When & How Farmers Should Consider Retail Consignment

Consignment (providing food to retailers without payment up front) might sound like a bad idea, but it sometimes can work for all involved.

by Jesse Frost
PHOTO: Pixabay

The idea of giving someone food for free and allowing them to sell it will probably either excite you—for the advantages I list below—or appall you. But in certain circumstances, consignment might be a great option for farmers who have a surplus of produce, want to sell more per retail customer or who want to expand their market reach.

What is consignment? Consignment is the act of taking someone a product—in this case, food—and letting them not pay upfront. Whatever doesn’t sell comes back to you, but the consignment seller pays you for what did sell.

How Consignment Works with Food

Most of the time when you sell food to retailers they buy what they believe they can sell, mark it up and sell it themselves. The transaction for you, however, ends at the original sale of your produce to that reseller. In a consignment situation, the transaction doesn’t end until the produce is no longer sellable on the shelves. At this point, the retailers pays you for what sold and returns to the rest to you for inventory (and so you can make sure they are being honest).

Possible Advantages of Consignment

Why anyone would want to sell their food this way might not be obvious at first, but if you are dealing with a small retailer who can’t buy a lot of produce up front, then you have an opportunity to sell more food through that outlet, especially when you have a bumper crop. I recently did this with lettuce. I sent 10 pounds of extra lettuce to a retailer who had not been initially interested (or didn’t have an adequate budget), and that person returned with a check and the few bags that didn’t sell two weeks later. So, lettuce that would have gone to waste turned into money for both parties.

Moreover, retailers often buy your food at the lowest wholesale price possible because they need to mark it up. If you selling on consignment, you can set a higher price, thus making more money per transaction for yourself. Offering some consignment might also make you a favorite vendor of any retailer who is game for this type of transaction.

Possible Disadvantages of Consignment

The disadvantages are perhaps obvious. Because the retailer doesn’t have as much vested interest, your products might not get as much attention and upkeep. Also, getting paid might be complicated as you are relying on the vendor to keep track of the sales. If a retailer forgets to return items that didn’t sell, you will have to charge for all of it, which might sour the relationship. This is why designing the consignment deal is absolutely key to offering this successfully.

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How to Design a Consignment Deal

First, make sure both parties are clear about the deal. The producer expects to be paid after the sales are made and expects any unsold items to be returned (or composted upon verification). The retailer must understand that any remaining inventory must be returned or verifiably cataloged or that person will be charged for all of it. A clear invoice is attached to the product with a note about consignment, and a second invoice with final total is sent to the retailer after the transaction is complete. That invoice should be paid within 30 days or less, because the retailer should already have the profits from which to pay you.

Make sure to test the waters with these sorts of transactions slowly and on a small scale so if there are any mistakes, they can be addressed without harm to the relationship. Verify that everyone understands the goals and expectations.

I do see consignment as an opportunity, with the right retailers, for farmers to have an additional outlet for their produce, and for cash-strapped retailers to get a boost in revenue. It must be done carefully, but few things will endear you to a retailer more than providing a way to make money with no up-front investment. Then that retailer might be more willing to approach you first when a need arises to stock the shelves.

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