channel institutions wholesaling
TRANSCRIPT
Channel Institutions:
Wholesaling
Prepared By:
Prof. Nishant Agrawal
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
Need for Wholesalers
• Widespread economy – consumers can only reached by thousands of
retailers
• Reaching these retailers by a company directly is not possible
• Hence the need for wholesalers in two forms:
– Well established free-lance wholesalers
– Contracted distributors, stockiest and agents
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 can operate as wholesalers
• Mostly B2B business – trade and institutions
• Wholesaler could also be a retailer – in rural markets
Characteristics of Wholesalers
• Sell physical inputs or products – tangible goods
• Optimize results, maximize service (effectiveness) and minimize
operating costs (efficiency)
• Buy goods for resale, keep inventory, take risks of price changes,
negotiate terms, procure orders, deliver and extend credit.
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
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
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.
Functions of Wholesalers
• Varies in degree between free-lance, company distributors and
stockists / agents
• Sales and promotion of chosen company products
• Buying the variety of goods
• Breaking bulk to suit customer requirements
• Storage and protection of goods till sold
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 market information to both suppliers and
customers
Types of Wholesalers
• Full service: stocking, selling, offering credit, delivery and business
assistance (company distributors, wholesale merchants)
• Limited service: range of service is limited
• Brokers and agents: bring buyer and seller together – do not take
possession of goods
• Others: agri business, auction companies etc
Limitations of Wholesalers
• Some of them do not give complete information to suppliers for
selfish reasons
• At times, do not want company and customers to meet
• Consumers have no say in pricing or quality in a w/s dominated
system
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
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
• Wholesalers help move goods from farm gate to consumers.
• Big companies also need wholesalers to get big volumes
• Retailers have to visit w/s markets to buy food grains, cereals and pulses –
buy a lot more.
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.
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
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
Stockist
• May be working for a company with a designated territory but does
not re-distribute 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
• 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
Managing Distributors
• Distributor responsibilities include:
– Buying sufficient 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
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.
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
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
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
Expectations from a Distributor
• Organizing and participation in promotional events
• Assist company in making a success of launching new products and
packs
• Handling consumer quality complaints
• Handling legal requirements on behalf of the company
• Payments promptly to the company
Key Learnings
• Wholesalers are required to reach hundreds of customers and
retailers
• Wholesaler business is usually B2B
• Wholesalers can be free-lance or appointed by companies – like
distributors
• Company distributors are bound by strict operating norms
• Future of wholesalers in India still seems favourable
End of Session