Buying Bulk Olive Oil vs. Wholesale Olive Oil
If you’re buying bulk olive oil for your small business, you may be buying it “wholesale” from a superstore like Costco or Sam’s Club. You probably want to save money on these raw ingredients and (if you haven't already) you will at some point look into buying bulk quantities rather than wholesale.
Surprisingly for many small businesses, sometimes buying in bulk does not save money. We're going to review why, and how much oil you need to be using to think about buying in bulk.
First, the terms “bulk” and “wholesale” mean different things to different people, so before we do a comparison, here are the definitions of each.
Wholesale Olive Oil Definition
Olive Oil that is packaged in a “larger-than-retail” size, like 1 Gallon or 5 Gallons. Wholesale can also mean cases (sometimes cart loads!) of these products. These products are picked up from a store like Costco, or they are shipped online using FedEx or UPS. For example, you can buy olive oil through Centra Foods’ online wholesale store.
Bulk Olive Oil Definition
This is 55 gallon drums and pallet orders, with a minimum of about 250 gallons loaded on a pallet. These items are sold only through suppliers and distributors, and are shipped using a freight truck.
Why Costco May be Cheaper than Bulk
If you are a small business buying from Costco, there may be a strong desire for you to find a way to save more money. The most common assumption is that if you switch to a bigger packaging size, you’ll save lots of money. This is not necessarily true, and here’s why:
1. Bulk pallets cost more to ship-- you can pick up from Costco for free: If you’re buying from Costco, you’re driving to the store to pick up your bottles. For some businesses this means 2 bottles, for some this means 100. Either way, you’re taking your own time to bring the product home from a local store. Yes, it takes time out of your day to do this, and we agree that it’s not ideal, but it’s going to cost to pay someone else to do it for you.
When you order from a bulk supplier, a pallet is shipped to you on a freight truck. It may be helpful for you to learn how shipping with a freight carrier works before you place an order. This can cost anywhere between $100-$600 per pallet. That’s an added cost of $1.50-$2.00 per gallon on average. Most bulk suppliers have a lower oil cost, but unless you’re located in the same state, it’s hard to have the delivered cost still be cheaper than Costco.
2. Without a warehouse, shipping is extra-expensive: Freight trucks are designed to deliver at a warehouse location with a loading dock and an employee waiting to move the pallet with their forklift. If you’re thinking that you want a drum to deliver to your house, you should know that it costs extra for a residential delivery, a rural delivery, or when a truck needs to have a “lift-gate”, which lowers the pallet to the ground if you don’t have a loading dock or forklift.
3. Your olive oil usage is still too low: Once companies are using 40-50 gallons per month of oil, then they’re in the ideal range to switch to a bulk shipment. Drums are loaded onto a 48”x40” pallet, and you pay for that amount of space in the truck. Whether you put 1 drum on that pallet or 4, most carriers will charge about the same price. So, you always want to ship a FULL pallet. This means 60 35 Lb containers or 4 drums. To get the lowest per gallon cost, you need to fill that pallet with as much oil as possible! If your usage is too low, don’t waste your time-- most companies start looking at bulk far before it will save them money or fit smoothly into their facility.
4. Superstores sign 1-3 yr price contracts: Any superstore like Costco, Walmart, Sam’s Club, etc. all sign supply contracts. This means that they lock in prices for their oil (sometimes for years) so that your price as a consumer isn’t changing every other week. Because oil is a commodity market, this means that the price changes daily on the global market. Most suppliers sign price contracts, but not for the length that Costco might because they move much more volume. This means that if the global price for olive oil skyrocketed price in Sept 2012, a bulk supplier would be affected in the coming 6-12 months, but a retail consumer might not see that price increase until the superstore’s contract runs out-- whenever that may be.
Which Will Work Better For Your Business?
Want to know if bulk or wholesale is better for you? If you’ve read the above and still feel like you can’t waste any more time going to Costco to pick up your supplies and you’re using 40+ gallons/mo, call a bulk supplier to get a comparison! Have your current prices ready, and have them estimate a delivered cost to see if it’s worth looking into.
Also, we created an eBook for small businesses who are going through this transition and trying to figure out when it's right for them to make the switch. You'll find a lot of good info in our eBook, The Small Business Guide To Buying Olive Oil.
Topics: Small Businesses Advice
