Online marketplace giants are killing many industry categories including the supplement industry in the past few years with prices of products sold at or below retailer’s costs. This is due to a few factors that are obvious and some that are not. You may have seen your favorite supplement sold as low as 50% off the price you may have regularly purchased them in recent years. This maybe due companies clamoring for an order and “dropping their pants” in terms of volume purchase orders to secure the deal. Little did many of these brands know that their products would be sold on these giant marketplace websites at a few percentage points above cost. Why? Online sellers who have little or no overhead will fight for the top position to sell these products on these giant marketplace sites which means a “race to the bottom” for price and that includes FREE SHIPPING. This strategy of the lowest price online has caused the bottom to fall out when it comes to the 1000’s of brick n mortar stores reordering a brand when their customers have found them at 25-50% below the brick n mortar selling price.
The big brands and their big distributors that participate in this temporary influx of revenue have in essence shot themselves in the foot by allowing these online sellers to continue to devalue their brand in the eyes of the retailer when that retailer sees the same product they just bought at a lower price online.
The excuses given by these big brands of how they are correcting the problem range from everything like “we are shutting these guys down” to “they only purchased a few 100 units and should run out soon”. This is the trend and while these brands are still receiving orders they are losing the base market of brick n mortar store orders that actually do the hard work of explaining the product and doing the real branding of the line. Have you ever found a giant online marketplace that explains to you which fat burner or protein is good? Fat chance, your lucky if you even get a person in the USA that manages their call center!
There is some good news that is slowly taking place in the industry. Many of these brands are finally realizing that while their sales from the past year or two are good primarily from the online seller accounts, the brick n mortar stores are demanding better prices to combat these online sellers but there is no more room to go lower so what these brands are doing is PULLING OUT OF SECONDARY DISTRIBUTION and selling direct to the brick n mortar stores. This allows for some control over who is selling at what price and specifically where they are selling those products.
Hopefully more of these big brands wake up and smell the coffee!
Do you need assistance? This pertains to the brands that have a new business plan in place that want to combat the loss of price integrity. Does your business plan need implementing? I added this after fielding over a dozen companies contacting me in need of assistance with this major challenge for the coming years.
Contact: jim@vitaminshack.com
