A wholesaler is a trader who buys goods in bulk or in large quantities from the producer/manufacturer and sells in small quantities to the retailer.
Wholesale trade therefore is a type of trade in which goods are bought in bulk or in large quantities from the producer or manufacturer with the aim of selling them in small quantities to a retailer (one who sells goods in small bits to the consumer).
Features of Wholesale Trade
(i) Bulk breaking
(ii) Buys goods in large quantity and sells in small quantity to retailer.
(iii) They are the middlemen between the producer and retailers.
Functions of Wholesalers to the Manufacturer/Producer
(i) Breaking of bulk: They buy in bulk and sell in small quantities to the retailers.
(ii) Warehousing function: The wholesalers are able to purchase very large quantities from the producers, which they store in the warehouse until they are required by the retailers.
(iii) Transport and delivery services: They receive large quantities from the producers make them available to countless retailers through their own network of distribution centres.
(iv) Risk bearing: The wholesaler can anticipate business risks in distribution and take appropriate measures to reduce their impact by taking the necessary insurance cover.
(v) Branding, packaging and labeling: The wholesalers may prepare commodity for sale by packaging , branding and grading.
(vi) Advertising function: They do most of the work of finding ready-made market for the products. This is done through advertising and promotion.
(vii) Price stability.
(viii) Financing the producers.
Functions of Wholesalers to Retailers
- Wholesalers sometimes pre-packed, brand and grade goods for retailers
- They stimulate demand for goods through sales promotion.
- They often offer credits facilities to the retailers.
- They provide retailers with technical information and advice on new products.
- For the convenience of retailers, wholesalers carry inventory of assorted goods procured from different manufacturer.
- Advertising of goods
- Price stability
- Transportation services
- Links the retailer and producer.
Arguments for the Survival of Middlemen
The middlemen should not be eliminated because the functions they perform to both the producers and ultimately to customers cannot be performed by any of them i.e. the manufacturer or customers. The reasons why they should not be eliminated include;
- Bulk breaking
- Credit facilities to the consumer
- Giving advice to both manufacturer and consumer
- Conducts market research
- Branding and packaging
- Provision of transport.
- Risk bearing
Arguments for the Elimination of Wholesalers
It is believed that the middlemen are responsible for artificial scarcity and the attendant rise in price. For this reason, many people think that wholesalers should be eliminated in the distribution channel. Wholesalers are regarded as unproductive. This is not strictly true since many wholesalers are as productive as manufacturers. Factors that warrant the elimination of middlemen from the channel of distribution are:
(i) Longer channel of distribution
(ii) Creation of artificial scarcity of goods through hoarding
(iii) Increase in prices of goods.
(iv) Development o f Mail Order Business.
(v) Involvement of Perishable goods
(vi) If goods are susceptible to faking or adulteration, the manufacturer would do well to by-pass the middlemen.
(vii) Low rate of turnover: Goods with low rate turnover like jewelries, furniture, and large machinery etc, the manufacturer will preferably deal directly with the consumer.
(viii) Presence of technical goods: The manufacturer can sell directly to the consumers if the goods produced are highly technical and required special specification, e.g. computers and machineries.
(ix) Immediate feedback from the consumers: Manufacturers may eliminate middlemen because of the need to obtain immediate feedback from the consumers.
- Give three features of wholesale business.
- List two advantages of wholesalers to the producer and wholesalers to the retailers.
- (a) Who is a wholesaler? (b) Elucidate the functions of a wholesaler.
The Channels of Distribution
Channel of distribution is the path through which the ownership of goods is transferred as it moves from the producer to customers
Different Channels of Distribution
(i) PRODUCER AGENT WHOLESALER RETAILER CONSUMER
(ii) PRODUCER WHOLESALER RETAILER
(iii) PRODUCER RETAILER
(iv) PRODUCER AGENT RETAILER CONSUMER
(v) PRODUCER AGENT CONSUMER
(vi) PRODUCER WHOLESALER CONSUMER
(vii) PRODUCER CONSUMER
Factors to Consider before Choosing a Particular Channel of Distribution
- Number of potential buyers
- Competitors’ channel
- Financial capability of the producer
- Nature of goods
- Location of customers
- Size of order
- Value of goods.
The middleman is the person that bridges the gulf/gap between the manufacturer and the consumer. The middleman finds out what goods and services are wanted and where they are wanted and he collects them with a view to satisfying their wants. Middlemen are independent business enterprises which constitute a link between producer on one hand, and consumers. Middlemen are also intermediaries.
Types of Middlemen
Middlemen can be distinguished according to the following different services they perform:
- Merchant middlemen:
They have title to the goods which they are marketing. This means that merchant middlemen own the goods somewhere along the distribution channel before passing the title to their customers. He bears risk of ownership of goods. Merchant wholesalers include;
(i) Specialist wholesalers
(i) Rack jobbers
(iii) Cash and carry wholesalers
(iv) Truck wholesalers
(v) Drop shipment etc.
- Agent middlemen:
They are institutions which do not take title to goods they handle as is the case of factors. They do not take title to the good they sell but only receive commission. They assist in negotiating sales and purchases or both on behalf of their principals. All agent middlemen are wholesaling middlemen but they are not wholesalers. They are in possession of physical goods. Agent middlemen include;
(ii) Manufacturer’s agent
(iv) Commission agent
(vi) Del-credere agent.
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