June 9, 2011
I was talking with a few small food business owners, who mainly focus on selling their products wholesale, and we ended up on the topic of buy-back policies. If you’re not familiar with the concept, the idea is that the buyer can return the product at any time for full value. This starts to get a little more tricky in the food world where it’s not possible for you to simply (or in many cases, legally) resell the food since you have no idea if it’s been contaminated. For this reason some of the people I talked with said they have a strict no buy-back policy. Once the food has been sold to a retailer and is out of their hands then the onus is on the retailer to sell the product.
However, one entrepreneur had a pretty creative workaround to this. His company, which does sell wholesale to retailers, does allow 100% for buy-backs. In this case though, if a retailer returns more than 20% of their products then the company drops them as an account. At first this sounds a little harsh – and perhaps counterintuitive to good business – but he explained it like this.
Having a buy-back policy in place builds confidence with retailers as they are more willing to bring the products in and try them out to see if they’ll sell since the retailer knows that at the end of the day s/he won’t lose money on the deal. The buy-back policy also makes it possible for the entrepreneur to make sure his product is always fresh for customers since retailers know that they can return what wasn’t sold for new product. That helps protect the entrepreneur’s brand. The 80%/20% rule comes into play because, as the entrepreneur said, if you have a client who is returning more than 20% of their order then they aren’t a client that will likely be profitable to you in the long run. Better to spend your time focusing on accounts that do understand their customers and order accordingly.
A buy-back policy may not work for every food wholesaler but it is something worthwhile to think about. What about you? Does your company have a buy-back policy? Why or why not?