Wholesale Trade

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Wholesale trade deals with the bulk buying of goods from various manufacturers either locally or from overseas and the breaking down of this bulk into smaller  quanti quantitie ties s which which are then then sold sold to the retail retailer er.. Middle Middleme men, n, be they they wholes wholesale ale merchants, mercantile agents or wholesalers provide this intermediate link in the chain of distribution before the goods are sold to the retailers.

THE ROLE OF THE WHOLESALER IN THE CHAIN OF DISTRIBUTION

CHANNELS OF DISTRIBUTION

1. There There are four four main main channe channels ls of distri distribut bution ion and and many many 'inter 'intermed mediar iaries ies'' or  middlemen involved before goods can finally reach the consumers as shown in the following table:

M a n u fa c tu r e r   1

2

R e ta ile r

Consumer  e . g . V e g e t a b le s a t producers’m arket a n d m a d e -to - o rd e r   furniture

Consumer  e .g . B re a d a n d re a d y m a d e furniture

4

3

W h o le s a le r  

S o le A g e n t

R e ta ile r  

R e ta ile r  

Consumer  e . g . F i s h , lol o c a l l y m a n u fa c tu r e d household ite m s

Consumer  e . g . Im p o rte d c a r s , c o s m e t ic s

2. In reality, the channels used are very varied and often complex, and there is much overlapping.

Channel 1: When a manufacturer sells direct to the consumer 

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for books or magazines direct to direct  to the 1. This This occu occurs rs when when cust custom omer ers s  post orders for books publishers who then send them their orders direct as in mail order or e-commerce. This ensures the publisher of selling to as many people as possible, including those who live far away. In this way, they increase their sales. Consumers, too, benefit since they are assured of getting the latest issue or publication early. early. 2.

specially  for a customer such as a suit It also lso oc occurs urs whe when n something is made specially for

or made-to-order furniture. Consumers who demand individuality in design for  such personal effects normally have to pay more than what they have to pay for  the same type of good which is mass-produced. expensive and highly specialized goods which are 3. It also occurs in the case of  of expensive purchased only occasionally by governments or big private companies. Examples of these kinds of goods are aero planes, ships, railway rolling stock, and the like. Buyers prefer to go direct to the manufacturers so that they may be able to discuss their individual requirements as well as the terms of purchase. 4. This channel of distribution, however, is not suitable for all kinds of goods.

Channel 2: When a manufacturer sells to the retailers who in turn sell to the consumers

1. Most of these retailers are large stores that have the financial resources to buy in bulk  direct from the manufacturers. The main advantage of bulk buying is the large discounts given that enable these retailers to compete successfully with the small retailers in terms of ability to offer a greater variety of goods at competitive prices. 2. In many cases, manufacturers open their own retail shops, for example, those selling footwear and medicine. These manufacturers have resources large enough to open retail outlets of their own throughout the country. country. 3. Sometimes, the retailers may be 'tied' to the manufacturer. For example, petrol stations sell only one brand of petrol.

Chan Channe nell 3: When When a manu manufa fact ctur urer er sells sells to a wh whol oles esal aler er or a wh whol oles esal ale e

Wholesale Trade

merchant who in turn sells in smaller quantities to retailers (shops), who in turn sell to the consumers

1. This This occurs occurs when when produc producers ers themse themselve lves s are unable unable to market market the excess excess goods themselves because of financial constraints or the lack of access to widely dispersed markets due to a lack of contacts, commercial know-how and the like or  owing to the fact that it is just not commercially profitable for the producers to do so themselves. This is true of most rural produce like fish, paddy, vegetables, eggs, poultry, etc. which are easily perishable. These are often sold to dealers (wholesalers) who then pack them properly and transport them quickly to the big towns and cities either in the same country or overseas, where they are sold to various retailers, who in turn sell them to the consumers. Locally manufactu manufactured red goods goods like 2. Locally like ordina ordinary ry househ household old essent essential ials s which which are stocked by small retailers are often distributed in this way since the retailers buy in too small a quantity to make it viable for the manufacturer to sell direct to them. 3. This method of distribution is especially important where the demand for the product is seasonal but production takes place throughout the year, e.g. fireworks and Christmas cards. It is the same if the demand for the product is fairly even throughout the year, but output is concentrated during specific periods of the year, e.g. paddy. In such cases, the wholesaler's function of acting like a reservoir in order to balance demand and supply becomes very important. 4. Goods which are sold in this way become more expensive because of the cost of dist distrib ribut utio ion n and and prof profit it marg margin ins s requ requir ired ed by the the whol wholes esal aler er and and reta retail iler er.. Moreover, consumers have no direct contact with manufacturers or producers. However, consumers are assured of a wide variety of goods produced by many producers. 5. The producer is free to devote all his attention and resources to the actual work of producing the goods since the marketing aspect of aspect  of his goods is already in the hands of the wholesaler. At the same time, the producer is assured that his goods are marketed over a wide geographical area. capital  as he needs to maintain only a small stock. He 6. The retailer needs little capital as does not need to keep large stocks because it is easy for him to get new and, hence, fresher stocks from his supplier (wholesaler) ( wholesaler) once his stocks are depleted. General wholesale wholesalers rs norm 7. General normal ally ly stoc stock k a wide wide rang range e of good goods s and and need need a substa substanti ntial al amoun amountt of capita capitall to financ finance e their their large large wareho warehouse uses, s, stocks stocks and and

