Wholesalers sell merchandise to artisans, retailers, manufacturers, and other professional businesses. They are a major player in the economy, though still unknown to many. Ensuring the supply of goods along the entire value chain, wholesale plays a pivotal role as the interface between producers, retail, manufacturers, and catering.
For some products, like certain foodstuffs and vegetables, wholesalers and their customers come together at specific wholesale market places. Several wholesalers provide integrated B2B services on national and international markets. They offer attractive financing solutions, providing additional support to their professional clients.
What is Wholesaling? – Meaning of Wholesaling
Wholesaling refers to all activities performed in selling goods and services to those who buy for resale or business use. Wholesalers are those institutions that mainly perform wholesaling activities, as stated above. A retail medicine shop is engaging in wholesaling when it sells medicines to a clinic.
In most cases, wholesalers buy from producers and sell to retailers, industrial consumers, and other wholesalers. Producers utilize the services of wholesalers because the wholesalers generally are more efficient in performing various channel functions.
Wholesalers perform selling and promoting, buying and assortment building, bulk bearing activities. They also perform such functions as warehousing, transportation, financing, and risk-bearing. Wholesalers also provide market information and management services and advice to the producers.
Types of Wholesalers
Wholesalers carry different names and also perform a variety of functions. They can be grouped into three major categories.
- merchant wholesalers,
- brokers, and agents, and
- manufacturers’ sales branches and offices.
In the following discussion, we will look at various types of wholesalers.
|Classification of Wholesalers|
|Merchant Wholesalers||Brokers and Agents||Manufacturers’ and Retailers’ Branches and Offices|
1. Merchant Wholesalers
Merchant wholesalers are independent business enterprise. They take title to the products they deal in. Merchant wholesalers are the largest single wholesalers group.
Broadly, merchant wholesalers are of two types;
- full-service wholesalers,
- limited-service wholesalers.
As their name suggests, full-service wholesalers render a full set of services. They carry stock, use salesforce, offer credit, make deliveries, and provide management assistance. Full-Services wholesalers are either wholesale merchants or industrial distributors.
Wholesale merchants generally sell to retailers and render a full range of services. The width of the product line varies from one wholesale merchant to another.
Some wholesale merchants maintain several lines of goods to cater to general merchandise retailers and single-line retailers. Some carry one or two lines of goods with deep assortment.
Examples are hardware wholesalers, drug wholesalers, and clothing wholesalers. Specialty wholesalers carry a partial but deep line, such as seafood wholesalers.
Industrial distributors are merchant wholesalers who sell to producers. They render such services as inventory, credit, delivery, etc.
They may carry a broad range of products. They also may carry a general line or a specialty line. Industrial distributors may choose lines such as maintenance and operating supplies, original-equipment goods, or equipment.
Unlike full-service wholesalers, limited-service wholesalers provide fewer services to producers, suppliers, and customers.
- Cash-and-carry wholesalers
- Truck wholesalers
- Drop shippers
- Rack jobbers
- Producers’ cooperatives
- Mail-order wholesalers
The following discussion will make us familiar with several types of limited-service wholesalers.
Cash-and-carry wholesalers sell to small retailers for cash. They maintain a limited line of fast-moving goods and usually do not deliver.
For example, a small vegetable retailer normally goes to a cash-and-carry wholesaler and buys several baskets of vegetables, pays on the spot, and brings them to his shop.
Truck wholesalers sell and deliver simultaneously. They carry a limited line of goods.
For example, milk, bread, and soft drinks. They sell for cash as they make their trips covering supermarkets, small groceries, hospitals, restaurants, factory cafeterias, and hotels.
Drop shippers neither handle the merchandise nor carry inventory. Drop shippers receive orders from buyers and then finds a producer who ships the goods directly to the buyers. Drop shippers are found to operate in bulk industries such as coal, lumber, and heavy equipment.
During the period between acceptance of order and delivery of goods, drop shippers take title and risk.
Rack jobbers deal in nonfood items. They send delivery trucks to stores with a delivery person who sets up racks in those stores. The racks are filled with items like toys, paperbacks, hardware items, health and beauty aids, or other items.
They price the goods and maintain inventory records. They hold title to the goods and bill the retailer only for the goods sold. Rack jobbers provide delivery, shelving, inventory, and financing services. They are not required to go for heavy promotion as they carry highly advertised branded goods.
