Wholesaling: Features, Classification, Decisions, Trends and Future

The word ‘Wholesaler’ has been derived from the word ‘Wholesale’ which means to sell goods in relatively large quantities or in bulk. A wholesaler, in the words of S.E. Thomas ‘is a trader who purchases goods in large quantities from manufacturers and sells to retailers in small quantities.

The term ‘wholesaler’ applies only to a merchant middleman engaged in selling the goods in bulk quantities. Wholesaling includes all marketing transactions in which purchases are intended for resale or are used in marketing other products. Thus, we can say that a wholesaler is a person who buys goods from the producer in bulk quantities and forwards them in small quantities to retailers. So, a true wholesaler, as S.E. Thomas observes, “is himself neither a manufacturer nor a retailer, but acts as a link between the two”. He is a vital link in the channel of distribution.

Characteristics of a Wholesaler:

(i) He buys in bulk quantities from producers and resells them to retailers in small quantities.

(ii) He usually deals in a few types of products.

(iii) He is a vital link between the producer and the retailer.

(iv) He operates in a specific area determined by producers.

(v) He does not display his goods but keeps them in godowns. Only samples are shown to intending buyers.

(vi) A wholesaler may be an individual or otherwise a firm.

(vii) A wholesaler generally sets up distribution centre in parts of the country to make available goods to the retailers.

(viii) He sets up own warehouses to store goods for ready supply.

Types of Wholesalers:

(A) On the basis of area covered:

(a) Local wholesalers, who distribute the goods from the producer to the consumer of a particular locality or area.

(b) State wholesalers, who function in a particular state or province.

(c) Country-wide wholesales who are located at the main business centres of the country and who distribute goods throughout the length and breadth of the country.

(B) On the basis of the goods they deal in:

It is the most used grouping of wholesale concerns. According to T.N. Backman, ‘it is not easy to define their limits of operations on any particular basis or criterion, but usually three bases are selected:

(a) Methods of distributing goods: (b) sources of supply; and (c) the use of the goods by the consumers.’

(C) On the basis of methods of operation:

(a) Full-function wholesales-who perform the entire range of wholesale functions, viz., assembling, storage, transportation, packing, financing and risk-bearing.

(b) Limited function wholesalers-who perform only limited or specific functions out of the full range of wholesale functions. They include:

(i) Rack Jobbers-wholesalers who sell special products viz., household wares and cosmetic/toiletries to retailers.

(ii) Truck wholesalers-who combine selling, delivery, and collection in one operation. They carry only specific type of products, usually perishable and semi-perishable goods.

(iii) Cash-and-carry wholesalers-who sell their stocks to retailers on ‘cash and carry’ basis. The retailers come to the wholesalers’ godown, select their requirements and pay cash on the spot and take away the goods.

(iv) Drop shipment wholesalers-who do not actually handle the goods in which they deal in but leave the storage and transportation functions for the producers whom they represent to perform. Here, the producer directly dispatches the goods to the retailers, but the bill is forwarded through the wholesaler, who, in turn, claims it from the retailers. Such wholesalers deal in goods which bear high cost of transportation.

(c) Merchant wholesalers.

They are of the following types:

(i) Wholesalers proper:

They are those merchants who deal only in the buying and selling activities and do not engage in manufacturing activities. They buy goods in bulk from the manufacturers and sell them in bulk to retailers. They also maintain their own warehouses for storing the goods.

(ii) Manufacturer wholesalers:

They combine the twin functions of manufacturing and selling and operate as both manufacturers and wholesalers. They usually purchase goods in their crude form, and after processing in their plant, sell them in a refined form to retailers. Their production operations are relatively simple and their main activity is that of selling.

(iii) Mill-supply wholesalers/Industrial Distributors:

Such wholesalers sell a wide range of goods to industrial units, who, in turn, use them for their manufacturing operations. These wholesalers buy goods in bulk quantities from producers/growers and sell them to industrial mills. For example, a wholesaler may purchase raw tobacco from growers and sell them to factories which manufacture cigarettes.

(D) On the basis of their line of product:

(a) General merchandise wholesalers:

Wholesalers who deal in a number of items of general merchandise, ranging from food products to household appliances.

(b) General line wholesalers:

Who offer complete stock in one major line, e.g., stationery goods or may be hardware appliances, etc.

(c) Specialised wholesalers:

Who deal only in specialised goods such as food products c: electrical goods, etc. They help those retailers who wish to buy a wide range of goods of the same line.

Functions of a Wholesaler:

A wholesaler performs the following functions:

(i) Assembling:

A wholesaler buys goods from producers who are scattered far and wide and assembles them in his warehouse for the purpose of the retailers.

(ii) Storage:

After arranging and assembling the products from producers, wholesaler stores them in his warehouse and releases them in proper and required quantities as and when they are required by retailers. Since there is always a time-lag between production and consumption, therefore, the manufactured goods are to be stored carefully till they are demanded by retailers. Thus, a wholesaler performs the storage function in order to save the goods from deterioration and also to make these goods available when they are demanded.

