Whats the profit on a ton of pellet ?

[Lousyweather]

Generally BB places run loss leaders (losing money on purpose) for several reasons. One is to drive competition under. They are a chain and can make up the loss on volume and sales at other locations. Once the competition goes under, their prices float to the previous (or higher) levels and they make a profit on the sales and gain market share. The other is to drive customers into their stores. Like any 'sale', you go in to buy stuff cheap, and maybe you buy something else while you are there, or you will come back and shop there again in the future. Its the way these places drive others out of busienss, and WalMart and Costco prevail. Another way for them to make money is to buy in massive volume. BB stores cut deals on large lots ahead of time, and manufactures give them a great price as they know they are assured a large volume of product over a long period of time. Places like CostCo will also buy lots of what I call "stranded merchandise," stuff that is sitting in a warehouse or truck that cannot be moved to its original destination, for whatever reason. Or it is about to expire on its date. Maybe weather is preventing it from being moved, or an order is cancelled, or a payment cannot be made by the buyer. So they buy the stuff up... on the cheap, and sell it for cheap. Product also commonly get dumped on BB stores to avoid inventory taxes. They can move that stuff pretty fast, and it does not sit in a warehouse someplace and get taxed.

I was at Costco this weekend and noticed that most of the stuff I buy is cheaper at other BB stores. So I am gonna let my membership there expire this year. WinCo and Home Depot are cheaper. Home Depot is really weird, or does not understand the internet very well. You can get a new 30-NC stove at some of their stores shipped to your door for 650. They are competing with their own local stores that way, for whatever reason. The local HD store price of a 30-NC is 900. It may be a way for them to get rid of excess merchandise at specific sites though, so maybe in the end they make out on the deal. *shrug* They may get a store volume sales compensation, and they are doing it for bonuses. Or they are trying to ramp up internet sales. Hard to say these days what drives some sale prices, but loss leaders are pretty standard in the BB stores. Buy it now for less always works to get customers into the stores and messes with competition. Its a thin margin in BB though, and they survive on huge volume. If volume drops, places that cut it too thin go under, like Circuit City. Best Buy is having the same problem and may not be around much longer either.

cant argue with anything you said, Stihl.....lets call some of these prices Predatory Pricing then?

 

[StihlHead]

cant argue with anything you said, Stihl.....lets call some of these prices Predatory Pricing then?

My uncle was the Dean of Business at UT Arlington for many years, and wrote all kinds of marketing books on the subject. I would call it predatory pricing, and he would correct me and say that it is a loss or price leader. Technically, predatory pricing is when they want to eliminate retail competition, and it is not legal. It is nearly impossible to prove that in court though (my father was a lawyer).

 

[Harman Lover 007]

Just a newbie hear but I wouldn't be so sure any box store is losing money on a ton of pellets. My local HD had 30+ tons in stock with another 40 tons on order. I just looked up be regional map on HD website there are 100 stores within about a 200 mile radius +/- . If each store only stocked 30 tons for the whole season , thats 3000 tons. If you were to add in a radius of another 200 miles to my west there are another 100 HD stores. The pellets come from PA so it's possible all 200+ stores get stock from the same supplier since it falls into a close delivery area. I think it's possible that HD is getting pricing at 5,000-10,000 ton price.
If a local supplier can sell pellets at $275 ton and buys 1,000 tons from 1 supplier? I have no idea what a small supllier would purchase 1K tons seems like a high number from 1 manufacturer? What price do you think the box stores could sell at and still make a profit? $188 I think so.
Newbie to pellet stoves, buyer during the day so the profit margin was an interesting subject. I think for pellets as with just about anything it comes down to volume. Also do not believe they want to lure people to the store for pellets they are not typically hidden in the back of the store forcing you to walk thru and possibly buy something else. They are out front and you have to place a order at the front desk , but it could be something to get you in the store who knows. My 2cents on the subject.

We can agree to disagree....the BB stores like Lowes and HD are selling pellets at certain times of the year at a loss and you won't convince me otherwise. This is my 17th year of pellet burning.

 

[CTBossfan]

good points, Boss.....cept Ive been dealing with the Big Boxes since they opened hereabouts....and can unequivocably tell you they DO sell items below cost.....not all items, not even alot of items, but the price sensitive ones.....lets face it, everyone knows what a 2x4-8', a 1/2" 4x8' sheetrock, and a ton of pellets costs....those are price sensitive.....and the general thought is, simply, that "hey, if they are low on the price of this item that I KNOW the price on, then they must be lower on everything else....!"......not true really, but thats the general mentality.

1000 tons? small dealer...thats not even 30 truckloads....we arent small......I KNOW what the cost is on pellets, and I also know that any discounts given arent earth-shattering. IMHO, this is clearly a loss leader at this point in time for the BB's.

