What is a wholesaler? In a nutshell, it is a company that buys
(usually directly) from a manufacturer in large quantities at a
discount, then pieces out the product into smaller quantities
that are then sold for a higher price. The usual chain of
product goes: Manufacturer > Wholesaler > Retailer > Customer.
Services provided by wholesalers involve both manufacturers and
retailers. Producers, once the product is manufactured, begin
incurring storage costs as well as logistical issues involved
with keeping product onsite. Wholesalers usually pay
transportation costs, as well as reducing costs involved
with producer storage by removing manufactured product to a
warehouser's own utilities, providing financial benefits as
well. These costs incurred by a warehouser can be spread among
many more products than a retailer or producer, thereby reducing
the per-item cost to a retailer. A warehouser also takes the
burden off the producer for possible detrimental stockpiling of
goods, as the warehouser often has agreements to purchase certain
quantities in exchange for reduced product costs, reassuring the
manufacturer that there will be a market for certain production
levels and allowing manufacture at the most efficient levels
possible.
There are three different general classifications of
wholesalers, defined by criteria such as whether the wholesaler
is independently owned or owned by a producer, whether the
wholesaler takes title to the products they handle, or lastly by
range of services, the most relevant of which known as Merchant
Wholesale will be the primary topic in this article.
"Merchant wholesalers take title [ownership] to product they deal
in, assume risk and buy and resell products to other wholesalers,
to retailers, or to other business customers" (Ferrell & Pride,
2003). This is further broken down into Full-service wholesalers
and Limited-service wholesalers.
Full-service wholesalers include General-merchandise,
Limited-line and Specialty-line classifications.
General-merchandise wholesalers carry a wide variety
of products, but do not specialize within product lines.
Limited-line carry fewer products, but with more specialization
in the few product types they deal in. Grocery wholesalers fall
under this category.
Specialty-line wholesalers deal in very few products but with
high specialization in their chosen product line(s), such as
only dealing in pharmaceuticals.
Full-service wholesalers provide the widest range of services,
such as quantity breakdowns, financial assistance and credit,
marketing services and product availability. Full-service
wholesalers usually earn a higher profit margin than other
wholesalers, but operating expenses are much higher as well.
Limited service wholesalers specialize in fewer functions than
Full-service wholesalers, generally allowing the producer or the
customer to provide most functions. These wholesalers include
Cash-and-carry companies, Trucking companies, Drop-shippers or
Mail-order firms. Limited service wholesalers take title to
products but usually do not provide many of the services a
Full-service wholesaler does, like marketing, retailer site
selection or personnel training. Due to the limited nature of
their services, they have lower operating costs but are also
limited to lower profit margins as well.
Wholesalers, in order to keep their operating expenses down,
often deal only with companies or with clients able to meet
minimum orders, whether monetary or by item count. This can
make things difficult on a small business or sole proprietorship
looking to reduce cost-of-goods-sold. However, there are many
wholesalers or wholesaler-like companies that cater to
smaller-volume customers. This is where companies like Costco
or Wal-mart's Sam's Club come in--as Costco and Sam's Club are
not technically wholesalers, but direct-retailers with lower
operating costs, buying in smaller bulk volumes from a company
that uses this business plan is often a viable compromise between
the lower rates but logistical issues of a standard wholesaler,
and the lower profit margins of buying from a retailer, and may
make all the difference to a small company operating on a
shoestring.
© 2005, Wholesale Pages UK. All rights reserved.
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