Lecture Sales and distribution management: Chapter 11 - Krishna K Havaldar, Vasant M Cavale

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
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 – 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 value…

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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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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 agents: bring buyer and seller
together – do not take possession of goods
• Others: agri business, auction companies etc
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Limitations of Wholesalers
• Some of them do not give complete
information to suppliers for selfish 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 decisions…

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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
• 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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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 competitor’s
products. Does not sell from his premises.
Extends credit selectively.
– A redistribution stockist for HLL
– A distributor for Philips lighting division
– A distributor for L&T engineering division
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Dealer
• Role similar to a distributor but
– 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 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 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

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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
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