What is wholesale distribution?
Are you buying or selling products to other businesses? Do you order goods in bigger quantities that you then sell in smaller volumes?
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If you answered both questions with a yes, then we don’t need to introduce you to the core concept of wholesale.
For those who are new to the topic; wholesale distribution is a cloud phrase for activities of large quantity product purchases, taking place between mainly manufacturers and suppliers. Usually, the product prices are lower in these cases due to the fact that the customer is buying a bigger amount and later on can only make a profit with an increase in price for reselling.
In this article, we will fill you in with all the necessary information connecting to wholesale distribution. So sit tight and get ready to become an expert on the topic.
However, before we continue, you should first get comfortable with the terminology of distribution channels, which you can read more about here.
How does wholesale distribution work?
To be honest, there is no magic around wholesale distribution. The process is quite simple, at least in theory it is. Of course, in practice, by respecting all the regulations and agreements, the process can become messier, but the principles are always the same.
The wholesalers can be considered basically as middlemen in the sales distribution of products. Since they are the ones, purchasing from the manufacturers directly in bulk. Then they are distributing these goods in smaller amounts to suppliers and retailers, who then sell or use these products in order to serve the end consumers.
The wholesalers’ main role in the supply chain is to help manufacturers with spreading their products. This is necessary because manufacturers have a big task with handling the production, R&D and their own processes. Therefore, a wholesaler can help quite a deal with taking over this step. This separation also helps companies to become experts in specific tasks, which brings us to the next chapter. Back in the day, the orders were placed through an order form, but nowadays, it is mostly done digitally.
Who uses wholesale distribution?
Probably, one of the reasons why wholesale distribution is so simple is because it is a closed cycle. Not everyone can sell or buy from wholesalers. This inclusivity makes it profitable to start a wholesale company. The key element of being part of this channel is that you purchase goods by the gross. This makes it worth it for the manufacturer to sell only to them, by limiting the number of requests they need to fulfil. And also by providing stability in the number of orders.
From the wholesaler’s point of view, this brings some risks, though. For example, in case, they have difficulties selling the products to the next party in the channel, wholesalers can end up losing liquidity. It can also accrue, that they can’t charge extra for the goods once they are sold to the retailers, which will affect their profitability.
That is why it is no surprise that nowadays, thanks to the high level of digitalization, some wholesalers decide to also sell to the end customers directly, maximizing their profit margin. In one of our other articles, you can read more about how to sell wholesale products online.
weOn the other hand, it is still easier for retailers to buy from wholesalers than from the manufacturer for multiple reasons. Among others, wholesalers are usually able to store the goods and ship them once they are actually needed. Wholesalers are also taking over most of the responsibilities when it comes to communicating with the manufacturers. Furthermore, as a retailer, it can be challenging to get in touch with the producer simply because of the lower order volume.
You might wonder, but who can be a wholesale distributor? We collected a few examples in the different wholesale categories, so you can get a better picture.
Examples of wholesale distribution
There are quite many big operations that become famous by taking wholesale distribution to the next level. Just to mention a few, there is Walmart (discount store), Amazon (online store), Nordstrom (department store), Alibaba, GlobalMarket, Sam’s Club and BJ’s.
As you can see, a wholesaler can focus on supplying one specific good but can sell a variety of products or product lines. Depending on the type of distribution and segment the business chooses, we can distinguish different types of wholesalers.
3 Main types of wholesalers
Manufacturing wholesalers
Previously, we wrote that manufacturers are usually separate companies from the wholesalers. However, there are a few production companies that are big enough to run their own sales team and take care of their product distribution by themselves. Even though in these cases, the manufacturer and the wholesaler belong to the same business, the two activities are still differentiated enough to consider them as unique wholesalers.
Agent or brokers
These types of wholesalers are kind of the next step compared to manufacturing wholesalers. Agents and brokers are usually selling and buying products in the name of manufacturers that are not prioritizing to do so on their own. Therefore, they can be considered as hired middlemen to take care of the sales between manufacturers and suppliers or retailers.
Merchant wholesalers
The third type of wholesalers are taking care of the same task, just in this scenario, they are hired by the supplier and not by the manufacturer. As representatives of the retailers, they are buying, storing, shipping the goods, and securing competitive prices. Most commonly, they sell directly to online or brick and mortar retailers.
Business opportunities are like buses. There’s always another one coming.
Richard Branson
Main benefits of wholesale distribution
How to save money with ordering bulk?
Regardless of the type of wholesaler, you are – or you are working with – you will always benefit from the discounts offered due to the bulk orders. Manufacturers show their appreciation for the larger volume of orders. Therefore, wholesalers usually receive either cash discounts, shipping discounts or quantity discounts.
As a “middleman” wholesalers typically also can save a lot of money on not using advertisements or at least on using different, less pricy methods. Since producers and retailers are marketing their products already. So creating awareness and product branding is not something wholesalers are often in charge of.
Why hassle with product storing?
As a wholesaler, you might be the one who is in charge of storing the products after the production is done. This is one of the reasons why manufacturers sell exclusively to distributors and not to retailers or end customers. In this case, the wholesaler also plays the role of a warehouse.
Many other activities can be ignored as advertisements, but for wholesalers, being on top of their inventory and stock is one of the key activities. This can be a real game-changer for competitors in wholesale. Logistics and distribution must be constantly optimized in order to create positive bottom lines.
How to find a wholesale distributor?
Depending on the products and services your business is offering, it can be easier or harder to work with wholesalers and distributors. Nevertheless, finding the right suppliers is always a big responsibility. As a retailer, you can’t just partner with anyone, and the deals you make with your distributors will define your success level in some areas down the line. That is why wholesale distribution is a tricky business.
On the other hand, as a wholesaler, retailers are your main customers. Meeting their demands and needs will secure your business. To ensure a steady inventory and cash flow in your supply chain, you have to focus not only on the great deals you make with the manufacturers but also on the deals you have with your retailers. Who are, after all, also people that are influenced by their customer experience through their journey. Offering an online platform and an easy and visual ordering experience can be a good start when it comes to levelling up your selling processes.
How to find the right wholesaler?
Although there are quite many companies building their business on this concept, it can be still difficult to build relationships with wholesale suppliers. If you are a retailer looking for inspiration on this topic, you are probably interested in knowledge on how to find wholesale suppliers.
Some tip we can tell is to make sure you understand your distribution channel and the role of the different players.
Doing a lot of research is needed sometimes. So you discover all the options you have in the wholesale distribution, contacting the manufacturers and different wholesalers will reveal differences in shipping terms, prices, and general conditions.
Make sure that the ordering processes are scalable. There is nothing worse than wasting time feeling out the same order sheets again and again. The right wholesalers must provide you good shopping and ordering experience. Dansk Industry – DI conducted research about ‘how digitalization ads to the customer experience journey’ that we can only recommend you to read.
How to increase sales in wholesale distribution?
In case this is not the first article of ours you are reading, this will be no surprise; we are big supporters of digitalisation. Yes, also when it comes to wholesale distribution. We believe that in order to reach beyond the sky, the best thing you can do is digitalise as many processes as possible. After all, why should you spend time on something that a computer can do for you faster, probably cheaper, and with a lower error score?
Also, as we mentioned before, customer experience is a big differentiating factor in wholesale distribution as well. With a digitalized eCommerce platform tailored for wholesalers, you will not only win time and money with process optimization but also satisfy your customers better.
If you are interested in digitalization, but not sure where to start, then you are at the best place to get things rolling.
Are you still craving more knowledge on wholesale? See our post on what is wholesale and know more about how a wholesale platform can benefit your business.
Want to know how?
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