Consortium idea - Lots of questions!

[Samcam]

Hi everyone, I am new here, and I am glad I have finally found a community of likeminded people (after looking in all the wrong places!). I am hoping to get some advice regarding an idea that I have been working on.

I currently own and run 2 shops which buy products from UK suppliers (who have imported the products) and sell them to the general public. This model has worked in my industry forever but it is no longer viable due to ecommerce / dropshippers / box shifters etc. E-commerce is a difficult nut to crack due to oversaturation of the market of cheap products, not being able to compete on prices (due to reasons stated previously) as well as geographical selling restrictions.

So my idea is to bring together other businesses of a similar disposition and create a consortium. The business will import our own products and create an ecommerce site which will sell to the general public. But rather than drop shipping to end uses, the orders will be given to the consortium member who covers that area. The members will pay fees (based on the number of households in the specified post code areas that they choose) and these fees will be used to promote the brand (via traditional marketing as well as online). The products will have a mark up but the margins will be small, which will allow the members to make a decent profit whilst still allowing us to compete with online prices.

As the products margins will be kept low, I want to explore what other revenue streams could be available to this type of business. ie. collective insurance purchasing / energy contracts etc. Has anyone got any experience of this type of thing? I guess it would be called a referral scheme?

I appreciate your thoughts and feedback Thanks. Sam

 

[Clint911]

Hi everyone, I am new here, and I am glad I have finally found a community of likeminded people (after looking in all the wrong places!). I am hoping to get some advice regarding an idea that I have been working on.

I currently own and run 2 shops which buy products from UK suppliers (who have imported the products) and sell them to the general public. This model has worked in my industry forever but it is no longer viable due to ecommerce / dropshippers / box shifters etc. E-commerce is a difficult nut to crack due to oversaturation of the market of cheap products, not being able to compete on prices (due to reasons stated previously) as well as geographical selling restrictions.

So my idea is to bring together other businesses of a similar disposition and create a consortium. The business will import our own products and create an ecommerce site which will sell to the general public. But rather than drop shipping to end uses, the orders will be given to the consortium member who covers that area. The members will pay fees (based on the number of households in the specified post code areas that they choose) and these fees will be used to promote the brand (via traditional marketing as well as online). The products will have a mark up but the margins will be small, which will allow the members to make a decent profit whilst still allowing us to compete with online prices.

As the products margins will be kept low, I want to explore what other revenue streams could be available to this type of business. ie. collective insurance purchasing / energy contracts etc. Has anyone got any experience of this type of thing? I guess it would be called a referral scheme?

I appreciate your thoughts and feedback Thanks. Sam

so like a MLM scheme but for general retail…

 

[Mark T Jones]

I may not have fully understood - are you effectively talking about a buying group?

 

[NickZ]

E-commerce is a difficult nut to crack due to oversaturation of the market of cheap products, not being able to compete on prices (due to reasons stated previously) as well as geographical selling restrictions.

With that mind set tiktok, Shein,Temu would never have happened.
You just need to be better and have deeper pockets, plus a good team.

 

[Samcam]

so like a MLM scheme but for general retail…

I think MLM is a pyramid scheme? No, this is not that! it is essentially creating a “chain” of nationwide physical shops without them actually being a chain. individual shops (such as mine) do not have access to the kind of capital which allow them to import their own products directly (to cut out the UK supplier who is currently importing and selling on to retailers for a large mark up) they also don’t have the funding to spend enough on marketing to allow their individual e-commerce sites to compete with the big chains or the low priced drop shippers. This would bring them together to pool their resources and target those areas and allow the products to be sold at prices that compete with the online market whilst still being profitable.

 

[Samcam]

I may not have fully understood - are you effectively talking about a buying group?

Yes I guess that would be the simplest way to describe it!

 

[Samcam]

With that mind set tiktok, Shein,Temu would never have happened.
You just need to be better and have deeper pockets, plus a good team.

I completely agree but these 3 sites you have listed are multi vendor platforms therefore are collective selling which is similar to what I am suggesting - the difference is that it wouldn’t be multiple listings of the same product, it would be one listing of each product available for delivery nationwide but when the order is placed the item is delivered by a local partner rather.

