Dealing with Co-ops

[Reflo Ltd]

Hi all,

We manufacture and distribute a product geared toward children. We are often approached by co-op groups wishing to buy in bulk, of course.

When we do not have a retailer in the area of a co-op, it is not a problem but when there is a retailer carrying our product in the same area as a co-op that has contacted us, the dilemma begins.

We have tried to address this by developing a plan to have co-ops order through the local store and thereby allow the store to make a profit on the sale (of course less than if they sold each unit separately) with a minimum order of 48 units. The problem is that once the term "co-op" is even mentioned to store owners, the claws come out. There is great disdain for co-ops from retailers and understandably so. Co-ops use businesses to find a great product and then they attempt to order direct from the manufacturer, thereby taking away those potential sales.

On one hand, co-ops are good advertising for our product. Word of mouth is huge for us and having an extra 50 people in one area promoting our product would seem like it could drive sales for the store when they might be the only location in an area that carries them. On the other hand, there are immediate losses for a store by the co-op buying direct from us.

I know if a daycare came into a retailer and said, we want to buy 48 cups, most retailers would gladly sell them for $5.50 each.... but if a co-op did the same, the retailer's blood would begin to boil (I know this from trying to arrange this a few times now).

If we sell to the co-op direct then we make more than we do at wholesale and if we don't involve the retailer, it would mean no tension.... but I hate to do it this way.

I appreciate any of your thoughts on the matter. How do you, have you or would you deal with co-ops as either a retailer or a distributor/manufacturer?

[Sean_DeSilva]

It sounds like you have a territory rights issue. Put together a plan for what territories each of your retailers have shared or exclusive rights to. Treat your co-ops either in the same league, or branch them off as a different class with different restrictions on how much could be sold through retail channels versus any unique outlets they have.