Well at least you see where my thought was coming from on the buying power of the box stores. Like I said no idea what volume a dealer would sell, and actually no idea what a BB would buy in total just tossed out some numbers. Maybe the BB stores are buying 100K-500K tons who knows? It just seems if a local supplier can sell the same pellet maybe just a different bag for $240-250 and make a profit? Then the BB store buying in mass volume should be able to make a profit at $209 (that was the actaul HD price the $188 was lowes) If I were working out at a BB store I wouldn't want to have to use pellets to draw in customers the storage space, and handling would seem to be a huge amount of space and time for something that I was selling at a loss. But then again I don't work at BB store nor do I know their business. If the box stores aren't making $75-100 per ton which does not seem to be the case then maybe it is all to draw folks into the store. I'd rather under sell on something small to draw in customers than pallet loads of pellets that need to be moved by employees? The topic makes for some interesting for discussion.

 

[Lousyweather]

Well at least you see where my thought was coming from on the buying power of the box stores. Like I said no idea what volume a dealer would sell, and actually no idea what a BB would buy in total just tossed out some numbers. Maybe the BB stores are buying 100K-500K tons who knows? It just seems if a local supplier can sell the same pellet maybe just a different bag for $240-250 and make a profit? Then the BB store buying in mass volume should be able to make a profit at $209 (that was the actaul HD price the $188 was lowes) If I were working out at a BB store I wouldn't want to have to use pellets to draw in customers the storage space, and handling would seem to be a huge amount of space and time for something that I was selling at a loss. But then again I don't work at BB store nor do I know their business. If the box stores aren't making $75-100 per ton which does not seem to be the case then maybe it is all to draw folks into the store. I'd rather under sell on something small to draw in customers than pallet loads of pellets that need to be moved by employees? The topic makes for some interesting for discussion.

sure does......usually though, when you want to show you have "everyday low prices", you'll pick a volatile priced item, a commodity...because everyone knows what it goes for, and by selling cheap, or even under cost, you are trying to project an image that all of your items are amazingly low....I know, I know, it doesnt work on the geniuses here, but the average consumer? you bet it does!

 

[BrotherBart]

My uncle was the Dean of Business at UT Arlington for many years,.

He was probably one of my profs. Class of 1978.

 

[CTBossfan]

sure does......usually though, when you want to show you have "everyday low prices", you'll pick a volatile priced item, a commodity...because everyone knows what it goes for, and by selling cheap, or even under cost, you are trying to project an image that all of your items are amazingly low....I know, I know, it doesnt work on the geniuses here, but the average consumer? you bet it does!

Maybe thats the reason they place them in front of the store rather than in a back corner. Like I had said earlier I would think they want you to walk thru the store in hopes of buying something else. But to your point if you know what pellets go for and you see their price as you walk into the store, well wow I bet everything in the store is low prices. I still don't totally agree that they are selling pellets at a loss, and the only reason I can't let that go is the volume they must buy at and maybe the time that they place their blanket order for however many tons. And this is all assuming they are buying all the pellets from one company, that may not be correct. The local HD's I've been too all had the same pellet, but maybe 100 miles away they carry another brand, Which toss's the volume idea and gives more to the idea of underselling.

 

[Lousyweather]

Maybe thats the reason they place them in front of the store rather than in a back corner. Like I had said earlier I would think they want you to walk thru the store in hopes of buying something else. But to your point if you know what pellets go for and you see their price as you walk into the store, well wow I bet everything in the store is low prices. I still don't totally agree that they are selling pellets at a loss, and the only reason I can't let that go is the volume they must buy at and maybe the time that they place their blanket order for however many tons. And this is all assuming they are buying all the pellets from one company, that may not be correct. The local HD's I've been too all had the same pellet, but maybe 100 miles away they carry another brand, Which toss's the volume idea and gives more to the idea of underselling.

I cant say much more, Boss, other than to tell you sometimes it pays to have friends in low places.....maybe they tell you what the BB's are paying, since they either work for the BB's, or well, work for the pellet Co and have access to those numbers....we all look at landed costs (trucking), and I can tell you, in my area, Lowes at $188 is certainly below cost......and really, I cant say more.....

 

[joescho]

good points, Boss.....cept Ive been dealing with the Big Boxes since they opened hereabouts....and can unequivocably tell you they DO sell items below cost.....not all items, not even alot of items, but the price sensitive ones.....lets face it, everyone knows what a 2x4-8', a 1/2" 4x8' sheetrock, and a ton of pellets costs....those are price sensitive.....and the general thought is, simply, that "hey, if they are low on the price of this item that I KNOW the price on, then they must be lower on everything else....!"......not true really, but thats the general mentality.

1000 tons? small dealer...thats not even 30 truckloads....we arent small......I KNOW what the cost is on pellets, and I also know that any discounts given arent earth-shattering. IMHO, this is clearly a loss leader at this point in time for the BB's.

