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Functions of Wholesalers
Breaking bulk: Wholesalers buy huge quantities from producers and sell smaller quantities to retailers. This helps manufacturers because they do not need to store large quantities of goods in their warehouse, and retailers because small retailers would prefer to buy in smaller quantities.
Risk bearing: When wholesalers purchase large quantities of goods from producers, they own the goods. So the wholesaler has to pay for it themselves, along with the cost of storage until it is sold. They also have to make sure that goods are delivered without damage, because the wholesaler would have to meet the cost of goods damaged during delivery. There's also a good chance that goods would remain unsold.
Advice to retailers: Most wholesalers provide detailed information about the goods to the retailer. Since the wholesaler is in the middle, they can tell the manufacturer about the tastes and preferences of the market and tell the retailer about the goods produced by the market.
Offering trade credit: Some wholesalers allow retailers to buy now and pay later. This is a valuable service for many retailers because it helps their cash flow and reduces the need to borrow money. This might be risky for wholesalers as customers might delay payment or never pay.
Freeing up storage space: Wholesalers operate from large warehouses because they have to store large quantities of goods purchased from the producer. This helps the producers since they would prefer to dispatch goods as soon as it is ready, and retailers as they might not have the capacity to store large quantities of goods.
Preparing goods for resale: Goods purchased from manufacturers are usually available in wooden trays called pallets. Wholesalers unload and arrange the goods attractively in smaller quantities in the warehouse. Some goods might have to be sorted, graded, and packaged, like agricultural goods.
Delivering to retailers: Most wholesalers provide a delivery service where they deliver the goods to the retailer. This helps reduce the cost for retailers and is economically friendly as well.
Types of Wholesalers
There are three main types of wholesalers: general wholesalers, cash and carry, and voluntary chains.
General wholesalers provide a variety of non-perishable goods and are the most common type of wholesalers. They provide goods for hardware stores, pharmacies, and small department stores.
Cash and carry: These wholesalers do not provide credit or delivery facilities. Customers have to pay right after products are chosen and have to have their own transport method. This results in cash and carry by wholesalers being cheaper.
Voluntary chains: Changes in Wholesaling
What are the changes in wholesaling?
Decline in the number of wholesalers as retailers try to eliminate the middleman to cut costs. Retail chains bulk buy directly from manufacturers. Increasing amounts of business happen online. Improvements in infrastructure speed up distribution. Wholesalers are becoming a customer-focused business as well, now to remain competitive. Technological developments improve the efficiency of wholesalers. Wholesalers have diversified into a wide range of products.
Impact of Changes in Wholesaling
On manufacturers: Adapting to the need of retailers by selling directly, manufacturers are also providing online services which require investments. Business-to-business trading often still involves wholesalers though, as only about 10 percent of business-to-business happens online.
On retailers: Competitive pressure forces many retailers to buy directly from manufacturers. This allows them to save money but also changes their practices; for example, goods would be transported to a central warehouse.
On consumers: Changes in the chain of distribution have reduced costs for consumers as an increased choice is available now. The growth in e-commerce also allows consumers to buy directly from suppliers worldwide.