Start a Single Product Wholesale Business

A single product wholesale business buys a product in bulk direct from the manufacturer and sells it wholesale to retailers and resellers. There is no “product mix” it is a single product business. This is a B2B business that depends heavily on the product (usually fast-moving consumer goods / FMCG) and place/location (close to resellers).

Business Model
This business buys large quantities of the same product from a manufacturer (usually negotiating bigger discounts) and then resells it to people who will resell it individually to their clients. Manufacturers are willing to offer discounts as it allows them to benefit from economies of scale while having people that will help them offload products faster.

What product
This is a very important thing. In the past this product was often cigarettes. These businesses would buy warehouses of cigarettes and resell them by the carton to shop owners, they got a reputation for cheaper prices than traditional wholesalers due to the reasons mentioned above. You might have heard the case of Raymond Ackerman who used all his company’s money to buy a warehouse full of cigarettes and made lots of money when the government imposed price increases on new cigarette imports. There were a few companies back then that traded cigarettes in this way, filling buildings with cartons of cigarettes.  The tobacco game has changed a bit since then but lets look at a few modern examples.

Energy drinks
In the Somalian enclave of Little Mogadishu also known as Bellville, 23km from Cape Town there are shops that exclusively sell trays of energy drinks. Now the energy drink industry in SA is filled with me-too brands all selling the same thing but different brands. There is Red Bull and Monster then there are 100 other pretenders: Dragon/Score/Mofaya/7 Stars/Play/Switch/Reboost/Move (Checkers)  all making guarana infused, flavoured carbonated water.  Much like the 2l pretenders (Twizza, Jive, house brands et al) These guys are in a race to the bottom with prices rarely hovering above R10 retail. To achieve this they need economies of scale and often overproduce that is why you find their products still fresh in clearance stores selling for R30-odd a six pack. If places like Giants can sell these drinks for that price (R5-odd a can) then what are they paying?

So if you come along and buy many trays you can get a competitive price just like Ali & Ahmed them and then resell it by the tray. There are 4x six-packs in a tray. 24 cans, retail is R10 a can. So retail value is R240 per tray. Resellers, spaza shops, people selling on the side of the road come and pay let’s say R140-R150 per tray which seems to be a popular selling point.  As you will see below mass wholesalers are clearly paying below traditional wholesale.

What appears to be happening in the energy drinks industry is that manufacturers appear to have two sales channels: the usual wholesale and the dumping, I mean “clearance” channel. That is why prices differ so greatly. End of month or production cycle once the usual clients have ordered and they have stock standing all over the factory floor they need to clear that fast as there will be no space to store the next months/cycle’s production (remember economies of scale depends on scale). You don’t want to buy as a “normal” client like existing clientele.

Exhibit A: Mofaya
R265 a 500ml  tray (R11.04 each) at Takealot (sold directly not “fulfilled”)

Look below:
R150 a 500ml tray (R6.25 each), fresh, sold directly to public. Or R40 (R6.67 each) per six pack

It is unheard of to have this disparity in FMCG unless it is either: salvage or falling off the back of a truck. This is from a legitimate shop, they even have fancy trimmings and posters and whatnot (some days the energy drink guys will even have gazebo with DJ promos). It has an always-available entire floor of cut price energy drinks and Mofaya at R150 a tray is on the expensive side. Reboost is R130 a tray. This is a dumping clearance channel.

There is money out there to be made in this business in South Africa, with the ANC’s “Common Poverty” policy making everyone equally poor clearance stores will eventually surpass the majors leaving lots of unsold stock, there is no reason you cannot take a bite before it reaches there and move it wholesale.