CHAPTER: 3

TRADE AND DISTRIBUTION

Trade is a commercial activity involving the exchange of commodities for a

profit. A marketing process is adopted to create the demand for the products
and finally to supply this product to buyers. A market can be according to place
or area (local, national, regional and international).
Trade is effected through a channel or chain of distribution, consisting of:

Routes
1. Manufacturers to wholesalers to retailers to consumers; this is the traditional
and most familiar route. A manufacturer after producing the goods sells them in
large quantities to the whole sales, who redistributes them in smaller quantities
to a large number of retailers who eventually sell them to consumers. This
method of distribution is very essential where the demand of the product is
seasonal but production takes place throughout the year e.g. chrismas cards
2. Manufactures to large retailers to consumers. This is common today where
large retailers like retail supermarkets can afford to buy directly from the
manufacturers and sell to consumers.
3. Manufactures to manufacturers own retail shops to consumers especially
where the product is perishable e.g. bread is normally sold through retail shops
owned by the baker.
4. Manufacturers through newspaper advertisements to consumers especially
when the manufacture wants to gain access to a large number of consumers.
5. Manufactures through mail order company to consumers; this where goods are
ordered from expensively produced catalogue.
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RETAIL TRADE
The word retail means to cut a piece off, and a retailer is a businessman who sells
merchandise in small quantities. This form of trade forms link to consumers and
therefore a retailer is a middleman of sorts. Retail trade is divided in two: large scale
and small-scale retail trade.

SMALL SCALE RETAILERS

They consist of traders who operate retail trade on a small scale of operation with little
capital. This category includes: itinerant traders, hawkers, roadside traders, mobile
traders, automatic-vending machines, market stall holders, open market traders,
kiosks and canteens.
Street Traders
They are also known as roadside traders. They deal in fast moving items of stock on
cardboards on which they display goods such as sweets, cigarettes, handkerchiefs,
e.t.c. They set-up their business by the side of streets in large cities. They follow an
aggressive selling policy by inviting the attention of passers-by.
Itinerant Traders
As the name suggests, they move from one place to another on a door to door basis
carrying their goods in boxes and call-upon their customers in their houses. His
means of transport is basically by foot, but sometimes they use specially designed
vehicles to carry a wide range of goods to villages, sub-urban areas and some housing
colonies. They may sell a variety of goods like ice-creams, fish, magazines, fruits,
vegetables and newspapers, for example peddlers, hawkers, mobile shops.

Small Fixed Shops

The most important retail outlets are small fixed shops owned by sole proprietors.
They are also referred to as independent retailer though this name is normally given
to the person who owns and operates his own shop. This category also includes kiosks
and canteens usually located on roadside of different residential areas and near
offices, industrial areas or other business enterprises respectively.

Tied Shops
These are retail sales agencies selling a product of a particular manufacturer who in
turn finances them. The manufacturer insists on standard designs on such shops.
Main examples include Petrol Stations and Bata shoes. The main advantages of these
shops is that the manufacturer can supply goods direct to consumers and customers
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can buy these goods without any hesitation. However, inefficient supply of goods
from the manufacturer can result in closure of these shops. Consumers also have no
choice since the shop sell products of one manufacturer.
Automatic Vending Machines
This involves sale of goods to final consumers through coin-operated machines. This
method is usually used for goods like stamps, magazines, soft drinks, cigarettes,
sweets, etc.. Their advantage is that they can serve the customer without any
attendance and can be operated 24 hours a day and it is more accurate.

Demerits

a) It can be used only to sale a few items.

b) It is an expensive method.
c) Consumer can cheat by using some fake coins.
d) It may inconvenient customers if they are out of order.

LARGE SCALE RETAILERS

They operate retail trade on a large scale with a lot of stock and their volume of sale is
bigger. They operate from well-established fixed premises under a centralised
management Examples include: Multiple shops or chain stores.

Multiple Shops
These are also known as chain stores. They are a group of retail shops owned and
managed centrally by one management. They are usually established in different
geographical places and stocking the same class and limited range of merchandise
often similar in appearance. They have a centralised purchasing function and buying
is directly from the manufacturer.
One of their distinctive features is the uniformity of premises involving external shop
front, internal layout, and branch furniture and fittings. They do not offer credit and
prices are fixed centrally. E.g. Bata shoe shops, Uganda Bookshops, Petrol Stations
e.t.c. advantages of multiple shops

a)
They do not allow credit facilities to customers and thus may not get bad
debtors
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b)
They have many selling departments and in most areas of a country, therefore
goods are brought to customer at a nearer position.
c)
Geographical diversification of risk and have a facility for internal branch
transfer of goods.
d)
They enjoy the benefits of operating on large scale of economies of large scale
buying and selling.
e)
There is spread of some overheads e.g. advertisement expenses are spread to
branches

Disadvantages of multiple shops

a)

Level of output is low. There is limited variety of goods to the consumers.

b)

They normally charge higher prices since their prices are fixed.

c)

They are mainly in urban areas, ignoring the remote or rural areas.

d)

They do not offer credit facilities.

