Sales and Channel Management

Alliance Business SchoolTerm III

Channel Institutions - Wholesaling

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

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….

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

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…

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…

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

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…

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

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

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

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…

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

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

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…

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.

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

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

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

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

Why necessary?….

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…

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

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

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

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