One of the common confusions when doing channel sales or when doing a market analysis, is the difference between wholesalers, retailers and distributors. If you don’t understand the distribution hierarchy, then this confusion is common. This article uses simple examples to explain the difference between wholesalers retailers and distributors.
Let us understand the role of each of them in turn. We will start with the simplest.
Retailer – Business to customer sales.
- Retailers buy from Wholesalers and Distributors
- They buy limited quantity of same products but will have a large number of products (imagine a stationery shop).
- Is in direct contact with end customer
- Retailers are B2C companies – The buy from businesses but sell to customers.
- Margins are high but sales are fewer of each unit.
Retailers are the ones you are most aware of. You have been a consumer throughout your life. And you would have brought various material from shops for consumption. These things can be your clothes, your food, equipments, electronics and whatnot. Any item, that you buy from a store, is an item which you are buying from a retailer.
A retailer is one who retails the item which means, he sells directly to the end customer. A retailer is the one who is involved in B2C sales meaning Business to customer sale. He buys from businesses and sells to customers.
The retailer himself buys products from wholesalers and distributors. If it is electronic goods, most likely a retailer will buy from a distributor because the distributor visits his place to sell the item. There is also a lot of logistics involved in distribution of large items so generally distributors visit retailers.
If however, a retailer wants to sell food items, then it is likely that the retailer visits a wholesaler and buys the products in wholesale. This is because a single wholesaler generally deals in a limited number of goods and he has huge quantities of those goods. So a retailer might have to visit multiple wholesalers to complete his requirement.
A retailer might stock only limited number of each item. So if you go to a stationery store, you will see only 50 units of the same pen being stocked. But if you go to a wholesaler, the quantity will be 500000 units in stock with the wholesaler. This is a major difference between wholesalers retailers and distributors – the number of units they have in stock at a time.
Wholesaler – Business to Business sales and Business to customer sale
- Wholesalers have huge quantity of the same product (Imagine a marble shop which is a wholesaler and has huge quantity of different marble floorings and tiles).
- If you want to buy from a wholesaler, you have to visit his place. (He does not distribute the items)
- In large companies, wholesalers may buy from distributors. Wholesalers are lower then distributors in channel sales. There might be multiple wholesalers in the same city.
- Wholesalers mostly sell directly to other businesses (like retailers) but they are likely to sell to customers who need in bulk as well (example a cement wholesaler selling small amount of cement locally just to meet demand)
- Are very important in the perishable goods market (fish, vegetables etc).
- Major work is of warehousing
- Margins are lesser but the volumes are huge.
The best example of wholesalers is the local cement guy or the local vegetable market. Although a normal vegetable retailer might roam the market with his van or might visit place to place, a wholesaler sits in his own place and does business.
You might noticed from time to time various Cloth wholesale markets where a huge business is done from a small shop. The wholesalers generally operate from a small shop but they will have a huge warehouse nearby from where they supply the material.
Because wholesalers sell material in huge bulk or the material which they sell is in demand, these wholesalers do not move from shop (this is generally the norm) and they sell most of their products from their own shop. Imagine the vegetable wholesaler who might sell tons of vegetables from his shop when retailers visit him.
A wholesaler may buy direct from the company or he might buy from another distributor. If you look at the ice cream market, there is a C&F (wholesaler of ice cream) involved who stocks the ice cream in bulk and other ice cream vendors may buy from him or the distributor arranges transportation from the wholesaler to the retailer. This bulk stocking wholesaler is needed in every city within a few milers because otherwise the ice cream will melt. As a result, wholesalers have a huge role to play in perishable good items.
Finally, distributors are not allowed to sell to end customers are all whereas a wholesaler might do that. For example – a cement wholesaler generally sells in bulk to the local developers who are erecting buildings. However, he may sell small items through a shop to local labourers, plumbers who need small work to be done with cement (home jobs). A distributor cannot do that because he is obstructing the sale of the retailer to whom the distributor is selling.
Distributors – Strictly business to business sales
- Distributors are the ones whose job is to increase the visibility and sales of the product, for which they might visit shop to shop and pick orders.
- An excellent example of distributors are the ones selling Samsung Smart phones who visit all the shops within a region to ensure that the material is on display by the retailers. You will not find a wholesaler of Samsung but you will find retailers and distributors.
- Distributors sell to both – Wholesalers and retailers.
- Transportation is a huge cost for distributors as delivery from warehouse to end retail outlet is the work of the distributor.
- Distributors are never allowed to sell to end customers because the distributors have a lower price of the product and this move will cut off the sale of the retailers.
- The turnover done by the retailers is the target of the distributor. A distributor is more concerned with secondary sale (sales from retailer to customer) because if secondary sales don’t happen, then primary sale from happen (sale from distributor to retailer).
- Major job is visibility, distribution to many outlets and sales.
Consumer durable, electronics, hardware or other equipments, medicines are perfect examples of sectors which use distributors and not wholesalers. A medicine retailer may have more then 1000 different type of medicines. He cannot afford to visit wholesalers who are stocking all these machines.
So the companies appoint a distributor who can distribute the various medicines to the retailer who in turn sells it to customers. Similarly, there are various distributors for washing machines, televisions and other white and brown goods who distribute products to retailers – small retailers or modern retailers.
There might be vegetable and perishable goods disributors as well. These distributors might visit from town to town and deposit a bulk of the material with the local wholesaler who will later sell it forward to other retailers. In this case too, the cost of distribution from distributor to wholesaler has to be bourne by the distributor.
Transportation is a major cost for any distributor and hence, the distributor considers the cost of transportation in his profitability analysis. Alternatively, a distributor might try to club together various deliveries to the same place so that the cost is lesser for deliveries and transportation.
The main work of the distributor is to push retailers in converting more sale. Imagine the competition between Samsung and Micromax or Oppo or Vivo. There is a distributor for each of these companies and all distributors will try to push their own products in the market. They can do this by launching various trade promotions or pushing the retailer in picking more material so that the sale is maximum for their brand.
So if a retailer picks more Micromax unit from the Micromax distributor, he is likely to sell the Micromax brand more then Samsung to the end customer. For this to happen, the distributor has to give promotional support to the retailer or push for more sales so that ultimately the retailer sells more unit to the end customer.
If the secondary sale is happening (sale from retailer to customer), the primary sale (sale from distributor to retailer) will happen automatically. A good distributor concentrates on secondary sale and not primary sale.
A distributor is also supposed to stock products in bulk but he can anytime order smaller quantities from the company from time to time to distribute forward. Generally distributors are not expected to have as big warehouses as wholesalers because it is the work of the distributor to distribute and not to warehouse. Distributors use the storing capacity of retailers below them or wholesalers below them to stock the material.
So above were the major differences between wholesalers retailers and distributors. All three of them have different jobs and In several industries, either the wholesaler will exist or the distributor. There are only few industries where wholesalers and distributors both exist.