HOT TOPIC A new look at old problems

Purchasing Power

Do buying groups really save you money or are they simply an extra layer in a multi-layered world?

By Erinn Morgan
Illustrations by Jon Krause

Today's market is competitive, even for a well-established, mid-size optical chain. Which is why Stephen Schubach, president of the 17-door, moderately priced Standard Optical, decided it was time to join a buying group. "We were part of the founders of Opti-Port—and our motivation was very simple," says Schubach. "If 10 regional chains get together with between 10 to 20 stores each, you end up as 200 locations that are able to buy better."

With the numbers of its members behind them, the buying group negotiates lower prices with frame, lens, and contact lens suppliers. "In our retail environment, with managed care and mass retailers, how do you compete? You can't increase your price, but you can reduce the cost of goods sold. We have reduced prices by five to six percent for contact lenses, frames, and spectacle lenses," he says.

That, in a nutshell, is the point—and purpose—of joining forces with a buying group. In addition, membership in such a group is typically free of charge and brings significant discounts and conveniences to the plate. "I save north of $35,000 annually," says Robert Sarasohn, owner of Grove Opticians in Boca Raton, Fla., and a member of the Block Buying Group.

With so many advantages, it seems belonging to a buying group is almost de rigeur for optical retailers. "I think you really have to belong to one these days," says Al Villavecchia, treasurer of the Villavecchia Buying Group. "And the current thinking is that you have to belong to more than one buying group."

PIVOTAL MOMENT

The concept of optical buying groups was born in the 1980s when optical chain stores were beginning to proliferate in the retail scene. Many independents were indignant and upset that optical suppliers were selling to chains—and potentially getting a better price because of their volume.

"Some clever sales reps came up with an idea and said 'Hey, get five or six guys together and pay on one check and we'll give you a discount,'" says Michael Block, president of Block Buying Group, based in Boca Raton, Fla.

The concept grew from there. "My father got bored after he retired from my grandfather's optical store and he started up our buying group, which was modeled after an appliance consortium," says Villavecchia. "He had 35 members for many years on pencil and paper. Then one year I wrote a software program to do it on the computer and we started growing. Now, we have over 1,200 members—and about 600 that buy on a monthly basis through us."

There are numerous buying groups in the optical marketplace today. In fact, 16 of them belong to the Alliance of Ophthalmic Buying Groups, a trade association of buying groups. "The group's focus is to bring together the providers and bring in ideas to better serve the ophthalmic community," says Craig Cooper, current president of the Alliance and vice president of the The Buyer's Edge Buying Group.

Over the years, new buying groups have been born and others have become stronger nationally through acquisitions and consolidation. Companies like Essilor of America (EOA) have recently gotten into the game through acquisitions. EOA now has a majority stake in contact lens distributor OOGP, and as a result became owner of OOGP's buying group. The move represents the company's first venture into the buying group business.

HOW IT WORKS

The tenets of a buying group are pretty simple. ECPs can apply for a free membership. The only caveat is a credit check should reveal a reasonably good score for acceptance in the group. Then the buying begins.

Optical retailers can typically choose from hundreds of vendors. Some groups do require buying products from a few select suppliers as part of their purchase program. In many cases, dispensers purchase products as they would normally in the past, from sales reps, at trade shows, through catalogs, and realize the buying group's savings discount.

Some groups filter purchases and discounts through their own website, where ECPs can shop for and purchase products. One group's members place their orders for "preferred vendors'" goods through its internet portal.

"The old-style way of buying was more relationship-oriented than it is today," says Schubach. "Those days of relationship buying have gone away. You have to run your business like a business."

Regardless of purchasing method, buying group members benefit from discounts on products ranging from frames and lenses to contact lenses and accessories.

"If you buy through a buying group, you will get discounted purchasing regardless of your volume," says Block. "If you are a member of our group, and buy from many different suppliers, you will get a month-in, month-out discount."

This works out to the best possible effective discount, which ranges, on average, from 17 to 20 percent. "With frames, for the most part, the ECP gets an invoice for $100 plus postage for $3," says Block. "They will later get a statement that comes from us that shows the frame was $100 but discounted to $80 plus postage. The ECP will then get a statement with this information in alphabetical order by supplier."

Some buying groups, like the VVS Group, pass along a 100 percent discount to members for on-time payments, but charge an administrative fee. "If you spend less than $500, we charge a five percent administrative fee," says Mark Gilbert, president of VVS Group. "If it's over $3,000, we charge three percent. We are still trying to be fair to the smaller company."

The only negative of buying groups, it seems, is that ECPs usually have to pay on time. For example, with some groups, if invoices are not paid in 10 days ECPs will forfeit their discount.

Even suppliers are finding buying groups to be a boon to their businesses today.

"They are good for everybody," observes Mike Hundert, president and CEO of REM eyewear. "The retailer benefits from the economies of scale that lead to better margins and it makes collections far more simple for the supplier. Collections are a big issue in any business, including ours." EB