Wholesale

Maybe there’s a better question here: What is half sale? Partsale? No? Ok...fine.

You buy a bottle of Heinz Ketchup for 6 bucks at the grocery store. That 6 bucks was the retial price you paid for the ketchup. But when Safeway or Krogers or Albertson’s bought it, they paid something more like 4 bucks for it. The 4 bucks they paid was their wholesale price.

That is, most of the time, in business, manufacturers don’t actually sell their product direct to consumers. Rather, they distribute their products in bulk, selling at prices cheaper than retail and then allowing the retailer to mark up the price, giving them enough profit margin, to, um…exist.

And this makes sense. Heinz is good at managing cheap, non-union tomato labor in Mexico, smashing them, adding vinegar, removing fly wings, bottling, storing, and all the other production things, like adding sugar. Can’t forget about the sugar. And yeah, ketchup has a ton of it.

So that’s what Heinz is good at. Making ketchup. They’re not necessarily good at selling ketchup, at least not directly to consumers. Like, how would they do this anyway? Website? Mail order?

Should they have a big chain of Heinz ketchup drive-thrus? Okay, uh, probably not. So…Heinz wholesales its ketchup to grocery stores, to convenience stores, to Walmarts, and to the special effects people in Hollywood and at magic show theaters around the world.

Many questions remain as to why the unit profit margins on ketchup to a grocery store are 30%...whereas to capers their 90%, and to Diet Coke they’re only 15%. The answer lies in a few key dials that directly map the power or leverage each side has in any given negotiation.

That is, Heinz is a brand that people like, and generally seek out, but wouldn’t die without having in their fridge. The retailer Safeway could have its own Safeway brand of ketchup, and riots would probably not break out in the street. But if they did, there would be plenty of fake blood on hand, anyway.

The same cannot be said of Diet Coke, where for many shoppers, if the grocery store didn’t carry it, they would simply shop elsewhere. So if this is the case, then why are capers such a huge profit margin item to grocery stores?

There is no sought-after brand like Coca-Cola, and, uh, you can imagine what the last caper riot looked like. In fact, very few capers are sold, so the cost of the “real estate” of however many square inches they take up on the grocery store shelves is very expensive, and without high margins, the grocery store would simply not bother to sell this low-turnover item.

So the bottom line is that, instead of hundreds of millions of customers, Heinz has just a few thousand to whom they wholesale their fake blood product. Yeah, maybe someone just discovered a 58th variety.