categories that all companies commonly purchase, like printer paper, cleaning supplies, or office furniture. These buying groups help businesses save on common overhead items, regardless of industry.

Understanding the difference helps you choose a GPO that aligns with your purchasing needs. Choose a vertical GPO to access discounts on key industry-specific items, or a horizontal GPO to save on shared essentials.

Common GPO Myths, Debunked

Three of the most common myths surrounding GPOs include the suggestion that small- and medium-sized businesses don’t benefit from GPO membership, GPOs limit control over individual purchasing decisions, and that they restrict supplier choices. Here’s why these myths about GPOs don’t hold up.

Myth: GPOs Are Only for Large Businesses

Operators of all sizes can use GPOs to access discounts. Often, small and mid-sized restaurants, hotels, and healthcare providers benefit the most from GPO membership. By joining a food GPO, they gain access to volume-based discounts and purchasing power they wouldn’t normally have on their own. They can tap into the same pricing advantages that large companies have without needing to meet large minimum order requirements alone.

Myth: Joining a GPO Means Losing Control Over Purchasing Decisions

When you join a GPO, you gain access to more options and better deals that provide you more flexibility and control over purchasing decisions. Many GPOs offer pre-negotiated contracts and pricing, but members retain full control over purchasing decisions.

Myth: GPOs Limit Supplier Choices

Joining a GPO won’t paint your procurement team into a corner. GPOs can actually empower buyers with more options and leverage. They negotiate terms with a wide range of suppliers to offer members more access to diverse vendors at better prices. Depending on the GPO you choose, you’ll be able to opt into GPO contracts that best match your needs.

Operational Insights: How GPOs Work

GPOs operate by forming contracts with suppliers, allowing members to benefit from competitive prices and access a broad range of vendors. This allows operators to purchase ingredients, supplies, and equipment at lower costs than they could negotiate on their own.

Joining a GPO

The process of joining a GPO is typically straightforward. Businesses sign a membership agreement and gain access to the GPO’s network and contract portfolio.

How GPO Contracts Work

GPOs negotiate contracts by aggregating demand across members. They leverage this collective pressure to secure competitive pricing, terms, and service levels. The GPO manages contracts centrally, taking care of supplier evaluations, contract renewals, and purchasing compliance challenges so operators don’t have to.

How GPOs Use Technology

Technology plays a key role in modern GPO operations. Many buying groups offer digital dashboards that streamline the ordering process, track usage and savings, and provide data insights that help members make informed decisions. This real-time visibility empowers foodservice operators to monitor spending, evaluate vendor performance, and uncover new savings opportunities.

GPOs vs. Independent Purchasing: A Side-by-Side Analysis

Analyzing group purchasing organization foodservice membership with independent purchasing shows clear operational and financial differences. Here’s how they compare:

Pricing: GPOs offer greater pricing power than independent purchasing because they leverage member volume to negotiate better prices and terms than what individual organizations can leverage alone.
Administrative burden: With independent purchasing, the organization’s staff must manage contracts, pricing, and supplier relationships. GPOs save time and effort by handling administrative work on their members’ behalf.
Supplier access: GPO membership provides access to a broad network of regional and national suppliers that have already been vetted, while independent purchasers shoulder the burden of identifying, vetting, and negotiating with vendors in-house.
Technology and reporting: Many GPOs offer their members access to tools and dashboards for tracking and reporting, and these are often more efficient and convenient than internal reporting systems that require manual tracking.

For more information on foodservice GPOs or details on how Foodbuy can strengthen your business, please schedule a discussion with us.