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 competitors 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

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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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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 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
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