If your small business is growing, you will — at some point— need to make the necessary transition to start buying your ingredients from a bulk supplier.
The hard part is to understand the supply industry and navigate that gray area to figure out when these transitions make sense for your business – both financially and for your facility.
It took me two years and many different small business cost analyses. But the good news is, I ran the numbers (at least 50 times), and I can officially weigh-in and give you an accurate answer on when and why you should buy your ingredients in bulk. Until then, stick with a regional food service distributor or my personal fav — Costco.
The Key To This Discussion: It’s Black and White
The key to this discussion is that your business goes through a slow transition from needing a little bit of ingredients to a lot. First you need 1 case a week. Then you grow to needing 5… Then 10, then 20 then 50.
The industry, however, is set up to supply you with one or the other: work with a smaller distributor and get a few cases, or work with a bulk supplier and get a full pallet. There’s not a whole lot of options in between. So you’ll have to figure out when is the best time to leap from distributor to bulk ingredient supplier.
Here are the key factors that will tell you you're ready to make the switch. Answer yes to all of these, and you’re ready!
Do You Use More Than 30 Gallons Per Month?
The 30 gallon per month mark is the magic number that I’ve figured out works well.
It is the cut off point that we use to determine if it will make sense for you to buy from a bulk supplier. This number takes into account the fact that you're using enough oil to make a full pallet worthwhile, and that you will use a full pallet up within a reasonable time I (both for shelf life and for financial capital investment purposes).
The bottom line is, if you're using 30 gallons or more per month, making the switch is smart. You will see a cost savings and it will be a positive next step for your business.
If you're not using that much, don't bother thinking about making the switch. It will actually be more expensive (due to freight shipping) and most would agree, it’s too much capital output and investment into one ingredient at this point in your business.
Do You Have The Capital To Buy A Full Pallet?
Buying a full pallet of bulk oil takes a big investment. This is one component the many small businesses don't think about, but it's very important.
You may save money buying from a bulk supplier, but are you prepared to spend $2,000-$7,000 on one ingredient for one order? This also means that you will be sitting on that inventory for a while as you use it. Is the savings that you'll see worth the capital investment?
Do You Have The Production Space To Store A Full Pallet?
A full pallet takes up a 5' x 5' space.
Do you have somewhere with the right storage conditions to put this pallet?
Also, the freight company is going to drop this pallet off outside your door or at the end of your driveway. Do you have the ability to bring the boxes for drums inside? Boxes can be carried individually, but drums require a pallet jack to move them because they're around 500 pounds each.
If You Answered Yes
Did you answer yes to each of the questions above? If so, congrats, you’re ready to take the next step of requesting a price quote.
If You Answered No
If you answered no to most of those questions, you’re probably not ready to switch. Trust me, that’s okay. Your job will be a lot easier to continue buying from a local distributor. For some inspiration, here’s a few of our favorites companies:
- Costco
- Azure Standard (organic distributor for western states)
- Dawn Foods
- Batory Foods
- A Local Food Service Distributor
PS: Did you know that sometimes a food service distributor can bring in an item just for you? That’s right— if you use enough of it, they can buy it in advance, store it for you and deliver it in smaller volumes. There’s lots of good reasons to stick with a distributor, because sometimes convenience and efficiency is better than saving money.
Are you a small business owner? Ask us your bulk oil questions below in the comments!
Topics: Small Businesses Advice
