Buyer Beware

Written By:
Jay Jacobowitz
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Way back in my distribution days, when we started servicing conventional supermarkets that wanted to bring in “natural sets” for the first time, nearly all of the brands we wholesaled were ecstatic at the chance to dramatically increase their sales. This included both food and supplement manufacturers. There were, however, a few vendors—supplement companies—that didn’t want their products available through a “non-natural” channel and asked us to keep their products out of those supermarket sets. We complied.

Fast forward to today, where the availability of natural products at steep discounts on the Internet—especially supplements—makes availability through the conventional supermarket channel look quaint by comparison. Can a manufacturer control the advertised selling price of its products through Internet sellers?

The short answer is yes. Here’s the U.S. Federal Trade Commission (FTC) on the subject: “Manufacturer-imposed Requirements…Reasonable price, territory, and customer restrictions on dealers are legal…If a manufacturer, on its own, adopts a policy regarding a desired level of prices, the law allows the manufacturer to deal only with retailers who agree to that policy. A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a ‘take it or leave it’ basis.”

Note that the FTC makes a distinction between a manufacturer legally acting “on its own,” as opposed to colluding with other manufacturers to fix prices on like items, which is clearly illegal.

If you search the Web for consumer offers on the products you sell in your store, you’ll certainly find dozens of examples of everyday discounts far beyond what you can obtain from those same vendors. Are manufacturers giving your Internet competitors better pricing than you? No more so than they are giving larger brick-and-mortar competitors better pricing than you. The real problem is that the Internet seller is willing to work on a shorter gross profit margin than you because they don’t have to pay premium retail storefront rents.

What Can You Do?
First, understand that because of lower overhead, Internet sellers can make their expected profit even with everyday 25–30% discounts by adding 10–15% of their gross profit to the 10–15% “everyday” wholesale discount they get from that vendor. Focus instead on products that are regularly advertised at least 40% off.

On these, go to your vendors and ask how they are controlling the advertised selling prices on the Internet. Some will tell you that it’s like playing “Whack-A-Mole” and they can’t stop it. Others may say they are analyzing suspiciously high orders from their brick-and-mortar customers and cutting them off.

The truth is if manufacturers want to play in the Internet world and keep their brick-and-mortar customers too, they will have to adopt a continuous, full-time effort—meaning dedicated staff—to police Internet pricing. Anything short of this is a cop out, and you should say so and limit your exposure to these brands. WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 37 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.

Published in WholeFoods Magazine, August 2014