WHOLESALING



Wholesaling is the selling of merchandise to anyone—either a person or an organization—other than the end consumer of that merchandise. Wholesalers, who are sometimes referred to as middle agents, represent one of the links in the chain along which most goods pass on their way to the marketplace. As intermediaries between producers and consumers of goods, wholesalers facilitate the transport, preparation of quantity, storage, and sale of articles ultimately destined for customers. Wholesalers are extremely important in a variety of industries, including such diverse product areas as automobiles, grocery products, plumbing supplies, electrical supplies, and raw farm produce. They are particularly vital to the operations of small retailers. Whereas large retail companies buy directly from the manufacturer and often have their own intermediate warehousing operations, the limited resources of independent retail outlets makes alliances with wholesalers a practical necessity.

Strictly speaking, although a wholesaler may own or control retail operations, wholesalers do not sell to end-customers. Indeed, many wholesale operations are themselves owned by retailers or manufacturers. Even in these instances, however, the enterprise's wholesaling branch exists to facilitate the movement of goods from one area to a market demand in another area. Wholesaling provides manufacturers with an expanded consumer market potential in terms of geographical locations and consumer purchasing power while at the same time providing a cash flow for the manufacturer.

Wholesalers are successful only if they are able to serve the needs of their customers, who may be retailers or other wholesalers. Some of the marketing functions provided by wholesalers to their buyers include:

TYPES OF WHOLESALERS

Although there are a number of ways to classify wholesalers, the categories used by the Census of Wholesale Trade are employed most often. The three types of wholesalers are 1) merchant wholesalers; 2) agents, brokers, and commission merchants; and 3) manufacturers' sales branches and offices.

MERCHANT WHOLESALERS Merchant wholesalers are firms engaged primarily in buying, taking title to, storing, and physically handling products in relatively large quantities and reselling the products in smaller quantities to retailers; industrial, commercial, or institutional concerns; and other wholesalers. These types of wholesaling agents are known by several different names, including wholesaler, jobber, distributor, industrial distributor, supply house, assembler, importer, and exporter, depending on their services.

According to E. Jerome McCarthy and William D. Perreault Jr., authors of Basic Marketing, merchant wholesalers account for the large majority of whole-saling establishments and wholesale sales. "As you might guess based on the large number of merchant wholesalers, they often specialize by certain types of products or customers," added McCarthy and Perreault. "They also tend to service relatively small geographic areas…. Merchant wholesalers also differin how many of the wholesaling functions they provide. There are two basic kinds of merchant wholesalers: 1) service (sometimes called full-service wholesalers) and 2) limited-function or limited-service wholesalers." The latter category of wholesalers, which itself is divided up into little niches, offer varying levels of service in such areas as product delivery, credit bestowal, inventory storage, provision of market or advisory information, and sales.

AGENTS, BROKERS, AND COMMISSIONMERCHANTS

Agents, brokers, and commission merchants are also independent middlemen who do not (for the most part) take title to the goods in which they deal, but instead are actively involved in negotiating and other functions of buying and selling while acting on behalf of their clients (commission merchants typically are limited to agricultural goods). They are usually compensated in the form of commissions on sales or purchases. Agents, brokers, and commission merchants usually represent the non-competing products of a number of manufacturers to several retailers. This category of wholesaler is particularly popular with producers with limited capital who can not afford to maintain their own sales forces.

MANUFACTURERS' SALES BRANCHES AND OF FICES Manufacturers' sales branches and offices are owned and operated by manufacturers but are physically separated from manufacturing plants. They are used primarily for the purpose of distributing the manufacturers' own products at the wholesale level. Some have warehousing facilities where inventories are maintained, while others are merely sales offices. Some of them also wholesale allied and supplementary products purchased from other manufacturers.

THE CHANGING LANDSCAPE OF WHOLESALING

The future of wholesaling appears somewhat ambiguous. One major force affecting wholesaler activity is growth in the power of retail chain stores. The continued mergers and acquisitions taking place between similar regional chains since 1970 means that independent retailers will have a lesser need for wholesalers. The emergence of the Internet as a sales tool has also impacted wholesalers, many of whom are struggling to adopt profitable methodologies that make use of this new medium. Another negative factor has been an increased emphasis, on the part of both manufacturers and end users, on cutting distribution costs. However, there is a countervailing force at work in that retailing is becoming increasingly fragmented as more and more specialized retailers cater to specialized market niches. As this specialization continues, using wholesalers becomes the most cost-efficient way for manufacturers to cover fragmented retailer market segments. The wholesaler is able to bundle several manufacturers' items into combinations that can all be sold through the specialist outlet. In most cases, wholesalers will capitalize on market opportunities among specialized, independent retailers while they lose ground to chains buying directly from manufacturers. Many wholesalers have adapted nicely by becoming efficient importers, upgrading their operations with computers, improving inventory handling, and automating their warehouses.

KEYS TO SUCCESSFUL WHOLESALING

Industry observers contend that for many wholesalers, the ultimate key to success will be an ability to establish closer alliances with retail specialists that offer solid, long-term growth prospects or concentrate on merchandise categories where chains still must use wholesalers because of needed buying efficiencies. "Most wholesalers are busy changing quickly to offer much more to their retailers than the assembly and conveyance of products," wrote David Merrefield in Supermarket News. "Most are mobilizing groups of independent retailers into virtual chains of stores that use a common banner and hew to uniform standards.… Wholesalers must actively collect sales data from affiliated retailers to aggregate and make it known to manufacturers. Wholesalers must also make known to their retailer affiliates that the retailers are partners with their wholesaler, their vendors, and even their fellow retailers, all of whom must join the quest for overall low-cost operation."

In addition to establishing good working relationships with independent retailers, wholesalers can also take several other steps to give them the best chance of surviving—and even thriving—in today's competitive marketplace. These include smart, customer-oriented marketing programs, superior customer service, efficient operations management processes, and innovative business strategies for expanding into new product lines, industries, or geographic territories. "Error-free management of a wholesale operation is impossible," admitted the editors of How to Run a Small Business, "due to the wide variety of items that most wholesalers handle, and the many imponderables (such as delays in shipments from vendors, unforeseeable spurts in consumer demands, and even the vagaries of weather) that wholesalers are subject to. But all wholesalers have the same problems. What distinguishes successful wholesalers is how well they manage the variables under their control."

FURTHER READING:

J. K. Lasser Institute. How To Run a Small Business. McGraw Hill, 1994.

Matthews, Ryan. "Zen and the Art of Wholesaling." Progressive Grocer. January 1996.

McCarthy, E. Jerome, and William D. Perreault, Jr. Basic Mar keting: A Managerial Approach. Irwin, 1990.

Merrefield, David. "Wholesaling's Future: Product or Support?" Supermarket News. March 10, 1997.

"Wholesaling." Do-It-Yourself Retailing. November 2000.



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA