Page |1 WHOLESALE TRADE Wholesale trade is the buying of goods in bulk from producers, breaking the bulk and

nd reselling the goods in smaller amounts to retailers. Wholesalers are middlemen in trade because they offer services to manufacturers and retailers

Functions of a wholesaler To buy goods in bulk from producers at factory price. To break the bulk in smaller amounts required by retailers. To warehouse goods bought in bulk from producers. To supply retailers with a variety of goods. To bear risks of fashion change, fire and theft among others whilst goods are in warehouses. To prepare goods for sale e.g. branding, grading and packaging of goods. They pass information to manufacturers and consumers. To offer credit facilities to retailers especially loyal ones. To give advice to retailers on how to display goods in shops. To stabilize prices by storing goods when they are scarce. To act as a reservoir for retailers. To operate a cash and carry warehouse. To deliver good to retailers premises.

Service of a wholesaler to a Manufacturer Buys good in bulk thus creating more space for further production of more goods. Finances manufacturers by paying them cash for goods purchased. Finds market for the manufacturers goods. Provides transport by moving goods from the manufacturers premises. Passes information on complaints, suggestions and prices to manufacturers. Bears risk of theft, fire and change in fashion whilst goods are in the warehouse. Allows manufacturers to produce seasonal goods throughout the year.

Services to the retailer Provides a local supply of goods to retailers. Breaks the bulk in amounts required by retailers. Acts as a reservoir to retailers. Offers credit facilities to trusted retailers. Offers trade discounts to retailers for bulk buying. Supplies retailers with a variety of goods. Prepares goods for sale e.g. blending, grading and packaging of goods. Forms voluntary chains together with retailers.

Services of a wholesaler to the Consumer

Page |2 Provides a variety of goods to retailers who pass the same variety to consumers. Offers special promotions that are passed on to consumers. Introduces retailers to new products which are passed on to consumers. Cash and carry wholesalers offer after sales service to certain consumers. Allows consumers to have a steady flow of goods at stabilized prices.

Types of Wholesalers 1. General wholesaler: Deal in a range of goods that include; household goods and hardware. Main Features They have many branches in many parts of the country. They are usually run by large companies with a lot of capital. They may operate either on a regional or national level. They may employ sales personnel to collect orders from retailers. They give credit facilities to retailers. They carry out all functions of a wholesaler. 2. Specialist wholesalers: Deal in a limited range of goods. E.g. Building material only. Main Features They deal in a limited range of goods. They only operate at regional or national level. They carry out all functions of a wholesaler 3. Traditional or independent wholesalers: This is an ordinary wholesaler who may operate at regional or national level. He may be a general wholesaler or specialist wholesaler. Main Features They provide delivery services for customers. They offer credit facilities to customers. Membership is not required for retailers to buy goods from the shop They carry out all functions of a wholesaler. 4. Cash and Carry Wholesalers: These are self service wholesaler stores that sell goods to retailers specifically on a cash basis and do not provide delivery services. Main Features They, Deal mainly in groceries and in other goods which do not require personal services such as clothing. Provide a wide range of goods. Open for longer hours. Operate from large buildings. Customers use trolleys whilst shopping. Sell goods by self service. Do not provide transport facilities. Sell goods to both retailers and consumers. Customers are usually small retailers, hotels and restaurants.

Page |3 Advantages to wholesalers They employ a small number of staff because retailers serve themselves. They do not suffer from bad debts since goods are sold on a cash basis. There are no extra expenses on deliveries to customers. They buy goods in large quantities at factory price.

Advantages to Retailers They enable small retailers to compete against large scale retailers by selling them goods at reasonable prices. They stock a wide range of goods for retailers. They act as reservoirs for retailers. They prepare goods for sale e.g. labeling, packing and branding. They open for longer hours to enable retailers buy goods even in the evening. They may give special offers to retailers e.g. gifts, discounts, loss leaders. They buy goods at reduced prices and in suitable quantities.

Disadvantages to the Wholesalers Customers are lost due to self service. Goodwill of the business may be adversely affected by luck of contact with customers.

Disadvantages to the Retailer Delivery services are not offered. No personal service is offered. Credit facilities are not offered to retailers. 5. Cooperative Wholesale society: This is a wholesale business formed by cooperative retail societies. Main Features Membership is open to all cooperative retail societies wishing to become members. It is controlled by a managing committee elected from representatives of a cooperative retail society. Cooperative wholesale societies break the bulk for cooperative retail societies. Cooperative wholesale societies supply cooperative retail societies with a variety of goods. Cooperative wholesale societies reduce the dependence of cooperative retail society on other wholesalers through manufacturing, prepackaging and warehousing. Capital is provided by cooperative retail society in direct proportion to the number of members they have. Profits of cooperative retail society are shared as dividends among members. The location of a cooperative retail society is on the out skirts of town. They provide their own transport in moving goods.

