Alternate Supply Chains

I have a friend who used to own and operate a small video rental store, the type you would safely refer to as a "mom and pop" operation. There was only one location with a small, but loyal, customer base. The store was profitable, but slight shifts in the business could spoil the bottom line from month to month.

If you don't know anything about the DVD distribution pipeline, don't worry, it's actually pretty simple. The major studios sell the DVDs to a few distributors with warehouses across the country who in turn supply stores with the movies. Obviously, the more volume a store does, the more discount the distributor gives. Since my friend's store was so small, she obviously didn't net that much of a discount.

One day she was thumbing through the Sunday paper and saw an ad for one of the major electronic chains, the kind that sells everything -- including DVDs. Their advertised price for that week's major release was less than her distributor had charged her per unit of that title by approximately five dollars. It might not seem like much, but when she checked the previous sale prices at this retailer over the last month, at the volume she dealt in, the difference over all the units she purchased that month was astounding. In fact, the savings would approximately equal the monthly salary of one of her part-time employees.

On Monday, she called her distributor and asked if she could negotiate a better discount to help her compete in her market. Based on her volume, she couldn't get a better deal. She would have had to order around ten times the amounts she currently dealt in to achieve the next discount plateau.

So, she negotiated a deal with the manager of the local electronics store, and began purchasing her copies of movies directly from them at their weekly discount prices. She dealt in such small volume (about eight copies of a major release) that it didn't negatively impact the electronics store's bottom line, and since she was renting rather than selling she really wasn't competing. Her meager profits started looking up.

I guess you couldn't say she thought "out of the box" on that one since she was buying from a big box retailer, but she certainly didn't allow preconceived notions about an industry' supply chain keep her from turning a profit.

Purchasing goods from local farmer and growers, materials that don't need to be shipped from the other side of the country, and other little savings throughout your business (which is why it's so important to not allow the franchisor lock you into a singular supply chain) can be the difference between living in the red and living in the black.

Franchise "Creature Feature" Writer