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advertising and to pay the salaries of their salesmen. These tend to operate on a national or regional basis. Specialist wholesalers, however, deal mainly in a particular trade in a particular  area, for example, a wholesaler of building materials, in fruit, in vegetables, etc. 8. Some Someti time mes, s, a whol wholes esal ale e merc mercha hant nt may may impo import rt dire direct ctly ly from from an over overse seas as supplier. supplier. Like the wholesaler, he then sells it to the retailers in smaller quantities.

Channel 4: When an overseas manufacturer appoints a sole agent 1. This is done in the home market to manage the sale and distribution of goods as well as to provide after-sale services. The sole agent is responsible for getting reliable retailers to market the goods throughout the country. Such sole agents are appointed to sell imported cars, cosmetics and electrical goods.

FUNCTIONS OF THE WHOLESALER 1. Bulk buying 1. The wholesaler buys goods in bulk from the producers or manufacturers in the hope that he will be able to resell them t hem at a profit. 2. Sometimes, he may import the goods from foreign countries, but he usually buys buys from from impor importer ters s or their their broke brokers, rs, or from from comm commiss ission ion agent agents s acting acting for  overseas exporters. 3. A wholesaler has specialist buyers who are in very close contact with the market and who know the various sources of supply. 2. Risk bearing 1. The The whol wholes esal aler er make makes s his his purc purcha hase ses s base based d on up-t up-too-da date te and and relia reliabl ble e info inform rmat atio ion n on the the like likely ly tast tastes es and and pref prefer eren ence ces s of cons consum umer ers. s. He buys buys in advance of demand. 2. He will make huge profits if he anticipates demand correctly. correctly. 3. He bears the risk of loss in cases where anticipated demand for his purchases does not materialize, if products are damaged, spoilt or stolen, or if retailers default. In case tastes change, he may even have to sell off the goods at a loss. Prices may fall or goods may go out of fashion before they can be passed on to the consumers.

Wholesale Trade

3. Warehousing 1. The wholesaler stores the goods which are purchased in advance before they are distributed to the retailers. This would even out the flow of goods. In times of  glut, they can be kept off the market, and in times of shortage, released. This would prevent severe fluctuations in prices.

2. In some trades, the wholesaler grades, sorts, packs or prepares the goods for  sale. He may sell under his own brand name.

4. Breaking bulk 1. The wholesaler breaks bulk or divides the goods bought into smaller quantities. 2. He sells the goods in smaller quantities to various retailers.

5. Transportation 1. The wholesaler provides transport for goods from the suppliers to suitable depots in the various cities, and from there, to the retailers' shops. 2. If retailers were to buy from a cash-and-carry wholesaler, they have to provide their own transport.

6. Finance 1. The wholesaler finances the retailer b y allowing him extended credit. 2. He finances the producer indirectly indirectl y by paying him promptly. promptly.

7. Information 1. The wholesal wholesaler er acts acts as a liaiso liaison n betwee between n the retail retailers ers and produc producers ers by informing producers of the retailers' reactions to their goods, and acquainting retailers with new products and other developments in the market.

TYPES OF WHOLESALERS: General Wholesaler: •

They operate on national and regional basis.

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They stock a large variety of goods in their warehouses and thus need large capital.

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They advertise nationally.

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They They empl employ oy sale salesm smen en to obta obtain in orde orders rs from from reta retail iler ers s and and pay them them salaries.

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Specialist Wholesaler: •

They restrict their activities to a particular trade t rade and to a particular area.

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They offer credit facilities and delivery service.

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Examples are wholesale fruit and vegetables markets.

Cash-and-Carry Wholesaler: •

They do not allow credit facilities.

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They do not provide delivery services.

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They sometimes sell even to the general public.

