Wholesale is a line of business that people work in for years, building solid relationships with their suppliers and their retail clients. The food business is one such industry where the potential for wholesale distribution is immense.
However, it is a tough market to break into and find success in, especially when the face of trade is changing so radically. The internet, for instance, has caused a radical shift in the way goods and services are bought and sold, with people getting rid of the need for retailers and stores.
The way technology plays into consumer and supplier relationships, business operations and management and even as a marketing and advertising medium is incomparable to any other period of time.
Wholesale—Is it a risky business?
With such major paradigm shifts and changing trends, it’s really worth wondering what contributes to the success and the failure of different businesses. In Australia alone, the wholesale and retail industries are expansive and employ people by the thousands. However, trends indicate a decline in wholesale employment until 2023.
Is your business among the hundreds of others struggling to make a mark, sustain itself or only really breaking even? Perhaps you need to revaluate business strategies and consider the mistakes you might be making.
Common mistakes that are costing your wholesale business
What a lot of wholesalers, especially small business wholesalers don’t realise is that their business is not showing results as projected or expected, could be due to the following:
1. Entering a Highly Competitive Market
It’s only a natural instinct to be drawn to a market that seems to be booming. When you see that, let’s say, the market for organic food supply is expanding rapidly, it’s a worthwhile investment to make and venture into. However, you’re not going to be the only wholesaler offering supplies to other businesses. The risk with B2B trade is that your retail clients will obviously want supplies that cost them less in the long run.
An issue with being in a market that’s highly saturated with competitors is that the pricing will always be an issue. Your competitors will be able to hold a greater market share if they’re offering the same product at a cheaper rate. There are many reasons for this pricing disparity, including the advantage of scale, and that’s something small businesses struggle to keep up with. This is why it’s important to find a niche that will be profitable enough for your business.
2. Vulnerability to Changing Prices
This is another factor that’s going to affect how much profit you make. The value of your inventory will rise and fall, which can make pricing and mark-ups difficult to determine, leaving you unable to offer fair yet profitable rates. You can end up overpaying if the pricing falls from the backend, or selling at a close margin. Either way, if the product you’re dealing with is vulnerable to pricing changes, depending on factors like the season, stocks, demand and supply, regulations and policies at the local and state level, or perhaps accidents, your business will be at risk.
3. Too Much Credit Lending
You might be doing your retail customers a favour by offering credit on sales, but you’re affecting your business operations. It’s almost impossible to avoid running a business without any credit lending, especially if you’re a wholesaler that’s dealing with large orders and frequent customers, but set clear terms and agreements.
Your generosity can end up costing you, even if your clients don’t mean to take advantage of it. When you lend out too much credit to too many clients and far too long, you’re not going to have much coming in. This leads to you taking credit from your suppliers, owing employees, having trouble managing costs and missing out on valuable profits. For a small business, this could mean losing contacts and paying out of savings or personal resources.
4. Overstocking and Too Much Dead Stock
It’s important as a wholesaler to meet your clients’ needs; you don’t want to be short on supplies to deliver and slow down the entire process, thus upsetting customers. You also want to maximise your own gains when purchasing in bulk.
A major problem that wholesalers run into is that of overstocking. This is what happens when you keep too much stock in expectations of meeting orders, but never actually end up selling it. This is especially risky when it comes to wholesalers in the food industry that are dealing with perishable items. Overstocking not only means losing money; it means wasting your supplies because they can’t be reused, resold or stored away.
Deadstock is another problem you can end up with, if you’re not keeping up with industry standards, regulations and market changes. These changes can cause your product to become irrelevant and unnecessary to buyers, which means it’s up to you to take swift action such as reducing prices and offering discounts. Deadstock is just that: dead.
It’s wasted money, and as a wholesale business, the implications can translate to major losses and higher costs of storage and wasted money on shipping, etc.
5. Undercharging Customers and Overpaying Suppliers
You want to keep a margin that’s fair and profitable to your business. You’re the middleman for retailers and manufacturers, and it’s hard finding a middle ground for everyone involved.
Since wholesale requires an additional level of trust and dependence on the people you work with, you have to build business relations that are productive. If your backend supplier, the manufacturer or the farm where you get your supplies from, begins charging you too much for their products, there’s very little room for you to mark up the prices. Typically, you’re meant to charge around 50% of what the retail price will be.
This price difference is what’s leading a lot of wholesale businesses to go out of functionality, with manufacturers and suppliers linking to retailers directly. Finding the right balance is key for any business to sustain itself.
6. High Shipping and Delivery Costs
Yet another issue that wholesalers face as the middleman is that they’re making use of shipping services twice. Once to bring in supplies to their warehouse, and the second time to have them delivered to their retail clients. Depending from business to business, shipping costs can be distributed but they can often fall on the wholesaler alone.
Wholesalers with the ability to do so can make use of in-house transport systems, with trucks and vehicles that transport goods to and fro, but smaller businesses operate differently. They work with contractors and delivery companies to bring shipments in and send orders out and not only can that be inefficient, but it’s also expensive.
Without splitting costs or adjusting for delivery and shipment prices, wholesalers can meet with major setbacks in their operations. With rising fuel costs across Australia, it’s unsurprising that this is a major cost.
7. Overhead costs
Running a business is not easy work and neither does it come without a range of costs and expenses. For retailers, it’s different to operate their business, because they may not necessarily need a physical space, or a store to sell their finished product. Wholesalers will almost always need a physical workspace, storage and shipment facilities, packaging and branding and the costs that come with running all this.
From setting up to utilities, repairs and accidents, paying sales reps, transporters, renting or purchasing, paying fees, taxes and so many other costs that aren’t really accounted for. As a business owner, it’s essential that you factor in all these overhead costs and understand what it will take to set up and then run your business, because it’s never just about buying products and selling them.
When you budget these costs in, you’ll inadvertently work on your overall budget, margin and pricing more efficiently.
8. Inefficient Order Management
Working as a B2B supplier is high pressure, because someone else’s work depends on your ability to deliver what is expected of you. If you’re unable to get that through to your clients, they will not return to you for business. Many wholesale businesses lack having an effective and reliable system in place. In this case, OrderTron, an Order Management System (OMS), designed to help foodservice suppliers streamline their orders more effectively, can be of immense benefit.
This software does the work of managing, processing and setting orders, inventory and determining how much you’ll need to stock up on from your suppliers, getting rid of the problem of communication, keeping track and handling multiple clients. It’s easy to use and is the perfect investment as an order management system for small businesses.
A lot of times, it’s easy to oversee factors that could be hindering your business’ profitability in the wholesale market, which is exactly why being proactive and learning from industry experts is important. Start small and be open to change, even if you’ve been in the industry for decades.
Embracing the digital revolution and using technology to benefit your business—such as through the use of an OMS like OrderTron—is one of the best ways to grow your business. You can learn more about this software here.