Lindsay Sharman and Elit Rowland reveal how seven wholesalers have successfully taken on the challenge of obtaining maximum sales in the minimum space
The conundrum of available space and maximum profit is as old as the wholesale business itself. As long as depots have been in operation, wholesalers have been developing ways of making sure every last inch of their floor space works hard for them.
For wholesalers in today’s market, the issue is even more pertinent. Suppliers are increasingly reliant on new products for growth and expect space to be available in depots to accommodate them. Not only that, wholesalers have an increasingly diverse customer base, which means they need to stock a wider product range as a result. In short, space is at a greater premium than ever.
One answer is to expand the existing premises to accommodate the growth in stock, but it’s far from an easy option. “The government wants to make it easier for independent businesses to grow, but there’s a lot of red tape to get through,” says Today’s Group managing director Bill Laird.
“We’ve seen that members that are building new premises are expected to be environmentally more efficient than ever before, which puts extra costs on their build programmes.”
In fact, sometimes there’s so much paperwork to get through, you end up having to allow a few years before a new depot is completed. Trading director of Costco Steve Barnett says, “We’ve opened three depots in the past year but the planning application and the approval process combined with the bureaucracy contribute to extending timescales for opening new locations by up to four years.”
Buying a new depot: Time Cash & Carry buys new premises
Time Cash & Carry is one of many wholesalers operating at above capacity. Its east London depot in Barking is just less than 32,000sq ft, but the company wants to expand its product range and its customer base.
The solution for Time is to buy another site and managing director Sony Bihal says the trick to finding the right space is to be absolutely certain it’s going to be cost‑effective.
“The old theory used to be the bigger the warehouse, the more money you made, but that’s not true today. The more space you have, the more it will cost,” he says.
“I’ve looked at depots with 120,000sq ft, but the cost of running them was so high it wasn’t worth the investment.”
Sony’s approach to assessing a site’s cost-effectiveness is “based on mathematical science”. His formula takes into account factors such as what products customers buy and how frequently, and even how many hours it takes to refill the shelves. “In choosing the location, we did a lot of analysis and the result is a very cost-effective approach,” he says.
The second depot, due to open early next year, will be bigger than the first, at around 78,000sq ft. It will act as a central hub for the original premises and any other depots the company acquires further down the line. Sony says the second site will hold enough stock for four depots and he plans to acquire a third next year, making the original Barking site a “satellite” depot.
As well as taking a significant amount of effort and investment to find a new site, the challenge of adapting the business to be dual-site is one that will take some careful planning. “Moving from one depot to two will mean lots of cultural changes in terms of our processes, so I think it will be a challenge,” says Sony.
Use technology: Lynas Foodservice will build an automated conveyor belt
One innovative wholesaler from Northern Ireland is trying something completely different to help its depot hold an extra 2,500 pallets: Lynas Foodservice has announced plans to build an automated conveyor belt extension to its depot, the first of its kind in Ireland.
The managing director of Lynas Foodservice, Andrew Lynas, says the idea came during a placement with a large US foodservice company. “I learnt so much in 10 weeks that we could apply to our business here,” explains Andrew. But if you don’t have the budget to travel overseas, buy a new warehouse or build an extension, there are other, low-cost solutions to trial. These include focusing on the products themselves, from deciding which ones to stock to how to sell them faster.
Temporary solutions: Birchall invests in temporary 8,600sq ft extension
For wholesalers thinking about extending an existing depot, the cost is still significant, as Birchall Foodservice discovered recently. The business had grown to the point where the depot was stretched beyond its capacity and more space was desperately needed. But expansion wasn’t an option, practically or financially. “Birchall’s depot is L-shaped and so expansion would have made it unsaleable,” explains the company’s sales director Louise Birchall.
“But the business was being strangled by sales and we needed to find more space.”
The solution for Birchall was to erect a temporary building, giving it an additional 8,600sq ft on top of its existing 10,800sq ft.
Using scaffolding to make the floor instead of the more costly steel and concrete saved money but the structure is still sturdy enough to hold the weight of a forklift truck. The extension was up within a week, with minimal disruption to the business. Since its completion 18 months ago, sales have risen from £15m to £18m at a cost of £150,000 compared with the £700,000 the firm would have had to pay for a permanent extension to the building. “It has enabled us to grow very rapidly without affecting day-to-day business,” says Louise.
Split the floor space: JB Food Service doubles capacity with mezzanine floor
Another wholesaler that has developed an innovative solution to using space is JB Food Service. The Scottish wholesaler has a turnover of £5.9m but has doubled its turnover since joining Caterforce in 2005.
“We are managing growth by introducing a mezzanine floor which will split the depot into two levels,” explains managing director Lee Brown. “This will increase our capacity by 10% and enable us to launch into fine dining next year, which we expect will add a further £500K to sales.”
Sometimes, an extension to a warehouse doesn’t even last as long as expected. When Wales-based Castell Howell built a distribution centre, it was supposed to allow for 10 years’ growth. But space ran out pretty quickly. “Now we are building an extension to the depot – officially, it’s for butchery but we will probably end up using it for chilled and general grocery, too,” explains operations director Matt Lewis.
The benefit of having the extra space is not just about housing regular lines – wholesalers agree that it is very useful for taking advantage of good supplier deals.
“We are landlocked here in Carlisle,” explains David Jenkins, sales director at Pioneer. “Our biggest growing category is ambient and we need extra space so that we can get container deals, instead of buying just five to 10 pallets.”
Maximise space: Filshill says put customers over suppliers
Echoing Sony Bihal’s strategy of cost-effectiveness, JW Filshill managing director Simon Hannah says warehouse layout is crucial for wholesale businesses when it comes to maximising sales.
“As a delivered wholesaler, our warehouse is laid out according to rate of sale, so the slow-moving lines get equivalent space and best-sellers that are easy to replenish get more,” he says. “My advice to any wholesaler is to stock what sells to your customer base and not just what suppliers want you to buy because if you’re maxing out your space and you’re not doing well, you’ve got a problem.”
But what if you do find yourself in the position of having excess stock? One option is putting products on promotion; another is to look for alternative ways to shift it. Jamie Burke, founder of retailersaver.com, says his company, which buys excess or clearance stock from wholesalers in bulk and sells it to retailers at a discounted rate, is a good solution for wholesalers with limited space.
“Outside of symbol groups, retailers exhibit promiscuous and fragmented buying so what we’re offering isn’t an alternative to wholesale, we’re more of a top up,” he says.
The company has a database of 1,100 independent retailers and plans to extend that to 3,000 over the next few months. One advantage of the service for wholesalers is that they can request the stock is sold outside their trading areas, which means their customers won’t be getting the cheaper deal.
“For smaller wholesalers, it’s about cash. If you’ve got stock that’s selling slowly, it’s damaging to your overall profitability and you could use that space for something else,” says Jamie.
Cross stocking. Create the illusion of space
Another avenue for growth is ‘cross-stocking’ – using other wholesalers to provide categories that you don’t have the space for. Birchall, for example, uses an alternative wholesaler for fresh fish. Customers can order at Birchall for next-day delivery but the stock actually comes from elsewhere.
“It creates the impression we’re bigger than we are to our customers, our suppliers and our competition,” says Louise Birchall. “It also means we are bringing the expertise to our customers as well as the category.”