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By Chad Fry
For several years, some independent convenience store retailers have been purchasing sparkling beverages and other products from sources outside the typical direct supplier market. These independent operators target alternative sources, particularly wholesale and club channels, for a variety of beverages and other products, such as tobacco, but it does not appear to be a growing threat for bottling companies.
Food and convenience retail expert Willard Bishop LLC conducted a survey co-sponsored by Convenience Store News, to study smaller convenience store operators' purchasing patterns. Survey results indicate while some independent c-store operators -- owners of one to 10 stores -- are purchasing some beverage products outside of the traditional direct-from-supplier format, this trend does not apply to the majority of these retailers. Actually, the vast majority of owners surveyed -- 91 percent -- purchase directly from bottlers of sparkling beverages.
The survey also revealed the smaller c-store operators who purchase from multiple sources have been doing so for quite some time. Of those retailers who purchase from multiple sources, including directly from bottlers and from the wholesale and/or club channel, 46 percent have been doing so for four or more years.
Benefits of Direct- from-Bottler Buying
While independent c-store operators may perceive purchasing from the wholesale/club channels as beneficial, there are many reasons to purchase beverages directly from the bottlers, including some reasons retailers may not have considered, according to Willard Bishop. The survey results cited "many small [c-store] customers aren't fully valuing their time spent procuring and merchandising product from alternative sources. They may reduce alternate sourcing if they did."
The researcher pointed out that through the contracts and purchases made directly with bottlers, retailers do not just receive their product orders, they also are provided with full-service delivery, which includes merchandising by product experts, pricing incentives with new products, promotional campaigns and overall high selling effectiveness. Purchases from alternative sources simply do not include these retail elements.
The majority of these retailers realize the benefits of purchasing directly from bottlers. Three quarters of respondents said they value the convenience and full service available through direct business with bottlers, more so than the perceived cost savings available from alternative channels. And they plan to continue purchasing directly from the bottlers and renew their contracts with them because of their good business relationships and customer service.
Benefits of Alternative Sources
The price per case of product bought at wholesale and club channels may be cheaper than what bottlers offer retailers, but that does not account for transportation costs, which is a big consideration with current gas prices, nor the time spent shopping for the product and merchandising it within their stores, Bishop pointed out.
As one respondent stated, "By the time I spend two hours commuting, two hours shopping -- and my time is worth $40 to $60 per hour -- it just isn't worth it. People think they are saving money going to [a warehouse club store], but they aren't." Purchasing directly from bottlers can actually save independent c-stores a significant amount in wholesaler handling fees, when most perceive buying products from wholesale/club to be saving them money.
Order quantity also emerged from the study as a potential reason for alternate sourcing. Some operators purchase from the wholesale/club channels for "fill-ins" between deliveries from the supplier. "I use club for fill-ins in case I run out. I will go there and get a couple of cases to hold me over," said a survey respondent.
Experimentation with alternate sourcing is not causing retailers to abandon direct purchasing from bottlers. Of the retailers who were surveyed, 61 percent purchase exclusively from bottlers while about a third purchase from multiple sources, which includes direct from bottlers as well as wholesale and club channels. Reasons for purchasing products from multiple sources include pricing, filling in between DSD deliveries, and adding variety to product offerings in stores. Regardless of the reasons, retailers should carefully calculate all of the costs involved before engaging in alternate sourcing because the practice may simply not pay out.
To better understand the alternate sourcing behavior of smaller, independent convenience store operators (one to 10 stores), Willard Bishop completed phone interviews with c-store industry thought-leaders. Invitations were then sent to the operators of one to 10 c-store companies to complete a Web-based survey; 204 completed the survey. Follow-up interviews were conducted with 26 survey respondents in order to obtain in-depth insights into this practice.
Chad Fry is a consultant with Willard Bishop, Barrington, Ill.