For decades, wholesalers made up an entire industry by serving as the middlemen between manufacturers and retailers, food outlets and caterers. Selling directly to consumers was ‘dangerous territory’ that was to be avoided.
But times are changing – with Booker now joining forces with Tesco, the main competitor of their retail customer base, it seems that there are no rules. Everything is for the taking.
“Wholesalers have been very successful over many years in extending their reach into new markets to compensate for declines in traditional sectors,” says Mike McGee, director of The Whole Sale Company. “Bulk selling to consumers is a logical business extension and is probably the last remaining significant opportunity.”
An increasing move towards deliveries in the UK grocery wholesale sector is making some wholesale operators consider how to get the most out of the big spaces occupied by their depots. It therefore “makes sense” to use those assets for a wider customer profile, according to McGee, who was previously MD of Landmark Wholesale.
Simon Hannah, MD of wholesaler JW Filshill and chairman of Today’s Group, believes that wholesalers can sell to consumers, so long as it is in tandem with their retail customers.
“One idea is to work together with retailers to offer access to an online portal of craft and artisan products,” he says. “The wholesaler would share profit and data with the retailer, enabling them to see popular items and consider the value of stocking them. This would provide the wholesaler with a valuable support function. For retailers, it would mean having the ultimate, limitless store. Trust and innovative thinking is how this could work.”
But not everyone is convinced. According to the Federation of Wholesale Distributors (FWD), selling to consumers would be a risky move for wholesalers.
“The decision to go into direct competition with customers is not one that any wholesaler should take lightly,” argues CEO James Bielby. “It risks losing the support of loyal retailers and caterers who buy regularly and in large volumes.”
A large proportion of the existing cash & carry estate is unsuitable for selling directly to consumers, adds Bielby, and wholesalers will find that planning rules for new retail premises are very different to those for business-to-business sales. The best solution, he says, is to capitalise on your existing customer base.
“Local hubs for collection or delivery are the key to swift, efficient distribution. The wholesale sector’s great advantage is that it already has these, in the thousands of shops and restaurants that FWD members supply,” he adds.
Membership clubs
Today, there aren’t many traditional wholesalers that sell directly to the consumer – at least, not openly. Even Costco Wholesale has strict requirements that need to be met.
Under its ‘individual membership’ criteria, members need to prove they are part of a qualifying employment group, such as teachers, accountants or members of the armed forces. Membership includes a complimentary card for a spouse or domestic partner.
Costco is the second largest retailer in the US, behind Walmart, and in the UK, it has an annual charge of £28 + VAT for individual membership, which helps it to keep costs down and pass on significant savings to customers.
Costco Wholesale Corporation president and CEO Craig Jelinek, says: “Our view is to figure out how to sell it for less and sell more. Our membership fee is part of the equation – it’s a value that customers see and that’s why they continue to pay it. The more membership fees we generate, the more that we turn around and try to lower our prices.”
Is a membership fee something that more wholesalers should be doing? There are a few key things to consider with any potential transition from trade to consumer sales.
Do you have planning permission?
Before you go knocking down (or building up) new infrastructure, you have to be certain that doing so is legal. All commercial properties have a ‘use class’ and you will often have to get planning permission from the local authority if you want to change that class. If your project needs planning permission and you do the work without getting it, you can be served an enforcement notice ordering you to undo all the alterations you have made. It’s an expensive mistake, so check first.
According to legal resource lawdonut.co.uk, to apply for planning permission, a business would have to send a planning application form and fee to the local authority. The application will be considered against local planning policies and any objections received from the public. If you’re lucky, planning approval may be granted outright, but conditions may be applied, such as restricting the hours of use of business premises.
Have you created a suitable environment?
Let’s be honest, a warehouse isn’t the most attractive place for regular consumers to shop, as they are likely to be more accustomed to shopping at high street stores.
“The biggest issues to consider [for wholesalers selling to consumers] are actually environmental – do you offer enough parking space? Are there functioning (and pleasant) toilets? Can the location and staff be welcoming? Cash & carries can be difficult places for the person off the street,” says McGee.
Costco works to create a welcoming environment for members with its on-site food courts, where members can stop off and recharge with a hot dog and a soft drink for £1.50 after walking around the cavernous warehouse. In the US, Costco has many more warehouses (506, versus 28 in the UK), most of which have food courts. Interestingly, the popularity of Costco’s pizzas makes it the 15th largest pizza restaurant chain in the US.
Is it different for foodservice versus retail?
The introduction of smaller retail pack sizes on lines such as confectionery, soft drinks and household goods – key impulse items – is what would put wholesalers in direct competition with their convenience retail customers, according to The Whole Sale Company’s McGee. “Arguably, as long as it was bulk purchase only, rather than splitting packs, the independent wouldn’t get this business anyway,” he says. “But is this really a worry when we see the largest wholesaler tying up with the biggest multiple? And wholesalers developing retail clubs and symbols near independent outlets?”
While the issue of hurting customers’ business seems quite prevalent in the grocery wholesale sector, it could be less of an issue when catering for food outlets.
Buying a 24-pack case of Hula Hoops and a 48-pack of Kit Kats from a wholesaler might stop the average consumer popping to their local retailer to buy those items for a week or more. But it’s difficult to see how buying a wholesale pack of fresh chicken would stop someone from eating out or ordering a takeaway, which is why selling to consumers may be a more attractive proposition to foodservice wholesalers.
When JJ Food Service introduced smaller pack sizes on fresh poultry and lamb products in 2015, it was to support smaller caterers with limited storage space and cash flow. Two years later, the smaller pack sizes are getting a surprising amount of interest from consumers, particularly at the Enfield branch, which has a fresh meat counter open to all.
“Our fresh, air-chilled chicken breast starts from just £9.99 for around 11x215g fillets – that’s just 86p per fillet,” says group general manager Terry Larkin. “We’re getting increased interest from households catering for large families, particularly for our 2.5kg pack size.”
Despite the new arrivals, there has been minimal impact on JJ’s core customer base, Larkin says. “Our catering customers don’t mind at all. In fact, they buy to cook at home, too.”
To capitalise on consumer interest, JJ is currently installing vibrant, promotional signage to attract consumers passing on the M25.
Will you see a worthwhile return on investment?
If you’re going to change your entire business model to encompass consumers, it will need to offer a worthwhile return. One Birmingham-based wholesaler warns that it’s simply not worth the time or investment.
“It’s difficult to justify tying up resources for small volume returns,” says Amir Choudhary, who is operations director at Indus Foods, a Today’s Group member.
“Shouldn’t we be focusing on bringing greater value into the supply chain by working with a wider range of suppliers and responding faster to trade demands with new products, innovation and other supporting services?”
Whether you decide to experiment with selling to consumers, or to stick to what you’re good at and keep things trade-only, take time to consider everything from legal requirements to internal layout, new product range and how much you should expect to get out of it, for the investment that you put in.
Wholesaler viewpoints
“One idea is to work together with retailers to offer access to an online portal of craft and artisan products. The wholesaler would share profit and data with the retailer, enabling them to see popular items and consider the value of stocking them. This would provide the wholesaler with a valuable support function.”
Simon Hannah, MD, JW Filshill and chairman of Today’s Group
“Shouldn’t we be focusing on bringing greater value into the supply chain by working with a wider range of suppliers and responding faster to trade demands with new products, innovation and other supporting services?”
Amir Choudhary, operations director, Indus Foods
