From Wholesale To Retail: How Companies are Making The Switch

Like most small businesses nowadays, wholesalers have had to think fast on their feet. In particular, with much of brick-and-mortar stores -- not to mention restaurants, hotels and the like--shuttered, partially open or cutting back, an increasing number of B2B operators are turning to direct-to-consumer sales. In some cases, that's meant expanding their e-commerce presence; in others, adding direct delivery or even stepping up efforts in such retailers as pharmacies and grocery stores.

But while the move might seems like an obvious pivot, with higher margins than wholesale to boot, it also requires substantial changes to operations. Here are some of the considerations wholesalers face, and how some companies are coping.

The Competing with Customers Problem

Wholesalers face a delicate dance when taking the retail or direct-to-consumer route: finding a way to succeed, while not jeopardizing their relationships with their traditional customers. Certainly, in the short-term, it's unlikely a company getting started in retail will pose much of a threat to already-established enterprises. "In most cases, there's enough room in the market for you to enter and not disrupt it at some crazy level," says Abir Syed, who heads UpCounting, a Montreal-based marketing consulting firm targeting small business. Still, according to Syed, the smart move for wholesalers is not to broadcast their plans to their regular clients.

At the same time, wholesalers often differentiate the direct-to-consumer version of their wares from the one sold to retail customers, in part to avoid any such conflicts or feelings of ill-will. Bruce Krinsky, CEO of Cedarhurst, NY-based TOV Furniture, for example, started selling to consumers via an online site about seven weeks ago. He plans to create two lines of products, one with items exclusively for direct-to-consumer, the other for wholesale.

Wholesale To Retail Pricing Concerns

Another consideration is how to price products. In most cases, "Wholesalers have to rebuild their pricing model," says Cullen Gilchrist, who heads Union Kitchen, a startup accelerator for food businesses in Washington, D.C. That means making sure prices match consumer expectations, of course. But there are other issues, as well. Food wholesalers opting to start delivery to consumers, for example, need to decide whether to make that service free and bake the cost into the ultimate consumer price or charge for that service.

In addition, relationships with traditional customers also play a role. "If you sell your product for less than the retailers you supply, you could be undermining them," says Gilchrist. Sell it for more, however, and there's less incentive for consumers to choose to buy from you directly.

Myles Powell's answer has been to charge more, while also offering more. In 2018, Powell launched his Washington, D.C.-based company 8 Myles to sell to grocery stores home-made macaroni and cheese that's frozen and packaged. Two months ago, he decided to create a direct-to-consumer delivery line that costs $7 to $11 compared to the $5.99 charged in most supermarkets. But he added such toppings as cauliflower and bacon, while also increasing the size of portions. "We want them to get more bang for the buck," he says. The move has also meant hiring a chef, who prepares orders for delivery; Powell himself makes the version sold in stores.

Another approach is to charge consumers for different levels of service. Once COVID-19 re-opening rules allow him to enter customers' homes, Krinksy, for example, plans to introduce three categories of pricing: delivery to the front door, to the home interior, and to the room of choice, while also unpacking and assembling the furniture.

New Inventory Management Systems

As a wholesaler, companies typically deliver fewer and larger shipments. For direct-to-consumer that's reversed--a 10 to 100 times increase in the number of orders, customers and items, according to Syed. The result: the need for new systems to track multiple small shipments and units. "You should have a different process when you're dealing with a small number of larger orders to big customers vs. hundreds of shipments every day," says Syed.

He points to an apparel manufacturer that, pre-pandemic, had made halting efforts to launch an e-commerce presence. Because sales were limited, orders were manually taken from the web site and inputted into the company's order management system. But when the enterprise decided, in March, to pivot to direct-to-consumer in a big way, it became clear that approach had to change.

So, with Syed's help, the company automated the entire ordering process, allowing orders to flow through the system to pinpoint the correct inventory in the warehouse, while also creating a tracking history and integrating with inventory management. At the same time, the staff physically moved wholesale and retail products to different parts of the warehouse.

Developing the process took about two months. That's shorter than it might have taken ordinarily. But because the company's 50 or so employees were largely focused on the move to d-to-c, "We had a lot of time to focus on this," says Syed.

Distribution Changes

Generally, wholesalers turned retailer can use their existing distribution network. Some companies, facing a slowdown in sales from normal channels, also can redeploy their employees to become delivery people. Take Amy Marcoot, president of Marcoot Jersey Creamery, a farm in Greenville, Ill., that sells cheese, beef and other products to restaurants, hotels, and grocery stores. In April, with sales down around 75%, she started doing local delivery, as well as curbside pickup, re-assigning some of her 20 employees to take orders over to consumers' homes.

Still, direct-to-consumer retail can entail unexpected complexities. After deciding to do direct delivery, Powell, for example, realized he had to address the matter of providing his meals at the right temperature, a problem he'd never encountered with his wholesale product. That's because the version sold in stores came frozen, while the one delivered direct to consumers had to be hot.

But meals needed to be ready to eat when they arrived, even though the trip from his facility to consumer's homes generally took about 20 to 30 minutes. "We wanted to make sure the product maintained its quality," he says. With that in mind, he did test runs with different toppings to see which held up the best. (Cauliflower and French fries were among the winners; mozzarella sticks, alas, arrived too cold.)

Customer Service Tweaks

In general, according to wholesalers, the same employees can handle customer service for both types of customers. Still, consumers tend to require a different approach from traditional clients. They're typically less sophisticated and less interested in logistical intricacies than, say, questions about sizing or help with navigating the web site. And the volume of questions tends to be much higher. "There will be a lot of consumers calling. Easy questions to answer, but a lot of calls," says Syed.

That's been Krinsky's experience. He's accustomed to dealing with businesses that understand supply-chain complications. "It's a lot easier telling a retail store that our first truck was filled to capacity, so we'll send the rest of the order tomorrow,' he says. "Companies are more aware of all the things that can happen." The upshot: He trained five staff members via Zoom on how to handle consumers' questions. More recently, he hired 15 employees, some of whom are exclusively devoted to customer service.

Marketing

Wholesalers tend to rely on sales teams for marketing, according to Syed. But retail, especially e-commerce, requires more attention to branding, as well as digital marketing -- everything from revamping a web site and building a social media platform to creating an SEO strategy.

At the same time, companies selling their own brands through retail stores face another set of considerations. Derek Jouppi, COO and founder of six-year-old Suncayr, for example, makes a body sticker that changes color when it's time to reapply sunscreen. Typically, the Toronto-based company licenses the technology to third parties, which sell their products in retail stores. Earlier this year, he launched SPOTMYUV, its own sticker brand, getting it placed in pharmacies before COVID-19 hit hard.

Central to his to marketing plan, however, was conducting in-store demonstrations. Those were cancelled, when pharmacies started focusing on products deemed essential, while also ending appearances by outside brands. Jouppi's answer: teaming up with independent sunscreen makers to run joint social media campaigns. For example, he just launched a promotion with Olita Sunscreen to give away a bundle of Suncayr and sunscreen.

Ultimately, it's unlikely wholesalers will give up their new channels should demand from traditional customers reach a more-normal level. Nor are they about to leave the wholesale market. "They will continue on this direct-to-consumer path," says Gilchrist. "But the wholesale channel -- that's not going away."