Wholesaling is the sale and distribution of goods to specific customer types such as those most commonly referred to as resellers. Resellers are traditionally retailers, other wholesalers or merchants who will resell the good to an end user. Certain industrial, commercial and institutional customers also qualify, as the goods are often a component of a different end product.
Wholesaling often occurs when large quantities of merchandise are purchased, referred to as purchasing in bulk, with the intent of reassembling, sorting, repackaging or distributing the goods in smaller lots. Due to the volume of the purchase, the price of the goods is often lower than the price offered to retail consumers. A wholesaler can also be a business that acts as a middleman, brokering deals between businesses that produce certain components that are not intended for immediate sale on the open market.
6 Types of Wholesalers
- Merchant Wholesalers
These are the most common type of wholesalers used in the FMCG industry, agriculture industry or Private label industry. Quite simply, Merchant wholesalers are the ones who buy directly from the manufacturer, store the product and then sell it to the customer. They might sell in any channel and they are not restricted to selling to retail only or to online only.
If there is any loss between the buying and selling of the product, it must be borne by the merchant wholesaler.
Example – A vegetable wholesaler buys produce directly from the farm and stocks it at his own warehouse. He then sells these products to the local retail outlets or even to end customers. He may also sell to restaurants. However, any loss of the produce due to spillage or any other reason is a cost to the merchant wholesalers.
Even in FMCG, companies like Britannia or P&G use merchant wholesalers. These wholesalers have a greater control in the region they operate. They benefit because they buy in bulk from the company and take charge of the risk they are facing. Plus, they are responsible for the sales targets, however, they achieve it.
- Full-Service Wholesalers
They are most commonly observed in Consumer Durables or Engineering products. The full-service type of wholesalers is, as the name suggests, giving full service to the end retailer. These wholesalers mainly operate in the retail market and sell products to a reseller (a retailer in this case) everything except service of the product is the responsibility of the full-service wholesaler.
Example – Samsung wants to expand its operation in region A but it does not have a sales office in that region. So it appoints a distributor in region A. This distributor is solely responsible for order picking, delivery, training sales associates, promotions and everything for the Samsung brand. He is now a full-service wholesaler. However, for service of the product, there is a different service franchise opened in the same region.
In real life scenario, Many full-service wholesalers also start a second services related business and start giving services for the products they are wholesaling. Example – A Samsung wholesaler also starting a service center of Samsung.
As a result, they might get both – sales and service orders. However, for theoretical purposes, Servicing and maintenance of the product is not a part of a full-service wholesaler. He is mainly for sales, deliveries, and financing. These are the second most common types of wholesalers in the market.
- Limited Service Wholesalers
A limited service wholesaler is someone who stocks the products of the company and sells it in a limited channel. He does not have a large turnover or does not cover all channels of the company.
Example – Company X wants to sell its products online but it knows that if it allows local distributors to sell online, there will be a huge price war. As a result, Company X appoints an exclusive online wholesaler. This online wholesaler has only one job – To purchase the product and stock it and sell it online. So whenever an order comes from Amazon or eBay, this wholesaler gives the machine to Amazon or eBay. That’s his only job.
The same way – there are other limited-service wholesalers. 2 are mentioned below.
- Cash and Carry wholesalers: Strong FMCG products are sold as cash and carry. Immediate payment is demanded on a delivery of material.
- Logistics wholesalers: A milk wholesaler who delivers whole trucks of milk across the market. His only work is to deliver the milk and not to get orders for the company.
- Brokers and Agents
Most commonly observed in the real estate industry or in the chemical markets. A broker assumes no risk. He has the producer or the manufacturer on one side and he has the buyer on the other side. The work of the broker is to get the deal done and he gets a commission on the deal.
Example – A small lab has regular requirement of litmus paper. There is a litmus paper wholesaler in their area who is a broker for several companies and who arranges any lab material in bulk. The lab approaches the broker and wants to purchase huge quantity. The broker then talks to multiple manufacturers and finally, a deal is struck with one manufacturer. The manufacturer pays 2% commission to the broker for his work and for bringing the enquiry. Similarly, this broker can pick an order of Beakers, Petri dishes or any other equipment. He will keep arranging meetings with the right supplier and keep earning commissions.
A similar example like above is also observed in the retail industry wherein the broker earns a commission to sell an apartment.
The difference between a broker and agent is that a Broker is short-term and he will be there for a couple of orders. However, an Agent is long-term and specialized in repeated purchase so that he stays for a longer time with the company and specifically works for the betterment of the company. Example – Insurance has Agents (repeated buying) whereas real estate has brokers (single buying).
- Branches and Mini Offices
Although branches and mini offices do not come in the various types of wholesalers, these are common ways for companies to start selling their products in a region they are targeting. A branch can also be called a type of wholesaling wherein the branch directly picks the orders from the end customers in bulk and ensures the supply and reorders from the customer.
Example – Paper Company like B2B or 3M knows that large companies require a lot of print paper across the month. These companies then establish branch offices which also act as the sales office. They pick a bulk order of paper and the company might transport the complete order from their warehouse to the company.
- Specialized Wholesalers
These are wholesalers who do wholesale of specialized items only. Example – A used car wholesaler who sells directly to customers or to other used car dealers. He is specialized in used cars and knows the ins and outs of selling a used car to consumers or refurbishing the used cars.
Similarly, there are other specialized wholesalers who are known for the specific product that they sell.
The above were the various types of wholesalers in the market. As E-commerce rises in sales, there is a lesser requirement of Wholesalers in developing economies. However, emerging markets still use various types of wholesalers to their advantage.