Will indies go crazy for new online-only wholesalers?

A new type of online-only wholesaler is emerging, aiming to revolutionise the market by undercutting cash & carries on price.

Mad About Deals, which launched this week, is the second online wholesaler to open its virtual doors in the space of a few weeks. And it follows a string of earlier attempts.

So who are these new players? What’s their business model? And why will they succeed when others have failed before them?

Suleman Sacranie, the young founder of the Mad About Deals (MAD) portal, also runs a consumer facing site, 99p Shopper, which he plans to run as a franchise in the future. He claims he can compete with the traditional cash & carry model by offering convenience retailers discounted deals on grocery, household, soft drinks, confectionery, crisps, snacks and alcohol.

But he’s not the first to try. And with margins already low on cash & carry prices, can he really expect to succeed?

The business model, Sacranie says, is a simple one. His buyers negotiate directly with branded suppliers and accredited third parties of key lines, and the products are sold through the website. Delivery is free for orders of 50 minimum cases.

He may be a new player in the wholesale market but Sacranie has won the backing of a major player in the industry - Palmer & Harvey. Under the deal, P&H will act as the distributor for MAD, delivering goods to retailers who have made orders through the website. P&H said the deal “reflects the high quality and cost effectiveness of the delivery service we offer”.

Sucranie believes retailers have tended to use online as a top-up shop in the past, but MAD will be more tempting because it will continuously stock top-selling lines, he says, enabling retailers to plan ahead. MAD will also offer ‘when it’s gone it’s gone’ deals on a dedicated area of the site.

But traditional wholesalers have been quick to raise questions over the viability of the business model. Without P&H as the distribution partner, one source says, there is simply “no business”.

Another adds that it is “impossible” that MAD can compete with cash & carries without selling tobacco, a staple item for convenience retailers. A third source goes further, questioning why suppliers would be “stupid enough” to sell into an untested model at such low prices in the long run.

Going online

The launch may have had a cool reception from rivals, but with online-only retailers such as Amazon, ASOS and Ocado proving the value of etailing, and increased appetite among b2b customers for interent ordering resulting in huge online sales spikes for conventional cash and carries, entrepreneurs can be forgiven for having a go.

Last month, online discounter Emarket launched SuperDeals, in partnership with the NFRN, claiming to beat cash & carry prices by up to 50%. And next month, a specialist pharmaceuticals and fmcg wholesaler will be trialling a similar website, aimed at both consumers and retailers.

Ravi Sharma, the entrepreneur behind Emarket says there is “huge potential” in online wholesaling. “It’s not a new idea,” he says.

“It’s just applying it to this sector. We’re just innovating a bit quicker than some companies that are tied into existing models.”

The online model, he says, gives buyers access to instant sales data, which can be taken directly to negotiations with suppliers, giving online operators an advantage over slower moving cash & carries.

The emergence of these sites hasn’t yet made waves across the industry, but it would be folly to dismiss their attempts to break into the market.

“I think anybody that rubbishes technological developments does so at their peril,” says one leading wholesaler. “You can’t afford to be complacent in this business”.

Saving retailers time

Sacranie says that MAD can compete where “time is money”, allowing retailers to order stock direct from the site with no delivery cost, while saving retailers time and cash through promotions.

MAD will also target independent retailers with text messages alerting them to daily deals, in a bid to encourage impulse buys. “I grew up in retail and vividly remember my father scouring cash & carries, picking the best deals from different depots - a hugely time consuming undertaking every week,” he says

“What we are bringing to the table is quite simple - we offer core lines and most of all we provide free national delivery, guaranteed I think we can compete with cash & carry in the long term.”

MAD will be reaching out to retailers with a range of marketing activities in the near future, he promises. “Our service is relevant more than ever,” says Sacranie.

“Fuel bills are up, margins are not as high it’s clear this is the direction the market will head in.”