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Buying Groups: If You Can’t Sue Them, Join Them

“Would you be willing to appear as an expert witness at our trial?”

It seems like only 24 hours, rather than 24 years, since I was asked that question by an appliance retailer in the Pittsburgh market.

The merchant’s problem, as he explained it to me, was that he was in competition with a retailer who purchased slightly less than $1 million annually of the same brand of which our caller regularly bought over $3 million in the same period.

It is not too difficult to realize how the larger volume dealer felt when he discovered that the “other fellow” was paying 10 to 15 percent less for the exact same merchandise with the same manufacturer service. Angrily, he contacted the supplier to complain about the differences in cost, to which the well known, brand name manufacturer pleaded guilty with extenuating circumstances.

“Yes, got those differences in retailer cost,” the explanation went. “However, your competition is a member of a cooperative buying group, and is buying at that group’s rate. If you want those prices, join the group.” Our dealer did just that. At least he filed the application, but after awhile he was told that he could not be accepted because the group already had enough members in his trading area.

So now he turned to his attorney for assistance.

“Given the facts as you present them, it’s obvious that both the supplier and the group are in violation of our country’s fair trade laws,” the lawyer said. “Can you line up an expert witness who will support our claim of damage this discrimination caused? With his help, we can make a fortune from all parties including the group’s members.”

For some reason, which I find difficult to explain, my mission in adult life has always been to help a maximum number of independent businesspeople. That, as is well known, is seldom easy, and is hardly ever accomplished by filing a suit. For that reason, rather than join in the retailer’s action, I suggested that he organize a local chapter of another national co-op. That, I said, could get him the same low group prices, which it ultimately did.

This is not to say that to gain access to those attractive costs, one need only start a co-op. Manufacturers still have many reasons why they can refuse to sell to anyone who applies. However, suppliers cannot afford to be too choosy with the outlets that carry their brands, particularly when sales volumes are down.

Buying groups do serve many useful functions for retailers. Aside from keeping a lid on the cost of goods sold, they can offer an opportunity to lower advertising and promotion expenses, and provide a platform for the exchange of better business management ideas. Their entry into the retailing business world has compelled manufacturers to update their own merchandising plans.

In all, they have helped level the playing field on which the owner/managers compete with the large, national chains for the consumer dollars spent each year on the best products this industry has ever produced.