They really can get it for you wholesale; "warehouse clubs" give small firms a break at the checkout counter

Nation's Business, March, 1985 by Sharon Nelton

They Really Can Get It For You Wholesale

EVERY WEDNESDAY morning, Jean Guiffre drives her 1969 step van 23 miles to the Makro self-service wholesale center, a 160,000-square-foot warehouse in Capitol Heights, Md., near Washington. There she buys an average of $500 worth of milk, cheese, produce, pet food, soft drinks and other groceries. In turn, she delivers the groceries --for a profit--to an average of 65 customers, most of them unable to do their own shopping because they are elderly or homebound.

Guiffre founded Top Banana Home Delivered Groceries in Baden, Md., in 1982. Her first week of operation, she brought in one order and $27.86. Now her annual gross is $130,000, and she has more than 300 regular customers.

But, she says, "I could not have started this business without Makro.' She is one of hundreds of thousands of U.S. small business owners who are enjoying the low prices and other benefits of the mushrooming numbers of private facilities like Makro--variously called "wholesale clubs,' "warehouse clubs,' "membership discount stores,' "wholesale cash-and-carry werehouses' and "wholesale centers.'

They represent a new type of wholesaling that is rapidly gaining a foothold in major metropolitan areas. And they are rolling out the welcome mat to small businesses from Anchorage to Miami and from San Diego to Boston.

The idea behind most of these new centers is to provide merchandise at or near wholesale prices to two categories of private customers: (1) small businesses --restaurants, small retailers, service firms and professionals like lawyers and accountants; and (2) individual consumers who work for or are members of a "qualified' group, such as the federal government, a hospital, a credit union or a bank.

Some, like Makro, the Buyer's Club in Denver and Sam's Wholesle Clubs (operated by Wal-Mart Stores) have targeted the small business owner as their primary customer.

TODAY, THE number of warehouses nationwide is between 65 and 75. But Henry W. Haimsohn, founder of PACE Membership Warehouse, also based in Denver, says estimates suggest the industry will grow from its present $4 billion in sales to $20 billion by 1990, with 300 or 400 warehouses.

Terms are strictly cash and carry, and products range from office supplies, janitorial equipment, food and tires to small appliances, liquor and cigarettes. Even in centers targeted solely on small business, it is expected that customers will do some personal shopping while they are in the center making business purchases. So items like television sets and clothing are also available.

"It is a unique combination of merchandise that is priced so low that nobody can touch us in the marketplace,' says Ken Bagus, who opened his first Buyer's Club late last year and expects to have four in operation by the end of 1986.

As a "fringe benefit,' Bagus says, an entrepreneur can even get food for his family at the Buyer's Club, because the center carries food for people in the restaurant business.

Such centers are a boon to small business owners, who often find themselves shut out by traditional wholesalers. Not only do the warehouse clubs offer entrepreneurs some of the lowest prices available to them, but the clubs also permit buying in the smaller quantities that, says Haimsohn, give the small business person "the ability to effectively manage his inventory.'

"We started on a shoestring, with $2,000 in capital,' says Guiffre.. "I could not buy through normal distribution channels because I would have to buy in full case lots.'

She could purchase the smaller amounts she wanted at Markro, and because the center carries a wide variety of items (35,000, according to Robert E. Groebel, general manager of the Capitol Heights warehouse), Guiffre says, "I could build my stock without large capital outlay.'

INSTEAD OF buying 400 pounds of ham, says Groebel, the owner of a small restaurant can buy just one ham if that is all he needs. He does not have to worry about perishables spoliling before he can use them, and he does not have to tie up cash in inventory.

About 85 percent of the 70,000 members of the Maryland outlet are in the food business, many of them small restaurateurs, institutional caterers or operators of mobile food services that serve construction sites.

"Some may bring in their morning receipts and buy their supplies for the afternoon,' says Groebel, "so they are borrowing no money.'

Haimsohn opened his first PACE warehouse in July, 1983, in a converted mattress factory in suburban Denver. The store did $44 million in business its first full year of operation in 1984 and now has more than 200,000 members. PACE facilities now number six, with a second store in Denver, one in Atlanta, one in Charlotte, N.C., and two in Florida's Tampa-St. Petersburg area. Haimsohn plans to open eight more in 1985 and expects this year's revenues to top $300 million.

Formerly in the retail business in San Diego, Haimsohn cheerfully acknowledges that his stores are patterned after those of the San-Diego-based Price Club, pioneer of the private wholesale club industry in the United States. "I have always been a fan of the Price Company and it looked like it would be fun to run a company that had warehouses like theirs,' says Haimsohn.