CHAPTER 12

CHANNEL INSTITUTIONS -
WHOLESALING

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 Chapter - 12

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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• Widespread economy – consumers can only be 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, dealers, 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 – caters to 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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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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Strategic Issues in
Wholesaling
• Selecting target markets: location, trading area, size and
composition of markets etc
• Marketing mix:
– Limited range of products preferred
– Works on thin margins and decides pricing accordingly
– Location decides the trading area and place of getting
business
– Promotions – passing on benefits to provide best
prices to his customers. Use own salespeople.

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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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• 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 : bring buyer and seller together – do not take

possession of goods
• Agents: add value to seller in transactions with the buyer

• Others: agri-business, auction companies etc

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Limitations of Wholesalers
• Some of them do not give complete information to
suppliers for their own 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 level
• 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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Cash & Carry Wholesale

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Cash & Carry Wholesale

• Goods sold from a wholesale warehouse operated usually
on a self-service basis. Customers buy on cash and carry
away the goods.
• Started with food products and now extends to a large
number of product categories.

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100% FDI in C&C Wholesale

• 100% foreign direct investment is permitted in C&C
wholesale in India
• Two existing examples of C&C are:

– Metro AG, the German wholesaler

– Walmart Best Price Modern Wholesale

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Effect on Traditional
Wholesalers
• C&C wholesaler buys in huge quantities – influences
trading terms and discounts
• Companies may sell directly and may save on distributor
margins which they can pass on
• C&C wholesalers introduce own products at prices lower
than national brands
• C&C wholesaler guarantees the quality of the goods

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C&C Wholesale Disadvantages

• Retailer does not get credit which he may get from
traditional wholesaler
• Retailer may have to travel a distance to reach the C&C
wholesaler. Traditional wholesaler may be nearer.
• All transactions are documented and tax paid – some
retailers may not like this

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Cash and Carry Snapshot 2016

• 89 stores of 4 companies
• Walmart Best Price 21, Metro 23, Booker UK 6 and Reliance
Markets 40
• Contribute to 3% of FMCG business in India
• Total Wholesale business in India 6.3% of India’s GDP
• Wholesale business growing at 8% pa of which C&C growing
at 12% pa!

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Metro Cash & Carry

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Metro C&C
• German wholesaler present in over 30 countries, 500
locations and over 50,000 products
– Self-service wholesaler for trade, businesses and
professionals
• Started operations in India in 2003
• Presently has 23 outlets in 14 cities in India

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Metro C&C Advantages

• Quality products at best prices possible
• Traders can buy as per needs – no need to build up
inventory
• Store has extended working hours 16X7
• Stores use modern storage technologies including cold
storage
• Extending benefit of order booking (telephonic orders
also) and door deliveries
• Fortnightly catalogues list a host of promotions
• Traders get clear invoices for all purchases

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Metro Cash & Carry

• Started in 2003 with two distribution centers in Bangalore
• Currently 23 centers across: Bangalore, Hyderabad, Mumbai,
Delhi, Kolkatta, Ludhiana, Jaipur, Jalandher, Zirakpur,
Amritsar, Vijayawada, Indore, Surat and Lucknow
• Line of food and non-food products under Own Brand labels
with over 1100 products

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Metro Cash & Carry

• Sourced from SMEs across the country
• Range, quality and distinct price advantage
• Some Own Brands:
– ARO basic daily use
– HORECA Select for catering
– Fine Foods
– Tarington House home products
– Tailor & Son clothing
– Fairline non-food
– Lambertazzi travel goods
– Sigma office supplies

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Metro Highlights
• Quality products, Value for Money
• All products needed with over 18000 skus
• Traders need not tie up in inventory – shelves replenished
every 15 minutes in the outlet
• Store works 16 hours, 7 days a week
• Modern storage technologies including cold storage
• Adequate parking
• Customer service team
• Fortnightly selected product promotions
• Clear invoices for all purchases

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Best Price Modern Wholesale

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WalMart Best Price Wholesale

• Earlier with Bharti – from 2009, Amritsar
• Boasts a sustainable and efficient supply chain
• 6000 items – food and non-food
• Vendors are local farmers, private labels and manufacturers
• Unique features:
– Mera Kirana, Business Solutions Center to guide small and
medium retailers on best practices
– My Partner program for traders on taxation

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Best Price Modern Wholesale

– Live demonstrations, food safety and hygiene programs for
HORECA customers
– Best prices, unmatched convenience, choice, quality and
hygiene
– Adopted 4 local schools for underprivileged children

– Mission: Enable Small Business to Prosper

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Best Price Modern Wholesale

• Owned by WalMart with a mission of ‘enable small business
to prosper’
• Customers include: resellers, offices and institutions, hotels,
restaurants and caterers
• Product categories offered: Consumer Packaged Goods
(Food & Non Food), General Merchandise, Household
Electronics, Appliances, Fresh (Fruits, Vegetables, Poultry,
Mutton, Fish) and Dairy (Milk and Milk Products).

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Best Price Modern Wholesale

• Every day low and transparent prices to all business members

• Nearly 95% of the products are sourced locally – keeping

costs low

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Rural Wholesale

APMC – Agricultural Produce

Market Committee

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APMC
• Marketing Board established by each state Government
• Currently 2500 primary and 5000 sub-markets
• Purpose:
– To ensure farmers are not exploited by intermediaries
– Entire farm produce is brought to a central market and sold
at a proper price in an auction
• Traders need a license to operate in the market

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APMC Features
• Helps a contract farming model

• Creates a special market for perishables

• Even farmers can set up such a market with a license

• Clearly defined and implemented licensing norms

• Single market fee for the entire market

• Revenue from the APMC used to improve market

infrastructure

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APMC Issues
• Delayed payments to farmers by the licensed traders

• Incomplete payments

• Sales receipts not given to farmers on their produce affecting

their bank loan applications

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Distributor Management

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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 competitor’s
products. Does not sell from his premises. Extends credit
selectively.
– A redistribution stockist for HUL

– A distributor or dealer for Philips lighting division

– A distributor for L&T engineering division

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Dealer
• Role similar to a distributor but
– May or 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 re-distribute the stocks. Sells from his premises.
Extends credit selectively.
– A stockist for paper products
– A stockist for automobile spares
• Re-distribution is defined as ‘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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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 or
on time 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
– Giving regular market feedback
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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
• 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 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
• Providing market feedback

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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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Distributors

• Real Time Gross Settlement (RTGS)

• National Electronic Funds Transfer (NEFT)
• National Electronic Clearing Services (NECS) – can also be
used by companies to pay the distributors
• Immediate Payment Services (IMPS)
• Bharat Bill Payment System (BBPS)

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Key Learnings
• Wholesalers are required to reach hundreds of business
customers and retailers
• Wholesaler business is usually B2B
• Wholesalers can be free-lance or appointed by companies
– like distributors
• Strategic issues in wholesaling include location, trading
area, size and composition of markets.

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Key Learnings
• Cash and carry wholesale denotes the goods sold from a
wholesale warehouse on cash and self service basis.
– Two well known examples in India are Metro C&C and
Best Price Wholesale.
• Company distributors are bound by strict operating norms
• Future of wholesalers in India still seems favourable

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End of Notes – Chapter 12

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