 

[Samcam]

I know I haven’t listed the industry, but bare in mind that these are large, expensive products that are traditionally better for people to come and buy in person so that they can ensure they get the right thing, but the world being what it is at the moment, the e-commerce sector is expanding rapidly and traditional businesses such as mine are being left behind.

 

[Mark T Jones]

Yes I guess that would be the simplest way to describe it!

Will it be a not-for-profit cooperative, or a partnership business where profits are distributed?

In any case, my initial research would be around the type of volumes you need to get meaningful discounts, against the level of interest from possible participants - bearing in mind the chasm between what people agree to do in an offhand way vs what they actually do when action is required.

Also look to see of there are any restrictions from wholesalers or manufacturers (eg exclusivity agreements in their existing chain)

Bolting on value-add goods and services will b pretty easy once you get the model up and running.

 

[Samcam]

Will it be a not-for-profit cooperative, or a partnership business where profits are distributed?

In any case, my initial research would be around the type of volumes you need to get meaningful discounts, against the level of interest from possible participants - bearing in mind the chasm between what people agree to do in an offhand way vs what they actually do when action is required.

Also look to see of there are any restrictions from wholesalers or manufacturers (eg exclusivity agreements in their existing chain)

Bolting on value-add goods and services will b pretty easy once you get the model up and running.

Thank you for the reply. To be honest, we haven't decided on the structure, I am waiting for advice from a business advisor regarding this. All options are open at the moment but I was leaning towards a limited company where the members are just members and not shareholders. (I am sorry, I am not very technical with these terms so I hope that makes sense!)

I agree with the initial research and I have already started to look at this. I have been speaking with a potential business partner (early stages) but they already have connections in regards to the manufacturers as they are already importing.

My main thoughts at the moment are what types of other revenue could be possible with a model such as this in order for the business to actually be profitable? Due to needing to keep the margins on the products relatively low (UK suppliers of the same products typically work on 40-50% margins, in order to compete with the ecommerce market we will likely have margins closer to 15-20%) we will need to have other revenues to ensure profitability. I know there are already referral opportunities in my industry for insurances and large product installations, but I was hoping to get more information on if there are referral schemes for example with electricity suppliers, business insurance etc?

 

[BusterBloodvessel]

As Mark says, you are talking about creating a "buying group". Very common in my main sector (automotive) and we work in some capacity with most of the ones in the UK and more so internationally. In fact we now arrange importing a number of things for them on their behalf so maybe we could help you but that's a separate discussion!

Typically these groups claim that they are working on a "not for profit" model, which is a slightly dubious way of saying they don't retain any profit because any they make is paid back to the members as a profit share/rebate at year end! People aren't expected to work in this for free though - central roles such as management, purchasing etc are all paid, salaried roles. Members who are on the board and attend board meetings etc are compensated for doing so.

Typically this is financed by the key suppliers paying a rebate to the central organisation, OR the central organisation buys from the supplier and sells to the member at a markup - but this may be lower than a traditional distributor markup so the member still gets a saving. Or, it can be a mix of the two.

When you talk about orders being placed through a website then given to a local member - do you mean for them to dispatch as a normal e-commerce sale? This makes zero sense. Or do you mean like a "click & collect" and they would be told to visit the nearest member branch as their click and collect? Again, this has been tried in automotive BUT the difficulty was managing the stock availability and responsiveness of staff at each individual shop. If Joe Bloggs the shop owner is off ill that day and his assistant is trying to run things and knows nothing about e-commerce orders, will it get missed? Likewise how do you know they haven't had someone walk in off the street that morning and buy the one remaining item on the shelf just before you sell it to someone online?

In any case, my initial research would be around the type of volumes you need to get meaningful discounts, against the level of interest from possible participants - bearing in mind the chasm between what people agree to do in an offhand way vs what they actually do when action is required.

Please really consider this point! People are lazy/busy/easily distracted/don't see the point etc. With one of the buying groups I do a lot of work with, there is a large % of members that they genuinely struggle to get to even open an email. Let alone to give them a response or get involved with member events, trade shows, AGM's etc. Despite these all being things that would benefit their business if they took part!

