What Does Wholesale Mean? A Detailed Look at the World of Wholesaling
Wholesaling is a vital process in the supply chain that allows goods to be sold from manufacturers to retailers. But what exactly does “wholesale” mean and how does the process work? This article takes an in-depth look at the wholesale industry.
The Meaning Behind the Term “Wholesale”
At its core, wholesale refers to the sale of goods or services to retailers for resale to consumers, rather than selling directly to the end user. Wholesalers, therefore, act as intermediaries between manufacturers and retailers. They buy large quantities of products at discounted rates and then sell smaller quantities to retailers at a markup. This allows retailers to offer a wider variety of inventory without having to directly negotiate with numerous manufacturers.
Types of Wholesalers and Their Roles
There are several major types of wholesalers:
- Merchant wholesalers: Take ownership of products and store them in warehouses. They offer a wide product assortment to meet diverse retailer needs.
- Brokers and agents: Do not take ownership but connect buyers and sellers for a commission. They provide product expertise.
- Manufacturers’ sales branches and offices: Represent one manufacturer by selling products directly to retailers. They offer specialty product knowledge.
- Truck wholesalers: Deliver products directly from the manufacturer to the retailer. They provide quick turnaround on regional delivery.
Across all types, wholesalers provide important value-added services like bulk breaking, branding, and customizing. They also offer financing options and valuable analytics.
The Wholesale Distribution Process
So how exactly does the wholesale process work? Here are the basic steps:
- Manufacturers produce and market products to wholesalers. This includes interactions with wholesale sales representatives.
- Wholesalers purchase goods in bulk volumes and take ownership of inventory. This requires accurate demand forecasting and inventory management.
- Products are delivered to the wholesaler’s warehouses and inventory is received/verified. Proper inventory controls and tracking are critical.
- Wholesalers catalog and market product offerings to their retailer customers. Sales teams play a key role.
- Retailers place wholesale orders to the wholesaler. Purchasing is based on consumer demand signals.
- Wholesalers fulfill orders, arrange shipments, and invoice retailers. Efficient distribution operations are vital.
- Retailers receive wholesale shipments, verify product delivery, and shelve inventory for sale to consumers.
- Consumers purchase products at retail stores. The wholesale process enables wide availability of goods.
As you can see, wholesaling requires strategic coordination between manufacturers, wholesalers, retailers, and end consumers. When done effectively, it enables the efficient flow of goods through complex supply chains.
Wholesale Pricing Models and Methods
Wholesalers use several pricing models when selling goods to retailers:
- Cost-plus pricing: Wholesale price is determined by adding a percentage markup to the cost of the product. The markup covers operating expenses and profit margin.
- Competitive pricing: Wholesale prices are set based on competitor wholesale rates for similar products. The goal is to remain price competitive within the industry.
- Demand-based pricing: Prices are set according to consumer demand signals. Products in high demand command higher wholesale prices.
- Quantity discounts: Larger wholesale orders qualify for discounted bulk rates, allowing retailers to benefit from volume savings.
No matter the pricing model, most wholesalers provide retailers with published price lists, catalogs, or price sheets. Many also enable e-commerce ordering and online price checks. Periodic price promotions and sales incentivize retailers to purchase inventory.
Industry Disruption and the Future of Wholesaling
While wholesaling remains essential to retail supply chains, there are several evolving trends disrupting the status quo:
- Direct-to-consumer models like Dollar Shave Club allow manufacturers to sell directly to consumers. This shrinks the need for wholesaler intermediaries.
- Retail behemoths like Walmart and Amazon are growing their own private label brands and working directly with manufacturers. Their scale and data capabilities provide leverage.
- Wholesalers are transitioning to become more consultative, providing retailers with insights, services, and tools beyond just physical product delivery. Customer experience is also being enhanced.
- Automation, AI, and inventory optimization are helping wholesalers modernize warehouses to enable faster, more customized order fulfillment. Real-time supply chain visibility is improving.
The wholesaling landscape is changing quickly thanks to technology and evolving consumer expectations. While their role as intermediaries remains essential, wholesalers must adapt their value proposition to stay competitive and relevant. Those embracing innovation and building advanced capabilities will be best positioned to thrive.
The Growing Global Wholesale Market
The wholesale market has seen steady growth worldwide in recent years. According to research firm IBISWorld, the global wholesale market was valued at $8.8 trillion in 2018. This represent an increase of 2.2% over the previous year. The market is forecasted to grow at an annualized rate of 6.5% from 2021 to 2026 to reach a value of $11.4 trillion. Driving this growth is expansion of the consumer class in developing regions and increased globalization of supply chains. With more discretionary income, consumers are demanding greater variety that wholesale provides.
Regional Trends in Wholesaling Industries
There are some notable geographic trends occurring in wholesaling. North America is the largest market, but the Asia-Pacific region is experiencing rapid growth. In 2018, the North American wholesale market was worth $3.4 trillion while Asia-Pacific was valued at $3.1 trillion, according to Plunkett Research. However, Asia-Pacific is projected to see 7.9% annual growth compared to just 3.2% in North America. China and India are powering growth in Asia with a burgeoning middle class and retail expansion. The European wholesale market is also seeing steady 2.5% annual growth. For wholesalers, emerging markets present lucrative expansion opportunities.
The Future of Automation in Wholesale Warehouses
Automation stands to substantially disrupt the wholesale warehousing sector. In a survey by MHI, 65% of wholesalers reported plans to expand automation in their DCs over the next five years. The main technologies being implemented are automated storage and retrieval systems (ASRS), automated guided vehicles (AGVs), robotic pickers, and automated sortation systems. These technologies are enabling wholesalers to achieve higher throughput, greater accuracy, and lower labor costs. According to DHL’s research, supply chains with highly automated warehouses can see 25-50% improvement in processing capacity. Automation will help wholesalers meet rising e-commerce driven fulfillment demands.
References:
https://dx.doi.org/10.2307/1247896
http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6
https://www.ibisworld.com/global/market-research-reports/global-wholesale-industry/
https://www.plunkettresearch.com/statistics/industry-statistics-wholesaling-worldwide/
https://www.mhi.org/publications/report
