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SITUATION
The status quo can be illustrated on an example:
A supplier provides a wholesaler with a 30% discount on goods close to expiry. Then one of these scenarios follows:
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The wholesaler makes an average price from the discounted goods and of its current regular stock. While it is true that the price of the respective item is lowered a little, it is usually not enough for a quick sell-out. Consequently, when BBD approaches the supplier is asked to provide an additional discount of 30-60% via credit note or free goods at retail.
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The wholesaler uses the given discount to cover its own costs and does not pass the discount to retail. The large stock of respective items is not moving quickly enough and the supplier is asked to provide an expiration discount again.
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The wholesaler passes the discount to the retailer in order to achieve the lowest possible consumer price to guarantee a quick sell-out. The wholesaler wants to make the most of this special offer so he even decreases his own margin and uses this as a special offer/promotion. He informs retailers so that the discounted item is brought quickly to retail where the product is properly promoted to consumers. Through this set of activities, the stock is sold out even before its BBD.
We know from our own experience that scenario c represents only a very small percentage compared to scenarios a and b.
Another negative aspect of c) "solution" is the large stock of discounted items at the wholesaler's as well as the consequent late payments, which can prevent the wholesaler from taking the next orders of basic goods.
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