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They sell mostly low-priced goods, which sell quickly. quickly.

TRENDS IN WHOLESALING The current retail trade is characterized by an increasing number of large-scale retailers being set up in the traditional market made up largely of small-scale retailers. The wholesale trade, threatened as such by these developments, has had to undergo certain changes in recent years in order to survive. Today the wholesale trade is characterized not only by the independent wholesaler, but by the cash and carry wholesaler as well as the voluntary chain.

Voluntary chains Groups of independent retailers or shopkeepers who join with wholesalers to gain the benefits of bulk buying. When ordering goods, all the members put their  orders together through the wholesaler who is also a member. The wholesaler is then able to obtain goods in bulk direct from the producer at a discount.

It helps small-scale retailers to combat the competition from Large - scale retailers e.g. supermarkets. They are able to offer goods at competitive prices give special offers and attract more customers.

Voluntary chains are found mostly in the grocery trade e.g. SPAR, Square Deal, and Wavy Line

They are normally organised via the wholesaler. The group will undertake national advertising on behalf of the group. It may provide finance and shop fitting for retail memb member ers s who who have have to keep keep thei theirr shop shops s to a certa certain in stan standa dard rd.. Good Goods s are are

Wholesale Trade

delivered direct to the retailer. Advice on pricing, display and stock may be given. Cash-and-Carry Wholesaler: 

They do not allow credit facilities.

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They do not provide delivery services.

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They sometimes sell even to the general public.

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They sell mostly low-priced goods, which sell quickly. quickly.

INSTANCES INSTANCES WHERE THE WHOLESALER IS STILL NEEDED: •

In foreign trade, the wholesaler has the experience and contact that an overseas firm cannot do without.

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The wholesaler is still important where the producers are still small-scale producers.

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The wholesaler is important where production is seasonal and irregular in quantity.

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The small retailers who dominate the market do not have large finance to buy directly from the manufacturers. Hence wholesalers are still needed.

DECLINE OR ELIMINATION OF THE WHOLESALER:

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Manufacturers, nowadays, produce branded goods, which are pre-packed into convenient sizes.

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Through advertisements, manufacturers are able to create and maintain a market for their own products.

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The establishment of large retailers like multiple stores and departmental stores has the finance to buy goods directly from the manufacturers.

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The improvement in transport and communication has made it faster and easi easier er for for the the manu manufa fact ctur urer er to deliv deliver er good goods s and and cont contac actt the the wide widely ly scattered retailers.

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Some manufacturers open their own retail shops and sell goods directly to the consumers.

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Manufacturers have decided to sell goods directly to the retailers as the retailers would sell the goods faster than the wholesaler would.

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HOW THE WHOLESALER SERVES THE MANUFACTURER, THE RETAILER AND THE CONSUMER

By carr carry ying ing out out the the abov above e func functi tion ons, s, the the whol wholes esal aler er not not only only help helps s the the manufacturer or primary producer, but also the retailer and the consumer as well.

Services to the manufacturer  Low storage expenses 1. The wholesaler absorbs the goods produced by the manufacturer as they are being made. The manufacturer is, therefore, relieved from paying the expenses of  storage -that is, rent, insurance, wages, utilities as well as the loss of interest due to money capital tied up in stocks. 2. The The manuf manufact acture urerr of goods goods in season seasonal al demand demand such such as winter winter clothi clothing, ng, greeting cards for various festivals, etc. is able to continue production throughout the year as the wholesalers are willing to absorb the products when they are being produced. No manufacturer can survive if his factor y is forced to close down for a few months in a year for there are costs to be met even if there is no production. These costs include depreciation on plant and equipment, interest on loans and wages of administrative staff. 3. All goods are produced before there are orders for them from the retailers. The manufacturer is relieved of the risk of loss should the anticipated demand for  these goods from consumers fail to materialize. It is the wholesaler who has bought the goods in bulk who will have to bear the risk of loss.

Reduced cash flow problems 1. By paying the manufacturer promptly, the wholesaler reduces the amount of  working capital required by the manufacturer and allows the latter to continue production smoothly. The manufacturer will, therefore, have a regular inflow of  cash after selling off each batch of production. This reduces the amount he has to borrow. Low marketing cost 1. Should the manufacturer undertake to market the goods himself {he will incur a

Wholesale Trade

lot of expenses for transport, advertising as well as administration since it is conceivable that some of the smaller retailers would prefer credit. 2. However, if he were to sell through the wholesalers, he would deal with only a few major customers who buy in bulk and who can pay him cash fairly promptly. This would reduce his marketing costs.

