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Do businesses legally make money from others?

Discussion in 'Business & Startup Investing' started by Crusher, 12th Dec, 2009.

  1. Crusher

    Crusher Well-Known Member

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    Just curiously - Do businesses 'legally' make money, from other businesses?

    For example - a take-away shop, goes to woolworths and buys a carton of coca-cola 24 cans for say $20. They then take those cans back to their shop, and sell for $2 each, equaling $48 - $20 (original cost) = profit of $24.

    The question i'm asking is, is there any legal obligations to coca-cola, or woolworths? does it depend on the company your buying from? the quantity? How does this work?

    Are there agreements between companies for this type of business? permits? contracts, etc..?

    If an office supply company went to officeworks, and bought $1000's worth of printing paper, could they then turn around the following day, and put it on their own shelf for twice the price?

    Just curious.
    Thanks
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Hi Crusher, this can and does happen.

    This is why you'll often see people like Woolworths Homeshop put a limit on how many units of a sale item an individual "customer" can buy - eg. "no more than 12 packets of Tim Tams per customer at this special price".

    I know the pizza bar I used to deliver for back in uni would occasionally stock up on soft drink from the local supermarket if they had a special on which was less than their wholesale price. They weren't buying large quantities though - usually only a couple of cartons.

    At the end of the day, many items have significant retail markups on them, so you'd usually be better off sourcing them directly from a wholesaler if you want a reliable supply of large volumes of stock.

    I don't know if there are any specific trade laws that govern reselling items bought from a retail store. Depends on the item I guess.
     
  3. Magpie

    Magpie Active Member

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    In some cases buying from a retailer is almost a necessity.

    Similar to Sim's example, some friends of mine had a game shop which sold computer game consoles, among other things. For a long while their wholesale price from the distributor of one popular console was actually slightly more than the price that Target was retailing them for.

    Smaller businesses simply can't do the sort of bulk buy deals that big chains can, or run the same sort of 'loss leaders' (selling below cost to attract customers who will also buy other items). Some suppliers are more ruthless about their pricing structures than others too. In that case, they had a customer who worked as a driver for Target, so he used his modest staff discount to buy a few for them. They were then able to match Target's price and at least stock some to keep their customers happy. They barely broke even on the machines but kept the customers for the games. I doubt there's anything illegal about that, but it may have caused problems with the supplier, especially if Target decided to pressure the wholesaler. The guys with the biggest wallets usually get to call the shots.

    Another friend who owns musical instrument shop will sometimes buy small items, such as certain kinds of plugs or sockets, from another store (at full price) and just stock a couple to keep his customers happy. It's just not worth his while to set up a wholesale account for every single possible item, and then buy them in the quantities that may be required as a minimum order by the supplier. He doesn't mark them up but sells for what he paid. The advantage to him is simply 'goodwill' .

    Chris
     
  4. Kim1

    Kim1 New Member

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    perth WA
    Supply

    Hi
    Companies like coca cola supply fridges etc so you must order from them stock to replace or you risk losing your fridge. Also they have on cans bought in multi packs marked to try and stop small retailers from selling singluary.

    Kim
     
  5. Magpie

    Magpie Active Member

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    Also...


    The line between what is law and what is just business practice can be hard to pick.

    Many years ago when PCs first came onto the market and a few games started to trickle into the computer shops I suggested to a local retailer that he might like to trade in the games and start a second hand line. He did just that for over a year until one of his wholesalers threatened to cease supply. He then stopped all trades or second hand sales.

    Some years further down the track I noticed that all the games shops were now trading in games, and that some were even hiring them out. Yet the printed EULAs (fine print licencing stuff that gamers never read, but have to click to agree to if the game instals) usually expressly forbid second hand sales, hiring, or even giving the game away.

    So I asked some friends who owned a game shop what the position was. They said that the cops regularly checked their shop to see if anybody had traded in known stolen goods, so obviously had no problem with the second hand selling as such. So I rang the police, various consumer groups and anybody who I could think of who might be able to tell me what the law here actually was. A company can't make up new laws by writing out a lengthy wish list in a EULA, but perhaps they might be able to establish some or all of the points under (for instance) existing general contract law? All depending on which State or country you were in of course...

    Everybody I rang had no idea, and neither did any of the people that they suggested I could try next. The only informed reply I got was from the Law Society who said that they could provide me with a list of local law firms would I might like to employ to mount a test case in court!!!

    The shop owners told me that it still boiled down to whether the wholesaler hassled you or not, and that what the law might or might not say didn't come into it. Unless of course some sort of major fight broke out.

    They say that ignorance of the law is no defence - but just try finding out what the law really is! :rolleyes:

    Cheers,

    Chris
     
    Last edited by a moderator: 12th Jan, 2010
  6. James_w

    James_w Member

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    Not sure about other places but pubs are not legally allowed to sell signle cans of rum etc from the cube cartons I am sure many most likely still do as there is quite a good markup
     
  7. nitro-nige

    nitro-nige Well-Known Member

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    Surely its no different to any other supply chain.
    I work for a company that buys raw materials to make a product.
    Sometimes that product goes into someone else's assembly other times it's sold through an agent as a spare part.
    In both cases the middle man adds his/her cut. In the same way we add a margin to the material and labour to make the product.
     
  8. Vagon

    Vagon Well-Known Member

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    Interesting that you say coke, because the "contour-bottle" is actually copyrighted, which is the way the distributor would intend to control supply. This used to hold weight until an amendment to the copyright act in 1998 effectively ended the use of packaging as "artistic work" and a bunch of big name companies like Mattel got pretty unhappy.

    In application it varies depending on the product, but in general no. Legally the courts tend to work in favour of creating a legitimate market and not restricting competition. Unless there is a specific reason (e.gs nutritional labelling, legitimate copyright or IP) there are very little restrictions that can be enforced by distributors.

    Cheers