pellet distribution question:

[HarryBack]

Ok, In all seriousness, I would like to ask a few questions about the viability of an idea I have.

Lets say we have a hypothetical pellet sales business. We will use the name "No-Frills Pellet Emporium". Say we only have 2 inventory items....pellet gel and pellets. Maybe we sell bagged pellets for one price and bulk pellets out of a silo for another lower price. We give no discounts for quantity, offer no delivery, only cash business, no credit cards, no checks, offer no assistance in loading (ie: ok, maam, {points to a pallet of pellets} theres your pellets....thankyou {walks away}), wont "bank " pellets ("theres your skid, maam, I suggest you get it out of here fast, because tonight they might get stolen, or ruined), no stoves or stove accessories, no service.

All of the above consitions sound bad, but what I am trying to accomplish is lowering the overhead as much as possible, in order to allow to give the lowest price I can for pellets.

Assuming the retail price for the pellets is lower than the "big boxes", how much cheaper would the hypothetical ton have to be to get folks to agree to these terms?


Thanks!

 

[NWfuel]

It could work,but I would like to be the manufacturer also so I could guarantee I have something to sell.
Thomas

 

[HarryBack]

yes, but once you are a manufacturer, huge overhead...also, you still arent guranteed raw material....sawdust.

 

[NWfuel]

I would think that you will need something to do in the off season. Find the sawdust and start bagging. Sounds like a one man show to me.
Thomas

 

[HarryBack]

okok- but how much belwo market would a guy have to be to make it viable in your opinion?

 

[NWfuel]

In the pellet market I would be more expensive. I would also be sure that my product was top quality and I had plenty of it.

 

[Shane]

I pay 3.25 per bag. If I buy a pallet then they load them with a forklift, If I buy an odd # of bags then the yard man "helps" me load them, though usually by the time they get there they're loaded and he simply has to count them. If I was naming my own discount I would say 1.00 per bag less. In reality though I would load my own pellets (even a pallet) for a .30-.50 discount. Basically 10-15%. This obviously wouldn't work for everyone. As for the bulk pellets to deal with that mess I would honestly feel that a 45-50% discount would be in order. The supply would have to be completely steady though for me to continue to come back. That's the main thing for me is steady supply.

 

[NWfuel]

OK, This is how I look at FUEL. I see a gas station on two corners. .50 cent difference in prices per gallon.

I always see customers at both. Fuel dealers have to develop the cleint type they wish to serve. There is plenty of both. When you burn solids it is labor intense on both parties. If you have a good cleint that burns these solids you have your customer to the end of their burning cycle.

Oh yeh, price isn't a factor.
Thomas

 

[HarryBack]

I thank you for all your input, NW. Always good to hear from a learned person. Price is ALWAYS an object, just not the primary one for the best customers, in my opinion. For me, it'd be supply. If I bought a stove, Id want to be sure the pellets are available. Id want my dealer to charge a competitive price with others in the area. Id like them to maybe give me the opportunity to buy early, so Im not paying the premium winter prices, and I can be assured of supply....4-5 tons in my basement takes me the winter....All these things we try to do for our customers. You cant MAKE them buy early, but you can offer them the chance. At least them if theres a shortage, they cant say they werent offered the opportunity.

 

[Choppedliver]

The only problem is, there isn't very much money in selling pellets in the first place.
I know that back east they sell for more but in Denver pellets sell for $3.50 to $4.00 a bag. If I was to try to under cut everyone ($3.00-3.25 a bag) I would have to sell a crap load more pellets to even break even with what I'm making now.

I sell about 1000 tons (50,000bags) a year, $180.00 a ton ($3.60 abag) making about a buck a bag.
We hand load about half the pellets we sell thats a big thing to some of are older customers

$3.60 a bag 50,000 bag x $1.00 per bag gross profit. = $50,000.00
$3.25 a bag 78,000 bags x $.65 per bag gross profit.= $50,700.00
$3.00 a bag 125,000 bags x $.40 per bag gross profit = $50,000.00

One more thing lets say you open a pellet store and start pulling pellet sales away from home depot and walmart. They now what to get rid of you, so all there stores sell pellets a cost ($2.60 to $3.00) untill you gone then gladly bump the price back up to $4.00

 

[NWfuel]

With your thoughts of 3-5 tons of pellets in a basement is not possible here in Seattle. We only see a customer for 2-3 pallets per year at most. 1 pallet at a time up here or they could suck H20. The popular fuel of choice here are the 8lb energy logs, it doesn't get any better. 68,000 btu's per log with a 8-10 hour burn time.
Thomas

 

[roac]

If lower prices are the goal then this can be accomplished in a couple of ways, lower overhead or lower wholesale price. You can only squeeze so much from overhead before service suffers. The quickest way to lower your price is to get the pellets for less. To do this you would have to build a relationship with 1 or preferably more suppliers. From there it is all about volume. Why do you think Walmart is killing all of their grocery competition? They demand the lowest prices from their suppliers and in return the supplier gets high volume sales. Instead of making 50 cents on a can of beans they make a nickel but they sell a lot more. So the key for you will be to build up sales either through lower prices and or exceptional service. The more you sell the less you should have to pay for pellets. Eventually with enough time and good advertising you will build sales. Hopefully this year is an anomaly and supplies will return to normal next year.

 

[saichele]

OK, This is how I look at FUEL. I see a gas station on two corners. .50 cent difference in prices per gallon.

I always see customers at both. Fuel dealers have to develop the cleint type they wish to serve. There is plenty of both. When you burn solids it is labor intense on both parties. If you have a good cleint that burns these solids you have your customer to the end of their burning cycle.

Oh yeh, price isn't a factor.
Thomas

I actually see it almost exactly the opposite - I burn wood because I'm cheap, and wood is a lot cheaper than NG (way cheaper when I can get it for free). The ecological and political stuff is all just a bonus.

Wood, pellet, and corn burners have already decided to get off their butts and work some for their heat for one reason or another, which I think would make them more likely to put some effort (loading their own pellets, for instance) into the deal to save a couple bucks.

For a comparison, consider corn. Lots of farmers and elevators locally, so it's easy to get dried corn in bulk. If they dump it in your truck, it's about $2/50lbs (the CMEX rate). You still have to screen the stalks and cob pieces, and you've got 1000# of loose corn in your pickup. Alternatively, most elevators will sell 50 or 100# bags of screened corn for a 50 or 75% markup. so like 3 or 3.50/50lbs. Key is, the buyer has the choice.

If you could get your 'full serve' rate roughly equal to your competition, then mark down a less serve rate where you basically cover the building it's in, I'd buy a lot more pellets from you because I might save $20/pallet or something like that. Older customers would probably just get it loaded. Of course, if you're charging extra for full serve, you actually need to do it or people will get ticked.

The 'get it out of here quick' aspect is tough, because most people have access to a vehicle that'll handle 1000 pounds, but much over 1500 is pretty specialized. So you'd either need to price it so that every half ton was the same rate, or provide some short-term (a few days or a week?) storage to let people make repeated trips to move 3 tons.

Steve