Wholesaler: Definition, Functions, Types, Merits & Demerits

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What is the Meaning of Wholesaler?

The wholesaler is that person who obtains goods from the manufacturer in bulk and sells to the retailer in smaller quantities. He is therefore a vital link between the manufacturer and the retailer in the chain of distribution that is, he is the middleman.

A wholesaler is an intermediary agent between manufacturers or producers and retail companies, whose economic activity is based on the purchase and sale of wholesale products to other wholesale and retail companies.

Wholesaler
Wholesaler

At the most basic level of the distribution chain, the wholesaler is at an intermediate point between the initial producer of a good or service and the retail company that, finally, will put the merchandise on the market so that customers can access it. This market is called the wholesale market.

It is necessary to indicate that a wholesaler by definition does not establish a relationship that can unite producers of goods and services and clients or final consumers. His action is limited to operating within the supply or distribution chain as a sales agent, where he establishes his business.

Almost all the merchandise that is sold in the different stores comes from wholesale, and for this type of sale to take place, there must be an intermediary who carries out the transactions, that person is: the wholesaler.

The first thing you should know is that the entire process a product goes through, from the start of its manufacture, until it reaches the final consumer, is what is known as the distribution chain. Therefore, the wholesaler is one of the intermediaries that the distribution chain owns.

Characteristics of the Wholesalers

The main characteristics of the wholesaler are:

  • Always trade in large amounts, both buying and selling.
  • It buys said volumes from initial producers (factories, farmers, ranchers, among others) or other wholesale agents.
  • It sells to retailers generally, although it can also sell to other wholesalers and even producers.
  • In general, in no case is it related to the end customer.
  • Wholesalers are basic pillars of distribution chains, as they provide greater organization and speed of transition in them.

In many cases, wholesale companies take on tasks outside of the sale itself, since there are cases in which this type of agent is also in charge of carrying out storage, transport and transforming merchandise by labeling, packing or packaging it for sale.

Wholesales
Wholesale

However, in most cases this is seen as something negative, because being considered as an intermediary agent adds higher costs to the products and, therefore, reduces the degree of profitability that they carry with them.

Functions of the Wholesaler

  • Functions of the Wholesaler to the Manufacturer

  1. He breaks the bulk for the manufacturers.
  2. He provides warehousing facilities for the manufacturer.
  3. He provides funds for the manufacturer to ensure continuous production of goods.
  4. He furnishes useful information to the manufacturer about the market situation.
  5. He regulates purchase/supply/price that is, he prevents price fluctuation from arising between demand and supply.
  6. He may have to process, pack and grade goods – a job the manufacturer may not want to do.
  • Functions of the Wholesaler to the Retailer

  1. He breaks the bulk to enable the retailer obtain goods in required quantities.
  2. He provides the retailer with credit facilities for continuous operations.

Types of Wholesalers

There are several ways to classify wholesalers, but the main ones can be:

  • Due to their relationship with other wholesalers: they are the purchasing centers, that is to say that the orders must pass through the wholesale complexes; and the independents, who are simply intermediaries.
  • Due to their location: they can be of origin, when they are in the production areas; or destination, when they are in the consumption areas.
  • Due to the ownership of the products: they are the intermediary agents, who do not own the products they sell; and wholesalers who own the products.

Retailer vs. Wholesaler : The Differences

The retailer is part of the last link in the distribution chain, since he is in charge of selling to the final consumer. For its part, the wholesaler is the one in direct contact with the retailer, who is in charge of offering the best prices so that the retailer can resell.

Additionally, the wholesaler sells in large quantities to the retailer, who sells the products per unit. For example: the wholesaler sells 5 boxes of canned tuna to the retailer, and the retailer sells each can of tuna to the final consumer.

Classification of Wholesale Companies

Based on different criteria, it is possible to distinguish between different types of wholesaler:

  • Because of its origin and location. For example, a Chinese or British wholesaler.
  • By markets or sectors in which they provide service. For example, a wholesaler that collects and distributes food.
  • If your customers are sporadic or there is a relationship over time or loyalty.
  • Because of the mode of sale, which can be remote, self-service or traditional.

Advantages of Wholesale Businesses

Wholesale businesses are an important part of the distribution chain, in addition to a variety of positive aspects which we will see below.

  • Lower Prices

Entrepreneurs in wholesale trade make their profit from the sale at low but constant cost of large quantities of products. This is the most used trading strategy in this trade.

  • Large Amount of Merchandise

When marketing large quantities of products, large sums of money are handled, for which it is necessary to try to have a good network of contacts, so that this movement occurs constantly. In addition, these contacts give the opportunity to meet other businessmen, who may be clients or partners of the company.

Disadvantages of Wholesale Businesses

We already talked about the advantages of wholesale businesses, but it is time to talk about the disadvantages that they have, and that is, since everything is handled in large quantities, if something goes wrong it can be a great loss, in addition to that, it has disadvantages even for the general market.

  • Circulation of Merchandise

We mentioned this point earlier, but it can be both positive for the company and can harm it, because losing inventory at the wholesale level means a large amount of products and money. This is precisely the opposite of what the Lean Six Sigma philosophy implements.

  • Difficult Quality Control

Having large quantities of merchandise, it can be an arduous task to verify the perfect condition of 100% of the products, for which a perfect inventory control is not guaranteed.

  • Increase Prices

This point harms both the company and the market in general. In the case of the company, having a large company means that you have to have a large capital, since you have to cover transportation, large premises, among other expenses. Earnings come just as in large amounts. These types of companies require a large flow of money.

Now from the point of view of the market, thanks to the fact that wholesalers are one more intermediary, they raise the price of the final product.