T Nation

The Price Of Protein

So I’m sitting around the supplement store buying some cheap crap protein to dump in Gatorade as a Surge substitute (although I’ve just ordered some real Surge, now that it’s FINALLY back in stock while I’m on the site), and I start looking at prices. I notice that everything decent on the shelf costs between $35 and $50 for two pounds.

So I think to myself, hmm. The standard retail markup on a product is 30%, and I can order Grow! for $23 from Biotest. So 30% of that is $6.90, which means I could normally expect to put it on a store shelf with a $29.90 price tag.

Is there any particular reason why I can’t do that? I mean, if I were of a mind to go into the supplement resale business in the first place, which I’m not; just curious. It seems like a sensible store owner could resell Biotest supplements at pretty competitive prices, if he actually cared to, and I’m wondering why they don’t.

Some time ago Biotest decided that most of their supplements would only be sold by them, not by any retailers.

[quote]CDarklock wrote:
So I’m sitting around the supplement store buying some cheap crap protein to dump in Gatorade as a Surge substitute (although I’ve just ordered some real Surge, now that it’s FINALLY back in stock while I’m on the site), and I start looking at prices. I notice that everything decent on the shelf costs between $35 and $50 for two pounds.

So I think to myself, hmm. The standard retail markup on a product is 30%, and I can order Grow! for $23 from Biotest. So 30% of that is $6.90, which means I could normally expect to put it on a store shelf with a $29.90 price tag.

Is there any particular reason why I can’t do that? I mean, if I were of a mind to go into the supplement resale business in the first place, which I’m not; just curious. It seems like a sensible store owner could resell Biotest supplements at pretty competitive prices, if he actually cared to, and I’m wondering why they don’t.
[/quote]

Besides the markup margin (I suspect 30% is too low for the supplement industry), stores also receive some type of kickback from manufacturers for stocking their products – shelf space being a premium. Thus, maybe a typical store like GNC would need more of an incentive than just the markup margin to stock another brand of protein.

[quote]CDarklock wrote:
So I’m sitting around the supplement store buying some cheap crap protein to dump in Gatorade as a Surge substitute (although I’ve just ordered some real Surge, now that it’s FINALLY back in stock while I’m on the site), and I start looking at prices. I notice that everything decent on the shelf costs between $35 and $50 for two pounds.

So I think to myself, hmm. The standard retail markup on a product is 30%, and I can order Grow! for $23 from Biotest. So 30% of that is $6.90, which means I could normally expect to put it on a store shelf with a $29.90 price tag.

Is there any particular reason why I can’t do that? I mean, if I were of a mind to go into the supplement resale business in the first place, which I’m not; just curious. It seems like a sensible store owner could resell Biotest supplements at pretty competitive prices, if he actually cared to, and I’m wondering why they don’t.
[/quote]

But to answer your question – no, I can’t think of a reason why you can’t resell Grow!. Biotest might restrict the amount you buy from them, but you could easily buy 5 bottles and try to resell them on eBay for your markup. However, I doubt many knowledgeable people would buy from you…

[quote]TeeVee69 wrote:
Besides the markup margin (I suspect 30% is too low for the supplement industry)[/quote]

I think you’re right in terms of how things end up being priced, but I also think the issue is likely to be the number of people involved. A Biotest rep here once said that Grow! would cost $65 or more on store shelves, and you can get that out of the standard 30% markup if you use an extended supply chain structure:

Biotest – $23
National distributor – $29.90
Regional distributor – $38.87
District manager – $50.53
Store owner – $65.69

Even though you’re only going 30% at each step, you end up with a 186% markup in the end. This isn’t an unreasonable hypothesis, but of course I’m no expert on how supplement stores organise their supply chains.

Not actually a kickback, but usually a SPIF (Sales Promotion Incentive Fund). Opposition to this practice is steadily growing in several industries, as it is fundamentally a kickback.

Another point might be expectations of quantity discounts that Biotest is simply unable to give; if $23 is as low as it goes, then that’s as low as it goes, full-stop. Some stores may be childish about this.

Some companies artificially inflate their list price to pretend the actual price is a special discounted rate, but this is a little shady, so a company that didn’t want to do this might look like a bunch of dicks for refusing to give quantity discounts.

And another possibility is that the store may have a contractual obligation to ONLY buy products from a specific source (this is particularly common with franchises like GNC), in which case they would be forbidden to order Grow! direct from Biotest no matter how much they wanted to.

One would hope that customer demand and superior quality are incentives to carry something, but that assumes you’re in the business to make a difference – not to make a buck. Yes, I do realise this is a highly unusual proposition. What most people DON’T realise is that the average customer can tell when you’re in it to make a buck, and generally doesn’t like it.

A related behavior would be refusing to carry supplements that suck. T-Nation ran a story a while back on dangerous forms of creatine, and based on the information there, a conscientious store owner might want to clear his stock of products that used it. After all, if space is at a premium, why take it up with crap? It only takes one shitty purchase to convince a customer that you don’t really give a rat’s ass about him.

Well, of course not. If you’re going to order over the web, you’re going to go for either the most reputable source or the lowest price, and compared to Biotest I would be neither. But I’m thinking about actual people in actual stores looking at actual shelves with actual jars of Grow! sitting there, where they can pick them up right now and take them to the cashier. That’s a whole different ball game.

I think there’s a bit more involved as well. For instance, if you were permitted to buy all you wanted from Biotest, what would the shipping cost you? Would Biotest give you a break on a very large order? I haven’t purchased in a while, so I don’t recall the S&H costs. But like I said, there’s more to think about. S&H to your location is just one thing. Marketing it would be another if using a store (since direct via the web would be cheaper to a knowledgable customer, as mentioned before).

Just a thought or two…maybe I’m over ANALyzing it.

Matt

[quote]CDarklock wrote:
Well, of course not. If you’re going to order over the web, you’re going to go for either the most reputable source or the lowest price, and compared to Biotest I would be neither. But I’m thinking about actual people in actual stores looking at actual shelves with actual jars of Grow! sitting there, where they can pick them up right now and take them to the cashier. That’s a whole different ball game.
[/quote]

Sorry it wasn’t apparent from my post, but I was being facetious with my eBay suggestion.

[quote]Matthew9v9 wrote:
I think there’s a bit more involved as well.[/quote]

Shipping is remarkably reasonable through Biotest, and goes away entirely somewhere between $100 and $200 – I forget exactly where. And special additional marketing isn’t necessary; when you have a storefront, you already have to advertise and market the business. That doesn’t change at all when you put a new product on the shelf.

Starting a cottage business of it is a whole different story. My best estimate is that I personally could turn over between ten and twenty jars a week selling it out of my car, which is about $100 in profit. I’m not excited about the prospect of an extra $100 a week. I can make an extra hundred bucks a week just by putting in a couple extra hours with a client, and I’ve certainly got no shortage of clients who would be happy with that.

But if I had an existing customer base composed primarily of lifters and athletes, and the customers would be offered multiple opportunities to buy other things (flax seed oil, creatine, multivitamins, etc.) while they were coming to get their Grow! fix, that’s different. Then you might be talking something in the range of an extra thousand bucks a month, which is roughly the lease payment on a small storefront. That would interest me, so I’m wondering why it doesn’t seem to interest anyone else.