Services to the retailer 

Purchase of small quantities 1. A wholesaler's willingness to sell in small quantities is a boon to a small retailer  who only places small orders and is unable to get his stock directly from the manu manufa fact ctur urer er as the the latte latterr only only sells sells in bulk bulk.. Trans ranspo port rtin ing g orde orders rs of smal smalll quantities all over the country would be costly for the manufacturer. manufacturer.

Reduced cash flow problems 1. Whol Wholes esal aler er prov provid ides es cred credit it to a reta retail iler er and and redu reduce ces s the the latt latter er's 's capi capita tall requirements. A producer is often not willing to grant credit to a retailer since it would increase his working capital. 2. As a result, the retailers have time to sell the goods before they have to pay for  them.

Low goods preparation cost 1. A wholesaler simplifies a retailer's work since the goods are already graded and repacked into convenient quantities and sizes.

Low storage expenses 1. A retailer is always assured of delivery of fresh stocks from the wholesaler's warehouse if he runs short. This reduces the amount of stock he needs to hold at a time, hence hence saving saving on costs costs of storage, insurance insurance and risk, in case demand demand is below expectations.

Wide choice of related products 1. A wholesaler offers a variety of goods made by various manufacturers, both local and abroad. This saves the retailer time which would otherwise have to be spent in dealing with each manufacturer individually. The retailer is also kept upto-d to-dat ate e on the the late latest st prod produc ucts ts avai availa labl ble. e. The The info inform rmat atio ion n supp supplie lied d by the the

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wholesaler is much less likely to be biased than that supplied by the manufacturer.

Low wholesale prices 1. A cash-and-carry wholesaler who is a wholesale 'supermarket' offers retailer  goods at cut prices although the latter may have to arrange for his own transport. Lower prices are possible due to savings in cost which are a result of: (a) No credit facility - sales are on 'cash' basis (b) No delivery service (c) Self-service - no need to employ huge staff  (d) Goods stocked are those that sell quickly. quickly.

Services to the final consumer 

Regular supply at steady prices 1. Consumers are assured of a regular Supply of goods throughout the year at steady prices since the wholesaler releases the goods when required. 2. This is particularly important for goods which are produced seasonally such as rice but whose demand is regular. 3. This is because a wholesaler buys goods when they are plentiful, and hence prices are comparatively low, and releases them in times of shortage without raising prices unduly. Convenient shopping and wider choices

1. The wholesaler enables the small retailers to compete with the large retailers, especially in suburban areas where rentals are lower than in the city centre. Thus, consumers are assured of getting the goods they want from the retailer nearest to their homes. Usually, Usually, the large retailer is situated in the city centre. 2. The consumer is assured of a wider choice of goods even at the smaller shops, since the retailers get their supplies from a number of wholesalers, who would in turn obtain their supplies from many producers. 3. Since wholesalers encourage the setting up of a number of smaller retailers, consumers have a wider choice of shops.

Consumer demand 1. Since the wholesaler is in closer contact with the public through feedback from retailers, retailers, he can ensure that a consumer' consumer's s opinion opinion of a particular particular good generally

Wholesale Trade

reaches the manufacturer, with whom he too has close contact. In this way, products can be improved in line with consumer demand.

INTERMEDIARIES Merchants 1. These middlemen are principals who trade on their own account and therefore own own the the good goods s and and earn earn prof profits its from from thei theirr trad tradin ing g activ activiti ities es.. Expo Exporte rters rs and and importers are the merchants in foreign trade while the wholesalers are merchants engaged in home trade.

Forwarding agents Forwarding agents are middlemen in international trade who specialise in moving goods from country to country. They arrange transport, documentation, customs clearance, insurance, storage so that the owner of the goods does not have to do this e.g. DHL, FED EX.

Mercantile agents 1. These middlemen act on behalf of their principals in finding would-be sellers and would-be buyers of the goods and services of their principals. They do not own the goods and services. They earn commissions for their services. Some mercantile agents act as 'brokers' and some as 'factors. Broker  A broker is a middleman who: •

Finds buyers for the seller. seller.

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Does not take possession of the goods.

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Cannot sell in his own name.

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Cannot sell at his own price.

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Receives commission for his services.

Factor  A factor is a middleman who: •

Finds buyers for the seller. seller.

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Takes possession of the goods.

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Can sell in his own name.

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Can sell at his own price.

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Makes a profit out of sale.

Del Credere Agent A del credere agent is a middleman who: •

Finds buyers for the sellers.

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Takes possession of the goods.

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Guarantees to sell all the goods.

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Receives higher commission for his services.