Mike McGee looks at three wholesale myths – and whether they still hold true.
As with every industry, wholesale has developed a body of belief and terminology over the years that can be somewhat misleading and in some cases damaging to ongoing business. I am sure that we can all think of examples and indeed it would be interesting to hear from readers with their suggestions.
Cash & carry: Is there a gap in the market for a wholesaler that does exactly what it says on the tin?
One thing that unfailingly sets my teeth on edge is the old supplier tenet that ‘wholesale is based on relationships and people while the multiples work on systems.’ This was possibly true once but I really don’t see how it can be relevant now, especially when suppliers have cut back calls so dramatically, restructure annually and bemoan the lack of discipline and complexity in wholesale.
When it comes down to it, the right price is more relevant than these nebulous relationships – maybe the multiples got that one right.
However, starting at the beginning, let us consider the term ‘cash & carry’. This is seemingly the largest element in the wholesale market. I would suspect that if someone who did not know the sector saw that term, they naturally would assume that customers paid cash and took the product away themselves.
How wrong they would be in most cases. Most so-called cash & carries now operate some kind of delivery service, take credit cards at the very least and give credit to some customers.
It could be argued that all they are doing is satisfying a market need, doing what wholesale has always done so well – developing new markets to maintain growth – and all that has happened is that the language hasn’t kept pace.
Cash & carry was founded on a low-cost model to offer the best possible price and now the majority of operators have moved a long way away from that. Delivery and credit is just a part of it as certainly the larger depots will have sales development staff, retail advisers, quasi-symbols with supporting material and so on – all at significant cost to the business.
I do not doubt for one moment that there is some need in the market for all this and some customers positively want these services. What I do wonder though is whether there has been a shift to being an all-encompassing wholesaler that operators have blindly followed, leaving a gap in the market.
Is there actually now a space for an old fashioned cash & carry chain that does what it says and strips out all the costs to offer the best possible net pricing? After all, Costco is pretty successful with its version of this, and Aldi and Lidl prove it can work in retail.
Could, say, a Chinese or American wholesaler enter the UK with such a stripped-down business model? Not every retailer or foodservice outlet wants enhanced services – should they be paying for those that do?
Retail clubs: Are they achieving what they were designed to do?
Talking of these additional services, ‘retail club’ is an interesting one. The word ‘club’ has a suggestion of exclusivity and of membership being something special. Yet the cynic in me says that if I added up all the claimed membership numbers of wholesale retail clubs, I would probably arrive at a figure that represented about 150% of the market.
Retail clubs were set up with two prime, connected things in mind: to try to attract and keep the more disciplined retailers through better deals; and to get suppliers to fund these very deals. It has to be said that in the round this has all been successful.
However, it all depends on how you measure success. Entry to these clubs can be along the lines of ‘please join and as long as you promote more than 50% of the lines, you can stay in.’ Retailers are not fools and they may well join more than one club and cherry-pick the best deals from each. Certainly, the best promotions get featured so perhaps that criterion is met, but this is hardly at the level of a second tier symbol group, is it?
I believe that there is a lack of clarity about what most retail clubs do. Are they a move to improve a retailer’s business by getting them to understand and implement effective retail promotions, thereby building their business and gaining their confidence to then implement planograms and improve layouts? Or are they a means of getting better deals, getting some degree of loyalty and doing some volume? Both are valid, as are shades in between – as long as it is thought through.
Customer ‘A’ vs customer ‘B’: What makes a valued customer?
This raises the question of what makes a valued customer. There is no question at all that wholesalers have taken a more rounded approach over the years. Ten years ago, all the staff in a depot would fall over themselves to help the volume buyer (inevitably a retailer) in every possible way, even if they were making no money from them. Although this focus still happens to an extent, there is certainly more time and effort put in to sales development and addressing why a particular customer is buying certain categories elsewhere, as well as chasing up lapsed customers. But there is still little operational understanding of profitable customers (often foodservice) and then addressing their potential.
Cash & carry, in its early, purest form, was all about the volume, pallet deals and getting the big players through the door. This still has a significant part to play, of course, but that thinking often still totally dominates, overshadowing the role that every customer segment can play in a balanced business. Treating and communicating with customers as individuals is now possible via the data systems and analysis now available, as I have mentioned previously in Better Wholesaling.
Therefore, we can rank customers based on their overall value much more effectively than ever before. Maybe helping that customer who buys a wide range of catering and fresh foods on a couple of trolleys is a much better bet than disrupting the depot to help another customer buying two entire pallets of a loss leader?
In my next piece in Better Wholesaling, I will be addressing some product-based myths and misconceptions. But as mentioned at the beginning of this article, your myth-busting suggestions would be most welcome.