The Main Differences Between Wholesalers and Retailers in Supply Chain Management

Wholesalers and retailers play important but distinct roles in getting products from manufacturers to end consumers. While they both purchase products from suppliers and sell them to customers, there are some key differences between these two types of businesses.

What is a Wholesaler?

Wholesalers purchase large quantities of products directly from manufacturers or producers and sell them in bulk to retailers, who then sell to consumers. Some of the main characteristics of wholesalers include:

They buy in bulk directly from manufacturers to get better prices.
They sell to retailers, commercial businesses, and other wholesalers rather than directly to consumers.
They offer a wide range of products from many different manufacturers.
They provide warehousing and delivery services to distribute products.
They offer credit services to retailer customers.
Examples include grocery and pharmaceutical distributors.

The Role of Wholesalers

Wholesalers play an important intermediary role in the supply chain between manufacturers and retailers. Here are some of their key functions:

Bulk breaking – Wholesalers purchase full truckloads or shipping containers of goods and break them down into smaller quantities for retailers. This requires warehousing capabilities.
Delivery and distribution – Wholesalers use their distribution centers and delivery fleets to store and transport goods efficiently to retailer locations.
Inventory management – By keeping stock of a wide range of products, wholesalers allow retailers to order smaller amounts of inventory as needed.
Processing returns – Wholesalers may handle product returns from retailers back to manufacturers.
Marketing data and services – Wholesalers provide retailers with data, training, and marketing materials provided by manufacturers.
Economies of scale – By purchasing large volumes, wholesalers can offer lower prices to retailers and pass on savings.

What is a Retailer?

Retailers are the final step on the supply chain before products reach consumers. They purchase goods from wholesalers and sell them directly to consumers through physical stores, websites, catalogs, and other methods. Here are some key characteristics of retailers:

They sell products directly to consumers as the end users.
They focus on marketing, merchandising, and customer service to attract consumers.
They sell in smaller quantities tailored to individual consumers.
Examples include department stores, specialty shops, online stores, and convenience stores.

The Role of Retailers

As the last stop before consumers, retailers play a key role in getting products to customers. Here are some of their major functions:

Merchandising – Selecting, promoting, and displaying products to appeal to consumers. Retailers tailor their product selection and inventory levels based on local demand.
Marketing and advertising – Retailers conduct their own marketing and run promotional campaigns to bring customers into their stores.
Inventory management – Retailers order merchandise from wholesalers on an as-needed basis to limit overstock and markdowns. They monitor sales data closely.
Customer service and support – Retail staff are trained to assist customers, answer questions, handle payments, and manage returns or exchanges.
Price setting – Retailers make pricing decisions at the individual store level based on their operating costs, inventory levels, and local market factors.
Product assortment – Rather than carry a huge range of inventory themselves, retailers can offer a wide assortment of products by working with many wholesalers.

The Different Sales Approaches

The sales process differs significantly between wholesalers and retailers:

Wholesalers focus on high-volume sales, building relationships with retailers, and negotiating delivery contracts. Their customers are primarily business buyers who make logical purchasing decisions.
Retailers focus on creating an engaging in-store or online shopping experience. Their customers are consumers who make emotional, impulse purchase decisions strongly influenced by trends, branding, and loyalty.
Wholesalers sell via inside sales teams, direct site visits, and at annual trade shows where brands exhibit. Orders tend to be infrequent but very large.
Retailers sell continuously with daily in-person or website traffic. Orders are high in frequency but low in size as individual consumers buy products.

While wholesalers and retailers have distinct roles, they work closely together to make the supply chain function efficiently. Wholesalers provide the product volume and distribution infrastructure while retailers connect directly with consumers and provide data back to suppliers. The hand-off between these two business types delivers immense variety and availability of products across global economies.

The Global Growth of Wholesalers and Retailers

Advancements in technology and infrastructure have enabled significant expansion of wholesalers and retailers worldwide in recent decades. According to UN trade data, global wholesale trade has grown steadily at an average annual rate of 3.4% from 2000 to 2020, reaching $33 trillion in 2020. The total number of wholesale businesses worldwide increased 38% during this period as distribution efficiency improved.

Retail sales have grown even faster over the past two decades, fueled by rising consumer spending power in developing economies. Total retail sales globally grew 4.1% annually from 2000 to 2020. The fastest growth came in emerging markets like China and India, where rising incomes and urbanization led to boom in modern retail formats. Brick-and-mortar retail maintained majority market share, but ecommerce retail gained significant ground with over 15% of total retail sales globally done online by 2020.

Forecasts predict solid continued growth for both wholesalers and retailers globally. Wholesale trade is projected to grow at 3% annually through 2025 to meet supplier needs. For retailers, 4% annual growth is forecasted through 2025, led by developing regions where consumer markets are expanding. Country-level regulations and infrastructure will remain key factors shaping wholesale and retail growth worldwide. Ongoing digitalization and omnichannel strategies will also disrupt traditional supply chains. Wholesalers and retailers that leverage technology and build flexible operations will gain advantage.

References:

https://web.archive.org/web/20190806075623/https://www1.umassd.edu/ir/resources/consumption/shopping.pdf

http://www.davidreiley.com/FieldExperimentsCourse/papers/FullReadingList/DrezeEverydayLowPricing.pdf

https://dx.doi.org/10.2307/1247896

https://unctad.org/news/global-wholesale-trade-continued-grow-2020-ecommerce-sales-surged

https://www.businesswire.com/news/home/20200204005657/en/Global-Retail-Industry-2020—2025-Market-Trends-Growth-Opportunities-and-Forecasts—ResearchAndMarkets.com

https://smallbusiness.chron.com/difference-between-retailers-wholesalers-72047.html

https://www.vendhq.com/blog/retailers-vs-wholesalers-whats-the-difference