I'm always suspicious of the quality of items at BB stores though. For example, I was re-doing my shower and replaced the fixtures in the process. Ya know those hand held shower heads that have a hose and you can take them out ? Well, the price difference between HD and my local plumbing store was $100 for the same item. Well, for $100 it got my attention and I decided to look into it. Turns out the HD version has plastic inside and the plubing store has metal and the manufacturer item number was slightly different.

 

[CTBossfan]

Okay LW you have convinced me. I admit I bought my pellets from HD this year as a newbie, for 2 reasons 1 I needed some lumber delivered to refurb my deck and the pellet delivery was part of the $65 to deliver the wood along with 10% off the entire order. I hate to not support the local mom/pop stores just for all the reasons we discussed about the BB stores, but the savings for me when things are tight was too attractive. I'll continue to support my small town hardware store as much as possible. I think it upsets a lot of people what the BB stores do to the small shops even when not underpricing.

 

[DirtyDave]

yes the BB stores buy in virtual lots of 350k tons at a time . You add that to 15 suppliers or so and they buy a bunch, and the BB store pays the shipping, not the Manufacturer.( I would say that huge income influx for unmade product helps alot, unless they are selling a few seasons old of pellets that sit outdoors covered most likely ) add a 1k mile delivery area to stores... mmm i say break even at low point in season if lucky, but it sure brings you in to buy, and get other items while your there. smart

 

[jtakeman]

I don't really know how they do it? But I can't help but take advantage to a degree. I still help out the mom and pop's as best I can(they get me the good stuff!).

Anyone hear of Squire Lumber? I hear they can do truckload deals.

 

[subsailor]

I'm always suspicious of the quality of items at BB stores though. For example, I was re-doing my shower and replaced the fixtures in the process. Ya know those hand held shower heads that have a hose and you can take them out ? Well, the price difference between HD and my local plumbing store was $100 for the same item. Well, for $100 it got my attention and I decided to look into it. Turns out the HD version has plastic inside and the plubing store has metal and the manufacturer item number was slightly different.

Talk to any builder worth his salt and he'll tell you he avoids all the power tools at the BB's for the same reason. Plastic gears, etc. vs. metal. And the mfg. item number is always slightly different.

 

[Lousyweather]

Talk to any builder worth his salt and he'll tell you he avoids all the power tools at the BB's for the same reason. Plastic gears, etc. vs. metal. And the mfg. item number is always slightly different.

well, they have to make it cheaper so the BB's can fool the rank and file into thinking that the item is a super deal, but at the same time maintian profitability....tho, to be fair, I am sure they dont do this with pellets

 

[ducker]

well, they have to make it cheaper so the BB's can fool the rank and file into thinking that the item is a super deal, but at the same time maintian profitability....tho, to be fair, I am sure they dont do this with pellets

Then again, if I want my own (cheaper) power tool that I'll use maybe a couple times a year - I know that I'm getting an inferior quality tool - because it is cheaper - and I won't be using it to the extent that a "pro" would be using it.

ex. my weed wacker - I paid around $95 for it. I wasn't expecting the world, nor do I think it's high quality. It's lasted me over 5 years and I expect it to last quite a few more. That being said, I usually don't have to fill up the fuel tank on it more than once a year. I don't need a $150+ high quality trimmer -

I doubt though as you mentioned Lousyweather - that everyone realizes that the parts/supplies they are getting may not be the same quality.

 

[Bioburner]

WI pickup price $145 a ton at the plant, bulk metro dealer $195. A dealer called said I could preorder for $198. So 50 bucks a ton +- for profit? Better than most markups on products.

 

[Lousyweather]

WI pickup price $145 a ton at the plant, bulk metro dealer $195. A dealer called said I could preorder for $198. So 50 bucks a ton +- for profit? Better than most markups on products.

I said $50 in the HIGH side....we dont make that....I wish we did, but we are lucky to get 1/2 of that,and, I might add, thats GROSS profit

 

[Bioburner]

Price varies on area is why I posted plant pickup in WI. I also have a friend who trucks for Menards and backhuals pellets in fall and winter and salt pellets mostly in spring and summer. I had quote for 22 tons to my door for 170.oo if I could unload. Grocery margin is under 10% and the overhead is a killer.

 

[PA_Clinker]

With the purchase of a new stove, I decided to pay a bit more for "ultra-premium" Hamers Hot Ones last season from a local supplier. No fault of the supplier, but I felt like I threw out an awful lot of sawdust.Yes, they burned hot but they're sized small to feed more fuel into the firepot...more mass=more btu, d'oh. This season I went to the big box for Green Supremes. If I have to burn at a higher setting, BIG DEAL...it's 6 of 1, 1/2 dozen of the other. I'll still be refilling the hopper at a similar rate.

As far as mark-up per ton, $30 per ton for cash & carry customers seems fair to me. Any more than that is just plain silly.

 

[Lousyweather]

As far as mark-up per ton, $30 per ton for cash & carry customers seems fair to me. Any more than that is just plain silly.

I cant say, depends on their costs, of alot of things, collectively called "the costs of doing business" in their particular region....