Nutraceutical Knowledge

Wholesale Nutraceuticals -  Are You Using Most Optimal Sales Model?

Wholesale nutraceuticals optimal sales model-2.jpg

Currently, there are two models that nutraceutical companies use to sell their supplement, minerals and nutraceuticals.

Those methods are the resell method or the direct sell method.

While the choice may seem like an either-or option, it is not.

In a typical market, the seller or buyer would have the option, but the nutraceutical industry is evolving to a more modern model.

In this wholesale nutraceuticals blog, we look at these two models and some of their points. 

The Resell Model

The resell model is more of an old-school approach.

The nutraceutical contract manufacturers sells in volume its nutraceuticals as an asset-based process.

The process works by producing and then selling nutraceuticals in large lots to wholesalers.

Those wholesalers maintain contracts with many companies and have huge inventories of tens of thousands of products. [1] The problem is that:

The problem is that wholesalers play a double role. They not only buy from the nutraceutical manufacturer, but they also do so at a discount.

They also are the supply chain and then upsell the drugs at a higher cost to dispensaries. 

Market Manipulation and the Introduction of Direct Selling

Many markets are overseen by the SEC, for companies that are publicly traded. It is that watchdog position that began to unravel the asset-based resell model.

In 2014, Bristol-Myers Squibb came under fire from the SEC who charged the company with market manipulation to control the price of pharmaceuticals. [1

Under the old system, the wholesalers had all the control and made most of the profit. In the direct sell model, a wholesale nutraceuticals company acts as a logistics company rather than as a broker.

A Move from Wholesale Nutraceuticals to Direct Selling

One of the reasons that cost of nutraceuticals is high is that wholesalers had total control over the cost that end buyers paid. They made money in two ways:

  1. They bought in volume and received discounts from manufacturers
  2. They set the prices and sold at inflated prices making money off of the demand by patients. 

Direct Selling Removes the bulk of Control from Wholesale Nutraceuticals

Because in the resell model, the wholesaler owned the inventory, they had complete control. They paid the nutraceutical manufacturer, and after they had done so, they had the freedom to sell the drug for whatever they wanted.

This is what caused the SEC to act. To meet the demand of investors, wholesale nutraceutical companies manipulated their inventories to drive up the demand and the price. 

In the direct selling method, the manufacturer maintains ownership of the drug and pays the distributor, which in many cases is the old wholesale company.

The difference is that the distributor is only being paid to ship the product.

The manufacturer maintains the relationship with the pharmacy and is paid by the pharmacy. The real winner here is the patient. 

Hybrid models Improve the Process Further

An article that appeared on the US National Library of Medicine's site [2] drives home the changes that the nutraceutical industry faces.

The article cites Nease 2011 and explains some of the changes that are coming.

The expectation from Express Scripts was that by 2014 40 percent of the US market would comprise of specialty drugs.

The problem was bridging the gap between consumers and manufacturers.

That process is well underway, and without the wholesalers in the middle of the mix, innovations will likely take root and evolve quickly.

It is in the best interest of both the patient and the manufacturer to smooth the distribution process. 

The industry is moving quickly toward smaller more intimate relationships with private label nutraceuticals. Within that movement lies lots of opportunity for smaller manufacturers.

Big pharma is looking at the specialty drug market as a lifeline, and in so doing they are looking for help from smaller firms.