And remember - you can't force anyone to do anything. So, for arguments sake, you have 10 shops who all sell 10,000 Brand A widgets a year. So you do a deal with a supplier to buy a total of 100,000 brand A widgets and agree a price and rebate target based on that. However 5 of the members might say "I don't like brand A widgets, I only sell brand B widgets". So all of a sudden you haven't got 100,000 volume you promised the supplier and no way of forcing those 5 members to do what you want them to do.

To your final question, yes typically they might negotiate group deals around business insurance, courier rates, IT services, etc - again perhaps on a commission or rebate basis for each member that takes advantage.

 

[Samcam]

As Mark says, you are talking about creating a "buying group". Very common in my main sector (automotive) and we work in some capacity with most of the ones in the UK and more so internationally. In fact we now arrange importing a number of things for them on their behalf so maybe we could help you but that's a separate discussion!

Typically these groups claim that they are working on a "not for profit" model, which is a slightly dubious way of saying they don't retain any profit because any they make is paid back to the members as a profit share/rebate at year end! People aren't expected to work in this for free though - central roles such as management, purchasing etc are all paid, salaried roles. Members who are on the board and attend board meetings etc are compensated for doing so.

Typically this is financed by the key suppliers paying a rebate to the central organisation, OR the central organisation buys from the supplier and sells to the member at a markup - but this may be lower than a traditional distributor markup so the member still gets a saving. Or, it can be a mix of the two.

When you talk about orders being placed through a website then given to a local member - do you mean for them to dispatch as a normal e-commerce sale? This makes zero sense. Or do you mean like a "click & collect" and they would be told to visit the nearest member branch as their click and collect? Again, this has been tried in automotive BUT the difficulty was managing the stock availability and responsiveness of staff at each individual shop. If Joe Bloggs the shop owner is off ill that day and his assistant is trying to run things and knows nothing about e-commerce orders, will it get missed? Likewise how do you know they haven't had someone walk in off the street that morning and buy the one remaining item on the shelf just before you sell it to someone online?



Please really consider this point! People are lazy/busy/easily distracted/don't see the point etc. With one of the buying groups I do a lot of work with, there is a large % of members that they genuinely struggle to get to even open an email. Let alone to give them a response or get involved with member events, trade shows, AGM's etc. Despite these all being things that would benefit their business if they took part!

And remember - you can't force anyone to do anything. So, for arguments sake, you have 10 shops who all sell 10,000 Brand A widgets a year. So you do a deal with a supplier to buy a total of 100,000 brand A widgets and agree a price and rebate target based on that. However 5 of the members might say "I don't like brand A widgets, I only sell brand B widgets". So all of a sudden you haven't got 100,000 volume you promised the supplier and no way of forcing those 5 members to do what you want them to do.

To your final question, yes typically they might negotiate group deals around business insurance, courier rates, IT services, etc - again perhaps on a commission or rebate basis for each member that takes advantage.

Thank you for your reply, very informative What you are saying makes complete sense and all things I will be thinking about and taking on board.

To be honest, I run a shop... I have ambition for more but not enough knowledge or funds! I can see that in my industry, if we don't start moving with the times many of our shops will be closing down. Lots of people in my industry have expressed interest in the idea but I just don't know where to start!

I have interest from a potential business partner but I don't want to rely on their knowledge and contacts for multiple reasons but 1 being in case it falls through and 2 what do I bring to the party if I know nothing! It's also very frustrating waiting on people when I want to get the ball rolling now.

Sorry, I've gone off on a bit of a wobble! But I know that if this is done right it will help many folk in my position as well as potentially be a lucrative opportunity.

So I guess my question is, any suggestions on where I should start?

 

[BusterBloodvessel]

My suggestion would be to start with a serious chat with your potential collaborators in other towns that you would see benefitting from this service. How seriously interested are they, how would they see it working, what input can they give. You can't go from zero to 100 overnight but could you begin with, say, 6 founder members in the North West, or North East or wherever you may be.

