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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
be 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 caters to 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 val
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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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Strategic Issues in
Wholesaling

Selecting target markets: location, trading area,


size and composition of markets etc
Marketing mix:
Limited range of products preferred
Works on thin margins and decides pricing
accordingly
Location decides the trading area and place of
getting business
Promotions passing on benefits to provide best
prices to his customers. Use own salespeople.
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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 : bring buyer and seller together do not
take possession of goods
Agents: add value to seller in transactions with and
buyer
Others: agri business, auction companies etc
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Limitations of Wholesalers
Some of them do not give complete
information to suppliers for their own 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 decision
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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 level
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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Cash & Carry Wholesale

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Cash & Carry Wholesale

Goods sold from a wholesale


warehouse operated usually on a selfservice basis. Customers buy on cash
and carry away the goods.
Started with food products and now
extends to a large number of product
categories.
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100% FDI in C&C Wholesale A


100% foreign direct investment is
permitted in C&C wholesale in India
Two existing examples of C&C are:
Metro AG, the German wholesaler
Bharti- Walmart Best Price Modern
Wholesale

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Effect on Traditional
Wholesalers

C&C wholesaler buys in huge quantities


influences trading terms and discounts
Companies may sell directly and may save
on distributor margins which they can pass on
C&C wholesalers introduce own products at
prices lower than national brands
C&C wholesaler guarantees the quality of the
goods
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C&C Wholesale
Disadvantages

Retailer does not get credit which he


may get from traditional wholesaler
Retailer may have to travel a distance to
reach the C&C wholesaler. Traditional
wholesaler may be nearer.
All transactions are documented and tax
paid some retailers may not like this
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Metro C&C

German wholesaler present in over 30


countries, 500 locations and over 50,000
products
Self-service wholesaler for trade,
businesses and professionals

Started operations in India in 2003


Presently has 5 outlets in 4 cities in India
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Metro C&C Advantages

Quality products at best prices possible


Traders can buy as per needs no need to
build up inventory
Store has extended working hours 16X7
Stores use modern storage technologies
including cold storage
Extending benefit of order booking (telephonic
orders also) and door deliveries
Fortnightly catalogues list a host of promotions
Traders get clear invoices for all purchases
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Bharti Wal-Mart Best Price

Collaboration between Bharti (Indias


largest telecom operator) and Wal-Mart
(worlds biggest retailer)
Bharti manages the front end and WM the
back end supply chain
Opened first outlet in 2009 at Amritsar
First store spread over 50,000 sq ft, and has
signed up 800 suppliers and 30,000 customers
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BWM Unique Features

Guides small and medium retailers on best


practices in assortment planning, displays,
layout and back-room management
My Partner program seminars on tax
planning for traders
Live demonstrations, food quality and
hygiene programs for restaurant and
caterer customers
Best prices with unmatched convenience,
choice, quality and hygiene
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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 competitors
products. Does not sell from his premises.
Extends credit selectively.
A redistribution stockist for HUL
A distributor or dealer for Philips lighting division
A distributor for L&T engineering division
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Dealer
Role similar to a distributor but
May or 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 redistribute the stocks. Sells from his
premises. Extends credit selectively.
A stockist for paper products
A stockist for automobile spares

Re-distribution is defined as 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 or on time 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
Giving regular market feedback

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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
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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
Providing market feedback
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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 business customers and retailers
Wholesaler business is usually B2B
Wholesalers can be free-lance or appointed
by companies like distributors
Strategic issues in wholesaling include
location, trading area, size and composition
of markets.

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Key Learnings
Cash and carry wholesale denotes the goods
sold from a wholesale warehouse on cash
and self service basis.
Two well known examples in India are Metro C&C
and Bharti Wal-Mart Best Price Wholesale.

Company distributors are bound by strict


operating norms
Future of wholesalers in India still seems
favourable
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End of Notes Chapter 11

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