Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Surplus Inventory Exchanges to Monetize Overstock
Transcript
- Lucas: So we've talked a lot on this show about cutting costs, boosting sales, optimizing every square foot of your store. But this episode is about something I think a lot of franchisees overlook: the stuff in your back room that's gathering dust. Luna: Surplus inventory. I've seen it in action — extra boxes, branded cups, cleaning supplies, even uniform shirts that never got used. Lucas: Exactly. And the traditional approach has been either to sit on it, hoping you'll eventually use it, or take a pennies-on-the-dollar write-off. But there's a growing ecosystem of B2B exchanges specifically for franchisees to sell that surplus to other franchisees in the same system — or even across compatible systems. Luna: I want to hear the numbers. What kind of recovery are we talking about? Lucas: Let's start with a concrete case. I came across a 30-unit pizza chain in the Midwest — I'll call them 'Slice House' to avoid naming them directly — that started using an exchange called TradeStock back in early 2025. In their first quarter, they listed roughly $80,000 worth of surplus inventory: seasonal packaging they over-ordered, promotional cups from a campaign that ended early, even some equipment parts. Luna: And what did they actually sell? Lucas: They moved about $47,000 worth at an average of sixty-two cents on the dollar. So they recovered sixty-two percent of their original cost — versus zero if it just sat there, or maybe ten to fifteen percent if they sold it to a generic liquidator. Luna: That's a meaningful swing. For a multi-unit operator, that's almost pure profit recovery. Lucas: Right. And the beauty is that franchise systems are uniquely positioned for this. Because of the standardization — the same cups, the same boxes, the same cleaning chemicals — you have a built-in buyer pool of other franchisees who know exactly what that product is and can use it immediately. Luna: So it's not like selling on eBay where you're hoping someone wants your random widget. The buyers are already in the same ecosystem. Lucas: Exactly. And the platforms are designed for that. TradeStock, and another one called InventoryXchange, let you upload a photo and a lot number. The system matches you with franchisees in your network who have purchased that item before. Some even integrate directly with the franchisor's supply chain database, so you can see exactly which units are due for a reorder and offer them your surplus before they place a new order. Luna: That's smart — it's almost predictive. Rather than waiting for someone to search, the platform proactively connects you. Lucas: And the pricing is usually dynamic. The platform suggests a price based on how close the item is to expiration, how many units are listed, and the typical reorder volume in your network. The Slice House example — their highest recovery was on seasonal cups at about eighty-five percent of cost, because another franchisee had a last-minute event and needed them fast. Luna: So the key is having the inventory listed before it becomes truly obsolete. Lucas: Right. If you wait until after the season ends, the price drops fast. But if you list it while demand is still warm — even just a week or two before — you can get much closer to cost. Luna: Now, are there any restrictions from the franchisor? I imagine some might not love the idea of franchisees selling to each other outside the official supply chain. Lucas: That's a real tension point. Some franchisors have explicit policies against it — they want all inventory purchased through approved suppliers to maintain quality control. But in my experience, the more progressive ones are actually getting on board. I've seen at least three major quick-service brands launch internal surplus exchanges in the past two years. They realize it's better to keep inventory within the system than to have franchisees write it off and lose the margin. Luna: So it's a win-win. The franchisee recovers some cost, and the franchisor keeps the product in the brand ecosystem. Lucas: Exactly. One franchisee I spoke with — a multi-unit operator of a well-known sandwich chain — told me they recovered over $12,000 in the first six months just from listing extra sauce packets and paper goods. He said it's become part of his weekly routine: once a week, his operations manager walks the back room with a tablet, snap what's overstocked, and list it. Takes maybe fifteen minutes. Luna: That's a great habit. And it's not just for consumables, right? I've heard of franchisees selling equipment, signage, even furniture. Lucas: Absolutely. One franchisee in the fitness space listed an extra set of weight racks that a new unit never opened. Another in the auto service sector sold a tire balancer that they'd ordered by mistake. The platforms are broadening. And the commissions are usually pretty low — TradeStock charges five