Salvage Shop Business Plan
A salvage shop, also known as a discount, clearance or “best before” shop specialise in selling items that traditional grocery stores can’t or won’t sell. This includes:
Food that is near or past its expiration
Items in seasonal or otherwise-dated packaging
It also sells:
Items in dented or torn packaging
Salvage from truck wrecks
I will focus more on the first three in this business plan.
Value Proposition / Market Need
Right now all over South Africa (and the world), there are many millions of rands worth of products close to its expiry date, its owner cannot sell it into traditional sales channels all the while paying money to store it, there are also as we know many people struggling in South Africa where people on welfare outnumber those employed. A salvage store brings these two groups together.
Business Model / Your Solution
This is a retail business that buys from a supplier, adds markup and sells directly to the consumer. If you have researched the retail business you will know that it is usually supplied by a manufacturer, distributor/importer or wholesaler. That means any of those companies is a possible supplier, anywhere in the world.
Like any other business, the success of this depends on sourcing the right product at the right price. I’ve mentioned potential suppliers above, but all those depends on the amount of capital you have available. Nobody with old stock sitting on their shelves is going to turn you away if you want to take it off their hands. But it must also be worth their while and not take up too much of their effort. You must be in a position to pay and collect as soon as possible.
Now where you source from depends on the resources you have, if you have little resources and no logistics (transport and storage) then you are going to have to start very small. I have already mentioned three types of suppliers and I will mention two more: other retailers and exporters.
If you have very little resources, there might be an opportunity to take unsold stock that other retailers want to get rid of. If you do your area analysis you will know how many potential suppliers you may have close by. There is no harm in asking them what they do with their old stock that is close to expiration. This is a chance for them to get some of their money back or they can hold on and wait till the item loses all its value.
The other market to source from is exporters, there are many exporters in South Africa that only export and don’t trade locally. Their clients will want the expiry dates on the goods to be as far away as possible, especially if they use a slow shipping method such as sea freight. Any other stock they might have left after a certain order is fulfilled they cannot export, and may not want to go through the hassle of selling it piece for piece retail, their type of setup might not also be ideal to sell retail.
If you have more resources you can source goods from all over the world, container loads at a time. But ideally, depending on local competition, it will be best to start local first and use importing as a growth strategy.
Now the question is how old should you go? Should there be a limit on the expiry dates that you are willing to sell? It is not disputed that most dry goods are safe to eat past their expiry dates (and people are even encouraged to do so to avoid waste), and it will be cheaper to source goods past their expiry date than before. And there are products that will be perfectly edible even a year past its expiry date. I have seen in recent times that products are stored for years past their expiry date and end up on salvage shelves. Don’t believe me? These photos I took recently:
I personally would not deviate from 1 year in the past, there might be formulations that react unpredictably after a few years. If you look at the marshmallow fluff above it was manufactured in 2015, and expired in 2016. It begs the question of why it has even been stored for so long.
While traditionally this business serves lower-income people and should be positioned in lower-income areas (or at least close to), do not rule out a salvage shop targeting middle-income consumers. For two reasons: South Africa has been so badly managed that even the middle-class are struggling to get by, and many middle-class people are known to be frugal, even more, frugal than some lower-income people who will spend more on unimportant things such as brand names.
There are three main types of sales channels used in this business: selling from home, selling from a market stall such as a municipal market and lastly selling from a retail outlet, it all depends on the amount of capital available. The first two can be started with very little capital, the latter will require more in both stock and rental. If you go with a retail outlet in this business it will almost always be a more affordable type of building, even industrial setting not premium space like malls which will eat up most of the margin, and simply this business does not require a sales channel that has a lot of foot traffic such as a mall as word of mouth will bring a lot of consumers through the door. I will go as far as to say this business is not suited at all to a premium sales channel. Everything has to be kept basic, the shelving etc. no need to spend a lot of money on cosmetics.
The location of your Sales Channel would have been based on some area analysis. Are your Target Market close by, if your target market is lower-income, is public transport close by? In that case, initially, basic advertising such as flyers in the target area can be done before word of mouth takes over and drives sales.