(iii) Transportation:

Wholesalers buy goods in bulk from the producers and transport them to their own godowns. Also, they provide transportation facility to retailers’ by transporting the goods from their warehouses to the retailers’ shops. Some wholesalers purchase in bulk, therefore, they can avail the economies of freight on bulk purchases.

(iv) Financing:

A wholesaler provides credit facility to retailers who are in need of financial assistance.

(v) Risk-bearing:

A wholesaler bears all the trade risks arising out of the sudden fall in prices of goods or by way of damage/spoilage or destruction of goods in his warehouse. The risk of bad debt as a result of non­payment by retailers who have purchased on credit, also falls on the wholesalers. Thus a wholesaler bears all the trade and financial risks of the business.

(vi) Grading and Packing:

A wholesaler sorts out the goods according to their quality and then packs them in appropriate containers. Thus, he performs the marketing function of grading and packing also.

(vii) Providing Marketing Information:

Wholesalers provide valuable market information to retailers and manufacturers. The retailers are informed about the quality and type of goods available in the market for sale, whereas the manufacturers are informed about the changes in tastes and fashions of consumers so that they may produce the goods of the desired level of taste and fashion.

(viii) Facilitating Disbursement and Sale:

Wholesalers sell their goods to retailers who are scattered far and wide. Retailers approach them when their stocks are exhausted from further replenishment. Thus, wholesalers help in the dispersion process of marketing.

Services of Wholesaler:

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(A) Services to Manufacturers/Producers:

(i) Wholesaler furnishes information to the manufacturer about consumer behaviour, the changes in the tastes and fashions and also the latest demands of the customers.

(ii) Wholesaler enables a manufacturer to get benefit of economies of large-scale production by manufacturing on a large-scale basis.

(iii) Wholesalers relieve producers from keeping stock since they usually make forward dealings with producers.

(iv) Wholesalers render financial assistance to manufacturers and also provide long-term soft loans to them.

(v) Wholesaler helps manufacturers in maintaining an even place of production by placing advance orders for periods which are usually characterised by slack demand.

(vi) Wholesalers help in price stabilisation since they stock goods in the slack season and S’ 11 them when the demand is high.

(vii) Wholesalers enable the manufacturers to save their capital by not tying it up in stocks. Instead, capital can be utilised for production activities.

(viii) Wholesalers are an important link between the manufacturers and the retailers.

(ix) Wholesalers provide warehousing facilities for goods till they are required by the retailers.

(x) Wholesalers take over the marketing functions from the manufacturers, thereby enabling them to concentrate on production.

(B) Services to Retailers:

(i) Wholesalers relieve retailers from keeping huge stocks with themselves since a retailer can approach a wholesaler for the replenishment of his stocks whenever they are exhausted.

(ii) Wholesalers provide financial assistance to retailers by selling goods to them on credit.

(iii) Wholesalers provide necessary market information to retailers regarding the type, quality and price of goods.

(iv) Wholesalers enable retailers to obtain supplies more quickly than they could by placing orders directly to manufacturers,

(v) Wholesalers provide the benefits of specialisation to retailers.

(vi) Wholesalers help retailers to take favourable advantage of price fluctuations.

(vii) Wholesalers enable retailers to share the economies of transport.

(viii) Wholesalers bring to retailers in bulk, but charging less prices.

(ix) Wholesalers bring to the notice of retailers new products through advertisements and travelling salesmen.

(x) Wholesalers give trade discounts on the bulk purchases to retailers.

(C) Services to Consumers:

(i) Wholesalers make available the goods according to consumers’ needs, tastes, fashion and demand.

(ii) Wholesalers maintain stability of price by adjusting demand and supply and factors in the economy.

(iii) Wholesalers make large-scale production of goods possible, thereby keeping the overall price level low.

(iv) Wholesalers have always ready stocks with them and the consumers do not have to wait for the replenishment of stocks.

(v) Wholesalers provide knowledge of new products to consumers.

Organization of Wholesale Trade:

The modern office of a wholesaler works on the principle of ‘Division of Labour’. Since wholesalers buy large quantities of goods, provide warehousing facilities and also perform a number of marketing and financial functions, they need a huge amount of working capital to operate on a large scale.

The wholesaler has to carry huge stocks for each traded commodity and as such has to maintain proper warehouses. He also has to avail the services of travelling salesman, who will go from place to place and approach retailers and book orders for the wholesalers.

He may have to maintain a fleet of transport trucks and vans for ensuring prompt and safe delivery of goods from his warehouse to retailer’s place of business. So, wholesale function involves a wide variety of financial and managerial considerations in order to carry on its importance in promotion of trade and commerce.

The formulation of plans and policies is made by the top level management, while the day-to-day business is carried on by the functional managers (refer chart). Therefore, usually a wholesale business is either in the form of a partnership concern or a joint stock company.

The entire organization has the following departments:

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The success of the entire business depends on the efficient working of the Executive Department. Each department is placed under a departmental head, who in turn, is answerable to the General Manager. The Cash Department is under the Head Cashier’s control and so on.

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