Producers’ cooperatives are wholesalers who operate in farm products. Farmer-members own them. These cooperatives assemble farm produce and sell in local markets.
Profits earned by cooperatives are divided among members. Producers’ cooperatives want to ensure product quality and promote a co-op brand name such as ‘Milk Vita.’
Mail-order wholesalers operate by sending catalogs to customers who include retailers, industries, and institutions. They handle items like jewelry, cosmetics, special foods, and other small articles.
Businesses located in far-flung areas are the main customers of mail-order wholesalers. These wholesalers do not maintain sales forces, and the orders are filled and by mail, truck, or other suitable means.
2. Brokers and Agents
A broker is a wholesaler who brings buyers and sellers together and aids in negotiation.
Brokers do not take title to goods. They earn a commission on the selling price from both the parties hiring them. Brokers do not carry inventory and do not perform financing and risk-taking functions.
Like merchant wholesalers, brokers, in most cases, specialize by product line or customer types. The most common examples of brokers are insurance brokers, real estate brokers, and security brokers.
An agent is a wholesaler who represents buyers or sellers on a relatively permanent basis. Agents perform a few functions and do not take title to the goods.
The most familiar types of agents are;
- manufacturers’ agents,
- selling agents,
- purchasing agents, and
- commission merchants.
Manufacturers’ agents represent two or more manufacturers of related lines. With each manufacturer, manufacturers’ agents work under a formal agreement.
Such agreement covers prices, territories, order-handling procedures, delivery and warranties, and commission rates. Manufacturers’ agents are found to handle goods such as readymade garments, furniture, and electrical goods.
Small manufacturers hire agents to avoid the cost of maintaining their own field sales forces. Large producers hire agents when they want to open new territories or enter in areas that do not justify a full-time salesperson’s employment.
Selling agents work with a producer under an agreement to sell his entire production. The selling agent virtually works as a sales department, whereby it gains sufficient control over price, terms, and sale conditions.
Selling agents handle products such as textiles, industrial machinery and equipment, coal and coke, chemicals, and metals.
Purchasing agents make purchases on behalf of buyers and receive, inspect warehouse, and ship goods to the buyers. One most familiar type of purchasing agent is resident buyers in major garment markets.
They have sufficient knowledge about their product lines and provide important market information to clients. They also can procure the best goods at the most competitive price.
Commission merchants who are also known as commission houses, take possession of products and negotiate sales.
They are generally used on a short-term basis. Commission merchants are found to operate in the marketing of farm products. They are used by farmers who do not want to sell their own output and who do not belong to cooperatives.
Commission merchant collects products from the farmer and sells them in a central market at the best possible price. After deducting expenses and his commission, the commission merchant pays the balance to the farmer.
Manufacturers’ Sales Branches and Offices
Manufacturers’ sales branches and offices also do wholesale. In such cases, wholesaling is performed by sellers or buyers themselves without using independent wholesalers.
Manufacturers establish their own sales branches and offices because by doing so, they can improve inventory control, selling, and promotion. Manufacturers’ sales branches maintain inventory. They are found in industries such as lumber and automotive equipment and parts.
On the other hand, sales offices do not maintain inventory. They are found mainly in the dry goods and notion industries. It is also found that retailers set up purchasing offices in major trading centers. These offices substitute brokers and are owned by buyers.
Final Words: Trends in Wholesaling
Dynamic wholesalers recognize that their existence in the future depends on enhancing the marketing channels’ efficiency and effectiveness as a whole.
To accomplish this objective, they must continuously improve their services and reduce their costs. With the changes in the marketing environment, we notice some important trends in wholesaling, such as consolidating remaining firms, geographical expansion, and increasing services to retailers.
Consolidation will lead to a significant reduction in the number of wholesalers. The remaining wholesaling firms will grow in size through acquisition, merger, and geographic expansion.
The geographic expansion will preassemble the wholesalers more capable of competing effectively over wider and more diverse areas. Wholesalers’ operational efficiency will also improve through increasing the use of computerized and automated systems.
As large retailers are setting up enterprises that perform many wholesale activities, many large wholesalers are also setting up their retailing operations.
Because of the demand for increased services, wholesalers will continue to increase the services to retailers such as retail pricing, cooperative advertising, other promotional supports, marketing and management information reports, accounting services, etc.
Finally, forward-looking wholesalers are continuously adapting their services to the needs of target customers and are making a serious endeavor to keep their cost of operations at the lowest level.