MEXICAN ENCHILADA SAUCE - PART I

Supplier Agreements

Becoming a supplier for a large fast food chain such as Pedro was a major challenge for Milano. Up until that time, their business had focused on manufacturing tomato-based products for retail distribution. Steve realized that this new business would require time to grow and would depend to a large measure on the development of a synergistic relationship with Pedro and FBI.

Milano believed that a joint venture with FBI would be a lower risk approach than contracting directly with Pedro since FBI already had a quality business relationship with Pedro. FBI relied on ingredient manufacturers and food processors to provide the necessary products to meet their customer's needs and specifications. Milano agreed to develop the RTU sauce for FBI. In that manner, Milano supplied Pedro with product, billed FBI, who in turn billed Pedro.

Milano had an informal understanding with Pedro that they would supply over 50% of Pedro's 6500 restaurants. In addition, there was an opportunity to utilize Milano's recently-perfected pouch technology to supply other restaurant chains with similar products. This was a huge business opportunity, one worth taking some risks on.

A key feature of dealing with multiple companies on this type of project was having a shared understanding of the goals each firm had for the product. Milano's goal was to break into a new market with a non-seasonal product. This would provide a steady demand for a line item that could be counted on and planned for accordingly. Milano believed that Pedro wanted a product that would reduce storage and employee training requirements, and waste. In reality, after poor performance shifted the company focus, Pedro's singular goal was to acquire a RTU product that was of equivalent quality and cost no more than the product they were producing in their restaurants.