Selling Your Product To Some Chains
And if you’re at that stage, you may be thinking about selling your product to some chains. Which is admirable, and congratulations, but, of course, not all chain stores are the same size. There are chain stores, chains with perhaps 10 stores in a metro region, which is big, but not that big.
And then there’s Walmart. And others. A company like Walmart or Costco or Sam’s Club is where many small companies have died, or had a near-death experience, as a supplier.
The retail supplier landscape is littered with the debris of companies who successfully pitched Walmart on their product, but after the actual shipments commenced, they quickly discovered that, 1) they weren’t making anywhere near as much money as they originally forecasted, and, 2) keeping up with demand was killing their operations and their people, and, 3) returns and chargebacks were further eroding their profits on the back end.
Sure, shipments are up 800%, and revenues are up 1100%, but profits are dropping. You are NOT making it up in volume; in fact, volume just means the rate of loss is piling up more quickly. And everyone at your now-much-bigger company, including all the new employees you had to hire, look like zombies because of double shifts and overtime. Walmart or Costco or big-box chains like them are stern masters, and having a supplier contract with one of them is what makes the old joke ring true:
“The good news is we got the Costco contract”.
“What’s the bad news”?
“We got the Costco contract”.
These kinds of retailers sell at very low retail prices. It follows that they’re paying their suppliers very low wholesale prices.
Yes, suppliers have gone bankrupt, and been forced out of business as a result of becoming a supplier of a massive chain. It’s happened many times.
That said, there are obviously many companies that have cracked the code on that business, and they use their little piece of real estate on the shelves at a place like Walmart to build brand recognition and brand equity (millions of people shop at a Walmart) and make profit at the same time. To them, being a supplier at one of the largest retailers in the United States is paying off.
Here are some tips from Entrepreneur that I came across, and these are at least generically helpful. There are lots of other sources as well, and there are also human assets (people!) that have experience in these kind of big leagues that you can hire if you’re going to go after this business. They can help steer your company around roadblocks, and keep you from running down blind alleys.
Just remember, volume doesn’t necessarily equate to profit. If you’re going to go after business at a big chain, make sure you can make some money off that business after all the dust settles. It’s easy to become seduced by the big revenue numbers, but bear in mind all the other numbers are getting bigger, too – facility costs, energy cost, labor costs, etc.
Do the math using worst-case scenario numbers. And then, do it again.