percent of the sale price. InventoryXchange charges a flat ten dollars per transaction. Luna: So the fee structure is designed not to eat up your recovery. Lucas: Right. Compare that to a traditional liquidator who might take forty to fifty percent. The math is much better here. Luna: Now, what about logistics? If I'm a franchisee in Texas and the buyer is in Florida, who pays for shipping? Lucas: It varies by platform, but the common model is that the buyer pays shipping. The seller just packs it and hands it to the carrier. Most platforms have integrated shipping labels, so it's seamless. And for bulky items, some franchisees arrange local pickup within their own network — another franchisee in the same city just drives over. Luna: That's efficient. And it reduces the friction of listing. Lucas: Exactly. The less hassle, the more likely franchisees are to do it. And that's the key — making it part of the operational rhythm. Luna: One thing I'm curious about: what's the typical mistake you see franchisees make when they first try this? Lucas: The most common one is overpricing. They look at what they paid and want to recover full cost. But the buyer is taking a risk — they're buying surplus that may have sat in a warehouse for months. The sweet spot seems to be around sixty to seventy percent of original cost. If you price at ninety percent, the stuff doesn't move. Luna: So it's about being realistic about the value of 'now' versus 'later.' Lucas: Right. The second mistake is listing items that are too close to expiration. If a cleaning chemical expires in thirty days, the buyer has almost no time to use it. List it with at least three to six months of shelf life remaining, or the platform algorithms will deprioritize it anyway. Luna: That makes sense. And I imagine the best categories are the ones with long shelf life and high turnover — cups, napkins, uniforms, signage. Lucas: Exactly. And the real opportunity is for multi-unit franchisees who operate across different locations. They often have uneven demand — one store might be overstocked on a certain item while another is short. Using an exchange internally across their own units is actually a best practice, even before listing to outside franchisees. Luna: That's a good point. Internal transfers first, then external. Lucas: Right. And some of the platforms allow you to set your listings to 'internal only' initially, then open to the broader network after a week. That way your own stores get first dibs. Luna: I want to ask about a potential downside: does this cannibalize the franchisor's own supply chain revenue? If franchisees are buying surplus instead of placing new orders, doesn't that hurt the franchisor's bottom line? Lucas: It's a fair concern, but the numbers suggest it's negligible. Surplus inventory is typically a small percentage of total purchases — maybe two to three percent. And the alternative, if the surplus goes unsold, is that the franchisee writes it off and then still places a new order later. So the franchisor doesn't lose that sale; they just delay it. And in the meantime, they keep the franchisee healthier by recovering capital. Luna: So it's a net positive for the system. Franchisors who resist might be leaving money on the table. Lucas: Exactly. And some are starting to see it as a value-add service. I know of one franchise that now offers its own exchange as part of the franchisee support package — they charge no commission, just facilitate the connection. It's become a retention tool. Luna: That's a smart play. 'We help you recover money from your surplus' — that builds loyalty. Lucas: Totally. And it's not hard to implement. A simple database with photos, a search function, and a messaging system. Some franchisors are using a shared spreadsheet, but that gets unwieldy fast. Luna: Before we wrap, I have to ask: any success stories from franchisees who have scaled this to a meaningful revenue stream? Lucas: Yeah, the most impressive I've seen is a franchisee with 15 units in the Southeast who now generates about $3,000 a month consistently from surplus sales. That's $36,000 a year — not life-changing, but it's essentially found money. And it took him about two hours a month to manage. Luna: That's a great return on time. Two hours for $36,000. Lucas: Exactly. And he told me the side benefit: his staff are more careful about ordering now because they know any over-order ends up listed publicly. It creates a culture of inventory discipline. Luna: Oh, that's an interesting second-order effect. It reduces waste at the source. Lucas: Right. And that's really the ultimate win — less surplus to begin means less capital tied up in the back room. But until you get there, exchanges are a practical tool to recover what you've already spent. Luna: Great angle today. I think a lot of franchisees will be checking their storage closets after this. Lucas: That's the hope. And if you try it, send us a note — we'd love to hear your numbers.