Chapter 11

Channel Institutions - Wholesaling

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 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
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 Need for Wholesalers
• Widespread economy – consumers can only
reached by thousands of retailers (except for
consumer durables and industrial products)
• Reaching these retailers by a company
directly is not possible (except for consumer
durables and industrial products)
• Hence the need for wholesalers in two forms:
– Well established free-lance wholesalers
– Contracted distributors, stockists and agents
Characteristics….
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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 or free
lancers, can operate as wholesalers
• Mostly B2B business – trade and institutions
• Wholesaler could also be a retailer – in rural
markets – W/s sells to other retailers and also
to consumers

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Characteristics of Wholesalers
• Sell physical inputs or products – tangible
goods ( Ws in some service industries)
• Optimise results, maximise service
(effectiveness) and minimise operating costs
(efficiency)
• Buy goods for resale, keep inventory, take
risks of price changes, negotiate terms,
procure orders, deliver and extend credit.
Definition…
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 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 but
do not sell in large amounts to
consumers – US Bureau of Census

Delivering value…
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 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

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 Functions…

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.
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 Functions of Wholesalers
• Varies in degree between free-lance,
company distributors and stockists / agents
• Sales and promotion of chosen company
products
• Buying the assortment of goods
• Breaking bulk to suit customer requirements
• Storage and protection of goods till sold

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 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 and disseminating market
information to both suppliers and
customers
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 Types of Wholesalers
• Full service: stocking, selling, offering credit,
delivery and business assistance (company
distributors, wholesale merchants)
• Limited service: range of service is limited
(examples include Metro C&C, mail order)
• Merchant w/s: independent businesses
• Brokers and agents: bring buyer and seller
together – do not take possession of goods
• Others: agri business, auction companies etc

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 Limitations of Wholesalers
• Some of them do not give complete
information to suppliers for selfish reasons
• Cannot be relied on to do equitable
distribution
• At times, do not want company and
customers to meet
• Tend to hoard goods and influence pricing
• Consumers have no say in pricing or quality
in a w/s dominated system

Major decisions…
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 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
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 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
• In food grains, fruits and vegetables – hardly
any organised distribution network.
Wholesalers help move goods from farm gate
to consumers

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 Favourable Factors
• Big companies also need wholesalers to
get big volumes
• W/s extend credit to customers.
Companies cannot match this
• Retailers have to visit w/s markets to
buy food grains, cereals and pulses –
buy a lot more.

Unfavourable…
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 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.
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 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

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 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
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 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….
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 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

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 Why necessary?….

Managing Distributors
• Distributor responsibilities include:
– Buying adequate 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

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 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.

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Cost of servicing…
 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

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 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
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 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

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 Expectations from a
Distributor
• Organising and participation in promotional
events
• Assist company in making a success of
launching new products and packs
• Handling consumer quality complaints
• Handling statutory requirements on behalf of
the company
• Payments and remittances promptly to the
company

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 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

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