Prove a working model for your own businesses and then it will make it easier to grow the membership because you can actively show people the benefits of becoming a member. And so it grows - the bigger the membership, the bigger buying/negotiation power you have, the more attractive it ultimately becomes.

 

[Samcam]

My suggestion would be to start with a serious chat with your potential collaborators in other towns that you would see benefitting from this service. How seriously interested are they, how would they see it working, what input can they give. You can't go from zero to 100 overnight but could you begin with, say, 6 founder members in the North West, or North East or wherever you may be.

Prove a working model for your own businesses and then it will make it easier to grow the membership because you can actively show people the benefits of becoming a member. And so it grows - the bigger the membership, the bigger buying/negotiation power you have, the more attractive it ultimately becomes.

I agree this is the right place to start, and this is where I started 6 months ago. The issue I faced is that the other partner / member businesses wanted everything already set out on a plate. ie. company structure, physical products, margins, marketing plans etc. I wanted to have a chat and grow the idea together but it doesn't seem like there are many likeminded people, they liked the idea in principle but didn't really want a hand in shaping the product, just wanted me to come back when I had something firmer to show.

Reading into the non for profit model, I think this may be the most suitable option for the structure. If I make this decision now at least I have one less to make! But it looks like its the most suitable (as you say, many other buying groups use this structure).

 

[linkator]

It's simple - negotiate a good price for popular products annd offer for the guys who usually buy it at higher prices. If you will get tractions you can expand. In many cases small buyers do not care much about price but need finanial boost - they do not want freeze their own working capital in stock, so you should understant what the real motivation for them about choosing one or another supplier.

 

[DoolallyTap]

This is potentially a buying group so you will need a central warehouse full of stock which means very deep pockets to set it all up.

 

[BusterBloodvessel]

This is potentially a buying group so you will need a central warehouse full of stock which means very deep pockets to set it all up.

Not necessarily - can run a buying group on direct supply deals without a central warehouse (or indeed a mixture of both).

 

[eteb3]

Not necessarily - can run a buying group on direct supply deals without a central warehouse (or indeed a mixture of both).

Or members warehouse for each other: I have all the A widgets stock and you have all the Bs.

I would try getting a response out of Coops UK, and get put in touch with others doing this.

But they will most likely give you the brush off until you have at least two comparable businesses prepared to research and promote it with you.

I’ve been frustrated at them for that in the past, but now think it’s very sensible: if you’re planning a coop on your own, you’re not planning a coop.

 

[Samcam]

Thanks for your responses. Yea it’s basically a coop buying and selling group (as we would have one central online selling platform) member fees would go towards advertising the selling platform and I am thinking of asking members for an upfront payment towards the cost of the stock / warehousing etc. This upfront payment would be a prepayment for future stock which they would get an extra discount on as they have paid upfront. I know it’s a lot of work and I’m prepared to put it in, I just need to understand the legal side of coops. For example, if one of the members doesn’t follow the code of conduct, how do we kick them out? Are coop members shareholders? I’m assuming there’s some sort of legal agreement when they sign up etc. I was going to sign up to coops uk to seek that advice, but are you saying they won’t accept me until I’m officially a coop?

 

[eteb3]

For example, if one of the members doesn’t follow the code of conduct, how do we kick them out?

That's up to you to put in the rules. Coops UK model governing docs are big on "democracy" (as they see it), so often expulsion is only possible by a general meeting. But you can give that power to the directors, or some combination, or fines first then suspension then expulsion - anything you like.

Are coop members shareholders?

Most legal forms can be made suitable. You could use a company limited by guarantee (which can make profit distributions, btw, which most people don't know), or a regular share company, or a registered cooperative society (which has a somewhat different legal regime to a company), or even an LLP. Once you have your business model you'd want to get advice on which to use. I have had dealings with both Charlie Cattell and with Stir To Action / Jonathan Gordon Farleigh. Both very knowledgable. Maybe Charlie has more properly commercial (rather than non-profit) experience.

 

[eteb3]

@Samcam have sent you a DM.

 

[Samcam]

@Samcam have sent you a DM.

Thank you