Page |4 Other Institutions Performing Wholesaling Functions 1. Marketing Boards This is an association of agricultural producers established by an act of parliament. Purpose To collect farm produce from different farmers scattered over a wide area. To promote efficiency in marketing farm produce collected from farmers.

Functions of Marketing Boards To provide efficiency in the marketing of agricultural produce. To maintain and grade the standard of agriculture produce. To ensure there is steady supply of farm produce by storing in warehouses. To give agriculture farmers a steady income for their produce. To offer specialist services to farmers e.g. fumigation. To process and package certain agriculture products.e.g. Cheese and milk. 2. Produce and Commodity Markets I. Produce Markets These are highly organized markets were perishable farm products for daily life such as fish, flowers, vegetables and meat are bought and sold. The products traded at produce markets are physically handled at the time of sale. II. Commodity Markets These are highly organized wholesale markets for buying and selling of non perishable raw materials such as wheat, coffee, grain, tea and metals required for manufacturing goods. Examples of commodity markets include; a. London metal exchange where Zambian Copper is sold. b. London tea auction. c. The London exchange for wool where wool is sold. The raw materials traded at commodity markets are not physically handled at the time of sale. Characteristics of Produce and Commodity Markets They provide a highly organized meeting for buyers and sellers. They bring about efficiency in the collection and distribution of local and imported foodstuffs and raw materials. They allow the grading of commodities and the fixing of their prices. They arrange future deals for graded products such as metals, cotton and wheat. They arrange for auction sale of ungraded products such as tea. They are highly organized markets.

Features of a highly organized market It only allows registered members to do business on its floor. Members of the public are not allowed to trade on a floor of an organized market. It has a code of conduct of members behavior, members who fail to perform their duties according to rules of exchange expelled from the market.

Page |5 It has rules for admission of members. It has agreed procedures for settling disputes among members.

Factors working for the survival of the wholesaler Providing a local supply of goods through the formation of voluntary chains with small retailers. Providing a variety of goods and thus giving retailers a wide choice. Selling to both retailers and consumers. Offering delivery services to nearby retailers. Offering credit facilities to trusted retailers. Offering trade discounts to retailers who buy in bulk. Offering other services to retailers such as warehousing.

Factors working against the wholesaler (Elimination of wholesalers) The growth of large scale retailers who no longer depend on the services of the wholesaler and buy directly from the manufacturer. The Growth in prepackaging and branding of goods by manufacturers themselves. The increase in the trade of perishable goods such as bread, fresh milk and vegetables which are sold directly to retailers or consumers before they go bad. The increase in the sale of goods with low turnover such as furniture. Goods are supplied directly from producers to retailers. The increase in the trade of technical, complicated and expensive goods such as computers and Televisions are supplied directly from producers to retailers because some technical goods are fragile and others require special knowledge to operate them. Changes in distribution patterns of good. Some goods are being distributed directly to retailers or consumers. Manufacturers and retailers are taking up the function of wholesaling. E.g Bata and Zambeef. Some large retailers buy goods directly from manufacturers at reduced costs. When there is need to save costs of middlemen wholesalers are by passed. The wholesaler is less important in the sale of specialized goods such as jewelry and medical supplies. The wholesaler is eliminated where the manufacturer appoints his own sales agents to sell goods.

Types of Middlemen in Wholesaling (Wholesalers as Middlemen)

Page |6 An agent(middleman) is a person or organisation that sells goods on behalf of other organizations. The types of agents are; 1. Factor These are agents who sell goods on behalf of the principle. They can also trade in their own name and that of the principal. They have a stronger position than that of brokers because they posses the goods. They have the actual (physical) and legal position of the goods. They sell goods on credit to customers. They earn a commission known as del-credere.

2. Brokers These are agents who buy and sell goods on behalf of the principal. They do not possess the goods. They do not buy or sell goods in their own name. They use samples and catalogues to show the goods and find buyers. The broker has order forms that they give the customers to fill in. after the customers fill in the order forms, they are sent to the principal who arranges for the delivery of goods. They receive a commission known as brokerage as their reward. 3. Import Merchants These are traders who buy goods in bulk from producers abroad and sell them to retailers in their own home countries. Import merchants are actually wholesalers who buy goods fro themselves (they do not work for any one). They provide delivery and warehousing services and are remunerated by profits. 4. Delcredere Agent This is an agent who guarantees payment to the principal no matter what happens He is a risk bearing type of agent He keeps goods in his wholesale or warehouse and all payments are made to him. The delcredere gets a normal commission and an extra commission called delcredere.

Mwiche Mukanda, Business Studies Department, David Livingstone High School, Livingstone, Zambia. 18th September, 2011. 11:00 hrs.