Departmental Stores
This is a number of single shops each restricted to selling only one class of goods
under one roof and one management. Each shop has a departmental manager; it
offers a wide variety of goods i.e. from safety pin to a motor car. They maintain their
own reading room resultants, cinema house, hair dressing and beauty saloons,
information bureau, etc. They generally cover extensive premises which, are always
situated in the central shopping areas in big towns.

Advantages of departmental stores

a)

Diversification of risks
If there is loss in one line of goods, the other lines will make-up for the loss.

b)

Effective method of large scale retailing or operation

Their Central location, variety of goods offered facilitate a recreation which, has
helped to popularise departmental stores.

c)

Low prices for goods

The stores purchases direct from the manufacturer in bulk. It can therefore derive the
economies of large scale buying and save on middlemen's commission. This enables
them to sell at a relatively low price.
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d)

Savings on overhead expenses

Owing to the large volume of sales, the overhead expenses will be distributed
over a large turnover.

e)

One department advertises for another

Many customers enter one department they are often attracted by other
articles displayed by other neighbouring departments. One department can
advertise for another.

Advantages of departmental stores

a)

They are not easy access to many.

They are situated in central shopping areas of large cities. Unlike
ordinary retail sores, these are situated in central shopping areas not accessible
to the rural population.
b)

Lack of personal contact with customers.

It is difficult to develop a personal contact between the store and its
customers because hey are too many and are drawn from different places with
different tastes. It is important to note that personal attention is keynote for
success of retail trade.
c)

Possibility in pilferage
Because of the large number of customers, it may not be possible to
exercise a close watch on all the customers. Some goods may be spoilt.
Supermarkets
They are large self-service retail stores that specialise in selling groceries and
many household items. They offer goods like eatables, utensils, drinks, light
electrical items. Goods are well arranged on open display shelves carrying
price tags and customers are not expected to bargain thereafter. The customer
simply moves through the shop from shelf to another picking up items needed,
and makes payment to the cashier at the exit counter(s). Super-markets do not
offer credit to customers. They commonly do not offer transport services as well
as advice to customers.
Mail Order Business
This is a type of retail business done by post, customers place their orders for
the goods through the post and goods are also supplied through the post.
There is absolutely no personal contact through the seller to the buyer. The
goods are advertised and customers rely upon adverts to make orders.
Advantages of mail order business
a)
It is not necessary to maintain expensive showrooms. Only a simple
store for stocking goods is necessary.
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b)
It is not necessary to maintain a huge fleet of transport.
c)
The seller needs not to employ salesmen.
d)
It is possible for the manufacturer to retain complete control over the
distribution of his products.
e)
They are no loss from bad debts since goods are sold on cash basis.
f)
It does not require a large capital to start such a business, because there
is no need of holding stock.
g)
To the customer it saves him the trouble of going to the retail shop by
receiving goods at his residence, hence saving transport costs.
Disadvantages of mail order business
a)
It only limited to the sale of non-bulky goods therefore there is a limited
range of goods sold through the system.
b) It involves heavy advertising which, is so expensive, hence increasing costs.
c)
The customer may be misled by false and exaggerated adverts - no
personal contact.
d)
No credit facilities are offered since the customer has to pay before
delivery.
Functions of retailers
a)

providing local supplies

Retail business is well established in towns and villages and on housing estates
throughout the country, throughout the country, providing consumers with a
local and easily accessible supply of goods. He is an indispensable part of the
producers distribution system.

b)

breaking the bulk

Retailers provide goods in single units to consumers while manufacturers only
deal in very large quantities

c)

providing a variety
Manufactures usually produce their own particular brands. The retailer then
obtains supplies of these product brands from different manufacturers for the
consumers.

d)

advice and information

Though not a so important a function by retailers, some products may require
retailer advice. e.g new products, and equipment with different purposes. He
may also give information to the manufactures representatives who call on
him, especially with regard to how well some products are selling.

e)

other services

i)

pre-delivery services
For some goods such as motor cars, and many kinds of electrical equipment
retailer checking is very important before they are sold to ensure they are in
good condition
ii) Delivery services
This is usually in respect to consumer durable goods such as furniture
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i)
after sales services
This also applies to consumer durable goods such as electronics.

