Who wears the loss when something is discounted?

Mr BoMBAStiG on 08/09/2015 - 19:04

This question only applies to stores who sell products on behalf of other companies, e.g. Woolworths, Coles, ASOS.

If an item usually sells for $10 and the person who made it usually gets $3, we assume that the seller pockets $7. If the seller has a 50% sale, do they alone cop the loss? I figure products on the supermarket shelf have already been bought and paid for by the supermarket, but there might be agreements in place for discounts, theft and damage.

The reason I ask is I always try to buy Australian owned and made. If one of these products is heavily discounted, are the business owners suffering or does the store who is running the sale wear the profit loss?

General Discussion

Comments

  • PVA on 08/09/2015 - 19:14
    +1

    no idea about all items but there was a big enquiry about woolies and coles with suppliers.
    one was an avocado grower and said when woolies had a sale the whole discount was pushed to the grower.

    • ESEMCE on 09/09/2015 - 12:45
      +1

      Yep. Can confirm this is the case..
      But it's all in the supply contract that they'll run 4 promotions per year at a certain discount.. If you don't want to absorb the "loss" then don't sign the contract.
      Problem is, if you don't agree, you really have nowhere to sell your goods.

      Source - former employment put me in indirect contact with contracts for Coles, Woolies and Metcash (IGA).

      • cwongtech on 11/09/2015 - 20:58

        Does that mean every brand will have at least 4 promotions per year? Or will it vary? Thanks!

  • dylanando on 08/09/2015 - 19:16

    Maybe they buy in bulk and save more money that way! Or take a lose to get customers in, in which they will buy more products!

  • miss arrow on 08/09/2015 - 19:26
    +4

    It depends on the store.

    If it's a major retailer like Woolies / Coles and their associated brands then they force the supplier to lower the price so their margin remains the same. At some price points the supplier is actually making a loss (I've seen it happen for Coke and for beer) but it's all part of the cycle.

    Smaller business (like me), I buy stock at a fixed price and then onsell, so I would be taking the hit on the cost for discounts, theft, and damage.

    • grasstown on 08/09/2015 - 20:52

      for coke? really?
      I think coke has the power to impact woollies and coles severely. say if cokestopped supplying to woollies, and only supplied to coles or iga, then im sure it would change shopper habits. if say cadbury, arnotts, coke, and a few other favourites stopped selling at woollies and coles, and moved to iga for a bigger cut of their margins, I would think that people would start shopping at iga instead of the big 2. I think these companies have a big pulling power, especially coke.

      • Davo1111 on 08/09/2015 - 21:07

        tbh i don't think people would be that "brand loyal". I reckon coles would just upsell their own brand, maybe relabel it to directly copy the removed product.

        Coles stopped selling oralB toothpaste for a while, it didnt stop where we shopped.

  • retiredfeline on 08/09/2015 - 19:30

    There is no single answer for all cases. E.g.

    If the store paid up front for all the stock, then the supplier got their money and no longer has to worry about sales.

    If the store is running a campaign, they might have co-opted the supplier into a lower supply price.

  • Blackfyre on 08/09/2015 - 23:15
    +1

    Probably a mix of the following:

    a) Marketing activity from retailer wanting to move stock or increase brand awareness at own cost
    b) Retailer negotiated a deal with supplier for better bulk purchase price and runs campaign (Big players have the buying power to negotiate/strong-arm suppliers to giving discounts)
    c) Manufacturer/supplier initiated marketing campaign and provide buying opportunities to retailers to stock up and put things on special (quite common to find that supplier offer tiered discounts depending on buying power)

    If it eats into your margins, make it up with high volume of sales

  • dasher86 on 09/09/2015 - 09:30

    I know at least in high end fashion that some retailers are able to force a contribution margin on discounted products back onto the wholesalers.

  • PlasmaCatcher on 09/09/2015 - 10:28

    What about the iTunes vouchers sales offered frequently? 10-25% off the card's value.
    Cannot imagine retailers giving away 10-20% margin on this or other gift cards.

  • ppshy1 on 09/09/2015 - 13:58

    I work for one of the big 2 retailer.

    Every time there is a half price deal etc, it is as a result of negotiation between the supplier and retailer. The retailer agrees to buy 1000 pallets at 0.5x compared to 100 pallets at 1x. The high volume means even though both parties are not making a lot of profit but as a result of such high volumes, both do well.

    The supplier will also have a minimum purchase quantity to make it worthwhile for them.

    The suppliers also actually pay to have the products placed at the end of the aisles.

    Even coke will participate on the deal. Its oppsite to what one of the posts above said about companies making a loss on coke. Not the big 2 (even super IGA).
    They will even come and help build it because it generates sales and reassures their brand loyalty.

    • ESEMCE on 09/09/2015 - 14:04

      both parties are not making a lot of profit but as a result of such high volumes, both do well.

      Maybe that's what your employer tells you, and might even be true it you're a mega corporation like Coca-Cola, who sell a high margin product which has a strong brand demand, but the reality is that in most cases the manufacturer makes zero profit, if not a loss.
      But it's the cost of doing business with the big boys who control the market.

      • ppshy1 on 09/09/2015 - 14:17

        Both do make a profit. Remember repeat customers it gives suppliers access to.

        Most things people buy what ever is on special (generally half price). Certain things like oral (oralB v colgate), laundry (omo, cold power, dynamo, radiant), dish washing liquid (palmolive, morning fresh, fairy etc) customers only buy their brand. 1/2 entices them to try it and challenge their loyalty. Most people still only buy colgate regardless of what is on special.

        • ESEMCE on 09/09/2015 - 15:28

          So as I stated, the big companies with brand loyalty are happy..
          It's the little guys and generic manufacturers (no brand loyalty) who struggle.
          The farmer selling Avocados to Coles is competing on price with every other farmer, so Coles can afford to screw down the price pretty tight to start with and then, when promos are offered the farmer makes nothing or close to it..
          Farmer doesn't like it, he can go sell his avocados on the side of the road.

    • Mr BoMBAStiG on 09/09/2015 - 14:22

      Going back to my example. What if it costs the supplier $2 to make the item and they usually get $3 from the retailer. How is selling heaps of the item for $1.50 going to help them?

      Like scubacoles suggested, I am worried that the supplier is being strong armed into making a loss which could be hurting the Aussie company.

      I have heard how hard it is to get on the shelves in Coles/Woolworths as a small/medium business in Australia. I can imagine that the SME would simply have to do what they are told when a 50% discount is forced on them for fear of getting booted off the shelf. In this case, I am conflicted as I love a good deal but don't want to put pain on the Aussie business!

      • ppshy1 on 09/09/2015 - 14:40

        While I do agree that farmers have a hard time with weather conditions and price they get and small to medium companies may struggle to get stuff out in the market as they do not have the capability to compete with multinationals such as Nestle, Arnotts, Coke etc. But retailers do realise the potential of customers emotions in selling these products.

        I do think that most customers think that all suppliers are being screwed. Do you really think that suppliers don't have a descent mark up? I think the suppliers would rather hide behind the media stories that all suppliers are being screwed over + The high prices are directly a result of supermarket pricing.

        I do have a contact with one of the suppliers who disclosed a rough figure of manufacturing and supplying cost. Its was a descent markup.

        Have you noticed that prices have stayed the same even though Pacific Brands Australia closed up shop and get everything from overseas.

        Anyway my 1x v 0.5x was just a arbitrary figure. It's not exact figure. It was just to get my point across to the OP.

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