Wholesaler Finds a Market in Mom-and-Pop Grocers : Commerce: The center targets small South-Central stores unable to afford larger suppliers. Lower prices may find their way to customers.
After more than 40 years in the grocery and wholesale business, Russ Morgan was ready to pack it in, head up to Idaho and enjoy the fishing.
But then he got hooked on another idea, a cash-and-carry wholesale distribution center for the mom-and-pop grocery stores that dot South-Central Los Angeles. The fish will have to wait.
“It seemed like a good way to help a lot of people and give something back to the industry,” Morgan said. “If we can lower prices, maybe we can eliminate some of the tension (between some merchants and customers).”
The high prices shoppers grumble about at neighborhood stores are usually a reflection of what grocers pay for their inventory, Morgan said. Small stores generally don’t buy enough to qualify for the minimum order requirements of most large wholesalers. Some require as much as $6,000 a week in purchases compared to the few hundred dollars that small grocers spend.
Last year, the Pacific Asian Consortium in Employment, a Koreatown-based economic development organization, wanted to set up a wholesale grocery warehouse and asked Morgan for advice. The consortium ended up talking Morgan into becoming the president and chief executive officer of Community Wholesale Grocers Inc.
The wholesaler now serves 285 grocers out of an estimated 1,600 stores in South-Central and South Los Angeles and nearby communities, Morgan said.
The 12,000-square-foot warehouse at 13719 Crenshaw Blvd. in Hawthorne carries a full line of groceries, frozen foods and health and beauty aids. If customers want something that is not on the shelves, they can order it from a catalogue.
Customers spend an average of about $400 per order, Morgan said. Some shop weekly, others shop whenever they can get away from the store.
The center has access to 35,000 items, primarily through Certified Grocers, a major wholesaler, and local manufacturers. Low overhead helps keep prices down, in some cases as much as 10% less than other wholesale prices, Morgan said. It will take time to lower the prices of all the products, he added.
The idea of reducing retail prices will also take a while to filter down to grocers. Morgan and Karl Roby, the center’s manager, said that while some of the retailers may be passing whatever savings they make on to their customers, it’s not yet a significant trend.
“It will take some education to convince (store owners) that they’ll be better off lowering prices because they’ll be doing more sales,” Morgan said.
Ryan Song, executive director of the Korean-American Grocers Assn. of Southern California, said although he isn’t familiar with the operation of the distribution center he thinks it’s “a marvelous idea.”
“Mom-and-pop stores don’t get the volume discounts that supermarkets do,” Song said. The association recently introduced its own cooperative program to help grocers get discounts from cash-and-carry stores by pooling their purchases.
Morgan estimates that about a third of his customers are African-American, a third Latino and a third Korean. Some of Morgan’s employees speak Spanish and he plans to hire a Korean-speaking employee soon.
Patsy Brown, owner of Papa’s Grocery at 43rd and Hoover streets, said she was pleased with the prices and service at Community Wholesale Grocers. She used to deal with Certified Grocers until it shifted its attention away from smaller stores. “It’s real convenient,” Brown said. “We can fax them our order and it’s ready when we get there.”
The consortium put together the seed money for the venture with loans and grants from private and governmental sources. Like most new businesses, Community Wholesale Grocers is running a deficit now. The goal is a 1% profit margin so that most of the revenue will be plowed back into the operation to keep prices low, Morgan said. Some of the profits will be used to open up more stores and fund other consortium projects. Morgan estimates that sales will be about $5 million this year.
Morgan said he would like to set up six more distribution centers in the next three years to serve other areas, with the next one planned for Downtown near the produce market.
The consortium also plans to tap Morgan’s reservoir of knowledge by holding classes for grocers in business math, product selection, merchandising and other skills needed for running a store.
“There’s more to this business than sitting inside a dark, poorly lit store with prices too high so you only attract the have-to-have-it customers,” Morgan said. “Maybe we can get owners to think about making customers feel good about shopping there. And then maybe we can get them to think about opening up another store.”
Community Wholesale Grocers is open Monday through Saturday, 7:30 a.m. to 4 p.m.
Information: (310) 675-4451.
