Channel Institutions:

Wholesaling

Prepared By:

Prof. Nishant Agrawal

Learning Objectives

• Understand functions of a wholesaler

• Understand various classes of wholesalers

• Major wholesaling decisions

• Benefits and limitations of wholesalers

• Understand about a – distributor in more detail

• Trends in wholesaling practices

Need for Wholesalers

• Widespread economy – consumers can only reached by thousands of

retailers

• Reaching these retailers by a company directly is not possible

• Hence the need for wholesalers in two forms:

– Well established free-lance wholesalers

– Contracted distributors, stockiest and agents

Characteristics of Wholesalers

• Operate on large volumes but with chosen group of products

– Food, grocery, pharma or automobile spares etc

• The company itself, contracted parties can operate as wholesalers

• Mostly B2B business – trade and institutions

• Wholesaler could also be a retailer – in rural markets

Characteristics of Wholesalers

• Sell physical inputs or products – tangible goods

• Optimize results, maximize service (effectiveness) and minimize

operating costs (efficiency)

• Buy goods for resale, keep inventory, take risks of price changes,

negotiate terms, procure orders, deliver and extend credit.

Definition

• Wholesaling is concerned with the activities of those

persons or establishments that sell to retailers and other

merchants and / or industrial, institutional and commercial

users

Delivering Value

• Keep goods accessible to customers instantly

• At times, get together to bargain for better terms

• Pass on benefits or incentives to their customers

• Have a wide trading area

Difference with Retailers

• Not too worried about location, ambience or promotions – prefer to

be in the main market

• Deal with other businessmen and not consumers

• Deal with a specific group of products only

• Much larger trading area

• Much larger transactions with suppliers and customers

• Believe in low margins but high volumes.

Functions of Wholesalers

• Varies in degree between free-lance, company distributors and

stockists / agents

• Sales and promotion of chosen company products

• Buying the variety of goods

• Breaking bulk to suit customer requirements

• Storage and protection of goods till sold

Functions of Wholesalers

• Grading and packing of commodities

• Transportation of goods to customers

• Financing the buying of customers

• Bearing the risks associated with the business

• Collecting market information to both suppliers and

customers

Types of Wholesalers

• Full service: stocking, selling, offering credit, delivery and business

assistance (company distributors, wholesale merchants)

• Limited service: range of service is limited

• Brokers and agents: bring buyer and seller together – do not take

possession of goods

• Others: agri business, auction companies etc

Limitations of Wholesalers

• Some of them do not give complete information to suppliers for

selfish reasons

• At times, do not want company and customers to meet

• Consumers have no say in pricing or quality in a w/s dominated

system

Major Wholesaling Decisions

• Which markets to operate in

• Manpower to employ

• What products to sell

• Pricing decisions / Promotional support

• Credit and collections

• Image and customer perception

• Warehouse location and design

• Inventory Control

Favourable Factors

• Companies have limitations in market / outlet coverage. Wholesalers are

required to fill the gaps

• Hundreds of small companies who cannot afford to set up distribution

networks – need to depend on wholesalers

• Wholesalers help move goods from farm gate to consumers.

• Big companies also need wholesalers to get big volumes

• Retailers have to visit w/s markets to buy food grains, cereals and pulses –

buy a lot more.

Unfavourable Factors

• Companies coverage focus on retailers and institutions through

their distributors

• Using modern retail formats as wholesalers

• More outlets like Metro C&C being encouraged

• Enforcing strict price control so that w/s do not sell below

company prices.

Distributor

• Is a wholesaler nominated by a company to exclusively re-distribute

the company products to its customers in a designated territory. He

does not deal in competitor’s products. Does not sell from his

premises. Extends credit selectively.

– A redistribution stockist for HLL

– A distributor for Philips lighting division

– A distributor for L&T engineering division

Dealer

• Role similar to a distributor but

– May not have a clearly defined territory and may sell both in the market and

from his shop

– May deal with competitive products also

– Extends credit selectively.

– Dealers in industrial products may have better defined roles.

• Examples:

– Dealer for an edible oil company

– A dealer for garment brands

Stockist

• May be working for a company with a designated territory but does

not re-distribute the stocks. Sells from his premises. Extends credit

selectively.

– A stockist for paper products

– A stockist for automobile spares

• Re-distribution is visiting customer premises to sell products

Managing Distributors

• The principles are similar across industry verticals. FMCG is the most

complex.

• Has the capacity to maximise sales and market shares.

• Has to ensure buying goods from the company and re-distribution to

the trade

Managing Distributors

• Distributor responsibilities include:

– Buying sufficient quantities by Stock Keeping Unit (SKU) for redistribution

– Ensuring full market coverage of all customers in the territory assigned to

him

– Help finance the operations – pays for the goods upfront but extends credit

to his customers

– Maintaining inventory of company products adequate at all times to service

the market

– Assist company in its promotional efforts

Need for Distributors

• Under three circumstances:

– For entering a new town

– For additional coverage in the same town

– For replacing an existing distributor

• For entering a new town, assess the potential for business to decide:

– If the town can sustain a full fledged distributor

– The number of distributors required

• Starts with a town profile of potential, number of customers to be

serviced and the competition.

Cost of Servicing

• Cost benefit of using distributors to be assessed

– Logistics cost of serving the market

– The number of customers to be covered by category –

wholesalers, retailers, institutions

– Frequency of visits to markets and outlets

– Sales revenue estimate from each visit

– Markets to be covered with ready stocks or order booking for later

delivery

– Likely collections during each visit – gives an idea of the credit

requirements

Expectations from a Distributor

• To be stated at the start of the relationship

• Helps get the right kind of distributor also

– Achieving sales targets – volume, value and packs

– Financial commitment on inventory and credit

– Investment in infrastructure – space, vehicles

– Manpower – front line and back office

– Distribution effort – market and outlet coverage as per a beat plan

with productive calls

– Developing new markets and new accounts

– Managing key accounts and institutional business

Expectations from a Distributor

• Merchandising and displays in the market

• Secondary sales efforts and tracking – critical for FMCG and pharma

(secondary sales is sales from the distributor to the outlets in the

market)

• Effectively handling promotions and schemes initiated by the

company

• Managing damaged stocks

Expectations from a Distributor

• Organizing and participation in promotional events

• Assist company in making a success of launching new products and

packs

• Handling consumer quality complaints

• Handling legal requirements on behalf of the company

• Payments promptly to the company

Key Learnings

• Wholesalers are required to reach hundreds of customers and

retailers

• Wholesaler business is usually B2B

• Wholesalers can be free-lance or appointed by companies – like

distributors

• Company distributors are bound by strict operating norms

• Future of wholesalers in India still seems favourable

End of Session