Usually there's added cost when a retailer buys through a middleman instead of from the manufacturer. One reason is volume. In the dairy industry, selling large quantities helps keep overhead in check. That means independent processors seeking to gain volume often will sell milk to large customers, such as Costco or Sam's, at or near cost, said David Ikari, chief of the dairy marketing branch at California's Department of Food and Agriculture. They practically give it away.
Cost plays an important role.
When Meadow Gold delivers milk and other dairy products to Tamura Superette or Sam's, for instance, it just drops off the merchandise. But when it delivers to the chains, a Meadow Gold employee stocks the shelves, keeps track of inventory, places new orders and handles other chores for Meadow Gold products, all at multiple store sites. The Meadow Gold employee's duties are magnified because supermarkets sell many more types of dairy products than discounters or neighborhood retailers, requiring even more servicing. Meadow Gold's Muranaka said a delivery driver may spend 20 minutes at a discounter compared with three hours at a supermarket. Other factors Tamura Superette also can keep its prices down because the company, unlike some of the chains, owns everything at its location, including the land, building and equipment, according to general manager Yamane.