WHOLESALE TRADE
Wholesale trade deals with buying of goods in bulk from the manufacturers or
producers and selling them to retailers in smaller but whole quantities.
Classification of wholesalers
According to mode of operation
a)

General merchandise
These wholesalers deal in at least two lines of products ie a variety of goods of
different types. They may stock goods such as hardware, groceries, clothing
e.t.c according to the needs of various retailers they serve.
b)
General line wholesalers
They deal in a wide variety of goods within one line of products e.g he may sell
all sorts of hardware only.

a)

Specialised wholesalers
They sell only one commodity and specialise in particular field, e.g.
hardware only
According to geographical spread
a)

Regional wholesalers
They concentrate their sales within a particular area or region, e.g. He
may restrict his supply within a coastal province and not beyond.
b)

Nation-wide wholesalers
These are wholesalers on a large scale and supply their goods to retailers
all over the country. They normally have warehousesdepots in major towns of
the country in which they operate.
According to method of operation
a)

Truck wholesalers
These are mobile wholesalers who combine the buying, selling and
delivery functions in one operation. they carry goods a limited range of stock to
the premises of the retailer . They are also known as wagon jobbers.
b)

Cash and carry wholesalers

These wholesalers operate along the same lines as supermarkets. They
require retailers to come to their warehouses to pick goods and pay cash and
carry away their purchases i.e they do no transport the goods to retailers
premises
c)

Rack jobbers
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They specialise in marketing and supplying a particular line of goods to

other wholesalers or a certain types of retailer stores. In E. Africa they include
those who buy agricultural foodstuffs in rural areas and sell the to foodstuff
wholesalers in urban areas.
Functions of a Wholesaler
a)

He undertakes the risk involved in demand of the products produced. He may

buy in bulk and the price falls and he makes a loss. Goods may also go out of
fashion before he passes them over to the retailer. He is in better position to
judge changes in demand because of his close contact with retailers.

b)

He offers storage space for the goods manufactured in large quantities i.e.
warehousing of goods until they are demanded by retailers.

c)

He undertakes marketing and advertising and all other sales promotion

schemes on behalf of the manufacturer.

d)

He offers transport means for moving the goods from the manufacturer's
premises to his warehouse and to retailers premises as well.

e)

He relieves the manufacturer the trouble of packing, grading and branding of

goods before they are sold to the retailers.

f)

He renders variable financial help to the manufacturer by purchasing goods for

ready cash.
g)
He breaks bulk and enables the retailers to purchase goods in small
quantities from the wholesaler as and when he needs them.
h)
He renders market advice to manufacturers and retailers with regard to
the disposal of goods because he has intimate knowledge of the market.

i)

He is a constant source of new different products from several manufacturers to

the retailer bringing new types of goods to the market.
j)
Price stability
He controls the outflow of goods from the warehouse thus controlling demand
and prices at a constant level.
Disadvantages of wholesale trade
a)
They can create shortage of goods so that he may sell at unusually high
profit.
b)
They sometimes provide incorrect information to the manufacturer
regarding the market situation.

b)

Their profit-margin is too high as compared to the manufacturers and retailers

in most cases hence exploiting the middleman position.
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Commodity Markets
These are great international markets for commodity exchanges. Most these are in
London e.g the London Commodity Exchange, the London Metal Exchange, the
London Corn exchange. they deal not only with raw materials but also in other
products like coffee, cocoa, tea, metals, grains, corn etc. The method of dealing
varies according to the commodity. Some are sold by sample, description, auction or
through dealers and brokers. They sometimes open to the public and anybody can
buy. Often they have got membership and are governed by stricter rules to ensure
fair dealing.

Functions of commodity markets

a) Provision of international centres for trade between importing and exporting
countries.

b) They provide an organised trade in commodities particularly imported foodstuffs

and raw materials.
c)

They provide a means of handling a considerable part of export or re-export

trade. They provide the means of exportation and hedging against prices
through futures.
Factors influencing prices
a) Increased acreage of minerals.
b) New uses of raw materials
c) New discoveries of minerals
d) Changes in demand due to increases in industrial or economic activities..
e) Strikes revolution or government action.
f) Occurrence of global diseases.
g) Weather storm and drought effect.
h) Stock piling or release.

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