Operating as both a Wholesaler and a Retailer

[jdn1983]

I started a company as a Wholesale Distributor. My products were Italian foods imported from Italy. However my supplier wants me to come into business with him and take a share in the manufacturing.

I came up with the idea of working in a retail and wholesale capacity much like Wing Yip - The Chinese Supermarket [anyone in Cricklewood would know about them]

My question is, how would pricing work and how would retailers and buying public react?

 

[OldWelshGuy]

personally it is one of my pet hates, it is as if you are asking for 2 bites of the cherry, and expecting your customers to compete against you when you have an unfair advantage.

For me it is either or, not both

 

[jdn1983]

personally it is one of my pet hates, it is as if you are asking for 2 bites of the cherry, and expecting your customers to compete against you when you have an unfair advantage.

For me it is either or, not both

How do the other companies do it without alienating both?

I'm sure there is a way.

 

[SAHARmarket]

It's a perfectly simple answer.

You produce the product and sell it retail, and you sell it wholesale (obviously at a cheaper price) but make it a contractual obligation so that your wholesale buyers can only resell the product at a specific price, which just happens to be the same price you are selling it for at retail.

 

[PrestonLad]

It's a perfectly simple answer.

You produce the product and sell it retail, and you sell it wholesale (obviously at a cheaper price) but make it a contractual obligation so that your wholesale buyers can only resell the product at a specific price, which just happens to be the same price you are selling it for at retail.

And do you think such a contract would actually be legal?

 

[SAHARmarket]

And do you think such a contract would actually be legal?

If they break it. Then you stop supplying them.

 

[OldWelshGuy]

And if someone challenged it in court you could lose the shirt off your back. Check up on the law here.

 

[SAHARmarket]

If they break it. Then you stop supplying them.

And sorry, to answer your question in terms of legality. Yes, depending on how the contract is written. A legally enforceable contract can be created.

"In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 the House of Lords upheld the enforceability of the requirement in the resale price maintenance clause, to pay £5 damages per item sold below list price, on the basis that it was not a penalty clause (which would be unenforceable) but a valid and enforceable liquidated damages clause."

You can check the wikipedia for info on price maintenance: http://en.wikipedia.org/wiki/Resale_price_maintenance

But my point of my previous post was that it does not even really matter if the contract itself is enforceable, as if the supplier was found to be selling at below the minimum price then you would simple terminate trade with them.

 

[OldWelshGuy]

And sorry, to answer your question in terms of legality. Yes, depending on how the contract is written. A legally enforceable contract can be created.

"In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 the House of Lords upheld the enforceability of the requirement in the resale price maintenance clause, to pay £5 damages per item sold below list price, on the basis that it was not a penalty clause (which would be unenforceable) but a valid and enforceable liquidated damages clause."

You can check the wikipedia for info on price maintenance: http://en.wikipedia.org/wiki/Resale_price_maintenance

But my point of my previous post was that it does not even really matter if the contract itself is enforceable, as if the supplier was found to be selling at below the minimum price then you would simple terminate trade with them.

And as you rightly state, regardless of the legality, you just stop trading with them as no-one can force you to sell to them. it would probably under the new regualtions be illegal to force somone to sell at a set price, but it would NOT be illegal to refuse to supply them.

 

[SAHARmarket]

.....humm although reading further into the wikipedia article it states "The ECJ and the Commission have both held that Resale Price Maintenance is generally prohibited" so I would recommend seeking professional legal advice before putting any such price maintinance into a contract.

 

[JamieM]

How do the other companies do it without alienating both?

I'm sure there is a way.

It's a perfectly simple answer.

You produce the product and sell it retail, and you sell it wholesale (obviously at a cheaper price) but make it a contractual obligation so that your wholesale buyers can only resell the product at a specific price, which just happens to be the same price you are selling it for at retail.

In my experience this is the wrong way to do it (and illegal as mentioned). If you are going to do retail and wholesale then you need to allow your wholesale customers to sell LOWER than your retail price and still make good margin. Otherwise there is a blatant conflict of interest.

However, I don't even think it's so relevant in this case because the OP seems to be talking physical shop and it seems unlikely he'd really be competing with his wholesale customers. Is this the case jdn1983?

 

[jdn1983]

In my experience this is the wrong way to do it (and illegal as mentioned). If you are going to do retail and wholesale then you need to allow your wholesale customers to sell LOWER than your retail price and still make good margin. Otherwise there is a blatant conflict of interest.

However, I don't even think it's so relevant in this case because the OP seems to be talking physical shop and it seems unlikely he'd really be competing with his wholesale customers. Is this the case jdn1983?

Yep, that's correct.

 

[OldWelshGuy]

if it is bricks n mortar then as stated there will be no real competition issues, unless you actively track down the best locations and open up next door to them.

 

[neilwallace]

Don't do it unless you absolutely can't avoid it - it causes too many headaches with distributors, and you will spend more time dealing with them than running the business. I'm speaking from personal experience here...

I manufacture a very niche product that sells around the world. Because of the technical nature of the product I have to have distributors to handle foreign sales & support for customers who are not technically savvy. However, I also retail the product in the UK as well as having some informal dealers here. The trouble is, we live in a global market and some guy at the other side of the world will want to buy directly from me because he percieves that it will be cheaper (which it isn't). Obviously, if I think that the customer won't require support, I'm happy to sell direct because I'm not 'giving away' a very sizeable discount. However, that puts the distributors nose out of joint when they invariably find out, and on several occasions they have claimed that they have done the groundwork and made the sale, hence they think they are entitled to a cut. There may be occasions when this is true, but most often it's not the case but they try it on regardless.

It really is an absolute nightmare, but my business isn't big enough to have an exclusive dealer in every country, so it's the only way I can make the sales and generate a decent profit.

 

[MOIC]

Given that your retail price mark up will high, incorporate a discount structure for volume buyers to bona fide retailers/restaurants etc, that can at least compete with your prices that you are offerring the general public.

In an ideal world, you woud keep the 2 businesses seperate and with different trading names.

That avoids all the issues mentioned on previous posts.