BtoB bags wholesalers

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Wholesale grocery buyers can be a cranky lot, used to spending their days in cramped offices, haggling with equally irritable brokers and trolling through reams of faxes in the hope of getting, say, a five-cents-a-pound discount on a truckload of Cap’n Crunch. intends to make their jobs easier, and perhaps more enjoyable, by bringing buying to the Internet.

Dexsi is an independent b-to-b exchange that allows manufacturers, wholesalers and retailers to trade groceries online. It lets wholesalers buy and sell everything from cereal to macaroni and cheese, anonymously and at discounts of up to 30%. The savings are realized by cutting out brokers, who typically represent several grocery products.

While the financial prospects of many independent b-to-b exchanges are grim and their online trading floors about as busy as the condiment aisle at midnight, Dexsi is attracting a critical mass. Since its launch last July, some 70 wholesalers have signed up to use the company’s services, including big ones such as White Rose Food and Red Apple Group Inc.

Dexsi—whose name derives from Digital Exchange Systems Inc.—recently reported more than $10 million in transactions to date, a significant amount for any independent exchange. Whether it will be able to compete long-term with richer, consortia-backed competitors such as Transora remains to be seen.

Simplifying the business

Wholesale grocery trading is a complicated business that requires lots of common sense and even more connections. Deals are often sought to recover from earlier buying mistakes, adding to the difficulty and stress. A wholesaler, for example, might have overbought by one or two truckloads on a special deal for, say, Spam, and is now stuck with the surplus. Tens of thousands of feet of valuable warehouse storage space, meanwhile, is being wasted each week to store it.

Today, the Spam-laden wholesaler typically hires a broker to find another wholesaler or a grocery store owner that might want to buy some of the canned meat. Should the broker find a buyer, he takes a 2% to 7% commission on the sale. And since many products are traded two or three times before reaching the consumer, the final shelf price is often a good deal higher than it needs to be.

Dexsi’s platform features an online auction that lets users buy and sell with anonymity, directly with other wholesalers, manufacturers and retailers. Users can search for and purchase more than 70,000 grocery items—all without dealing with a broker, something at least one grocery buyer is keen on. “They lose the middleman, and this gets rid of a layer of fat and the markup,” said Mike Garcia, category manager at Cartaret, N.J.-based White Rose, the New York area’s biggest wholesaler. Garcia said White Rose does not use any exchange other than Dexsi.

Rob Newton, Dexsi’s CEO, said his company’s exchange will be able to beat out other grocery-

oriented hubs because it offers services beyond Internet trading. Dexsi also arranges for shipping, financing and warehousing. The company’s approach is shrewd, as glitches in all these areas routinely kill deals.

Such services, however, are expensive to maintain, especially for a company subsisting largely on private investments, as Dexsi is. Through a spokeswoman, its executives declined to say how much money it has raised. The company is actively seeking additional financing, she said.

Dexsi, meanwhile, is going about marketing itself. Most of its efforts are directed at grocery trade shows, where buyers make a good deal of their purchasing decisions, and it recently began running ads in Supermarket News.

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