In ever-changing industry like the food industry, finding a balance between focusing on direct to consumer sales and wholesaling has become an increasingly important consideration for food distributors. While wholesale methods of distribution has been one of the most stable ways of making revenue since the late 1800s—with many of the largest food distributors of the time still existing today—with modern methods of direct to customer sales and an ever-increasing number of retail channels becoming available to suppliers, balancing these methods of sales will be important to navigate the everchanging market.

What’s wholesale

The wholesale model works by selling goods in large quantities—usually at a discounted rate—to larger institutions like restaurants and other large food service businesses. This method of sales relies on smaller profit margins adding up to large amounts of profits through the sale of large quantities of goods.

What’s DTC

The DTC (Direct to Customer) sales model where suppliers sell their products directly to end consumers. This can be done through multiple channels, such as their own online platforms, e-commerce websites, or even physical stores and marketplaces—like farmers markets. DTC differs from wholesale by the fact that profit margins are much higher, but sales are more unreliable. It allows brands to work directly with customers and get feedback from them and through their purchasing behavior.

Benefits and Challenges of Wholesale

Wholesaling is a consistent method of sales due to the consistency of both sales and demand. Generally when conducting a wholesaling operation, you can create relationships with food suppliers like restaurants that you can rely on purchasing large quantities of goods on a consistent basis. Scaling up wholesaling operations can be easily done through improvements in customer service, marketing efforts, and quality of shipping especially considering that high amount of demand for wholesale produce in the country. Sales to retail food stores totaled $405 billion in 2012 and sales to food service providers—such as restaurants—totaled $225 billion that same year (according to U.S. Department of Agriculture).

The logistics of a wholesale operation are also far simpler than that of retail and direct to consumer sales operations. Since the shipping times, locations, and average order sizes are generally far more predictable, providing consistent shipping in large quantities are far simpler. You as a supplier will work with a limited number of warehouses and distribution center since your customers will likely be in a limited geographic region.

Working as a wholesaler, however, does present its own set of challenges. With such low margins between costs and revenue due to expectations from retailers and food service providers to get low prices, food suppliers need to increase the quantity of goods that sold by a lot to maintain profitability, which becomes especially tough as competition for a given sector increases. Furthermore, inventory and invoice management becomes difficult with large order quantities. When hit with large orders for certain goods, making sure that every order can be fulfilled becomes difficult, and working with individual invoices—especially if they come by email—when dealing with these problems can be no small feat.

Invlify can provide the solution to your invoice management issues by providing an AI powered solution that can automatically turn your email orders into quickbooks invoices. Click here to book a demo to try the platform and simplify your wholesaling operation.

Benefits and Challenges of DTC

Direct to Consumer sales solves some of the problems in the wholesale mode. For example, DTC sales has high profit margins due to the lack of middle-men and smaller quantities of goods being sold at a time. Interacting with consumers directly also allows you to create a brand identity and connect with them better. This allows food suppliers to better understand their preferences and improve brand loyalty as a result. Bypassing other middlemen and working directly with customers also allows you to market test effectively and see how customer preferences are affected by different factors.

Despite your ability to increase prices when selling DTC, operational costs also increase when moving away from a wholesale model. This is due to the increased complexity in the supply chain that complicates the ways in which delivery occurs, makes the logistics less complex. This increases costs and makes delivery less efficient, meaning that selling large quantities of goods can be much harder than before, lowering the benefits of high profit margins that we noted before. Furthermore, working with retail partners to simplify the process of selling large amounts of goods can decrease the amount of control you have over things like pricing, promotions, market reach, and profitability.

Tips on Balancing Both

Looking at the US economic census data (provided by the US Census Bureau) between 2012 and 2017, we see a large increase in both gross margins for wholesalers as well as an increase in the average margin per wholesaler.

From the graph above we see that on average, wholesalers seem to be making a greater amount of profit over time, but what the data doesn’t show is the drop off of over 3,000 wholesalers during this time period. Either due to the increase in the popularity of online shopping, or due to other factors, the number of wholesale traders dropped by 3918 establishments. However, gross margins across the board did increase suggesting that margins for wholesale trade still existed and where profitable. Note that this data doesn’t account for the size of the firm.

            This implies that the for wholesalers that can survive the market, even though profit margins per good sold can be small, the possible profits that can be made are great. Therefore, wholesale selling should definitely be a part of your sales strategy based on profitability of the efforts. Suppliers should make sure that they are profitable by keeping count of overhead costs and revenue to ensure that they remain profitable. Suppliers should consider including a Direct to Consumer method of selling their goods as well, which could include introducing a retail location to offer restaurant quality produce to consumers, creating an e-commerce platform to sell goods online, or even going to a farmers market or working with retail partners.

            If you want to improve the efficiency of the wholesale part of your business, consider signing up for Invlify to automatically turn your email orders into invoices and streamline your operation.