What is Wholesale? Everything You Need to Know!
You might not realize this, but most retailers do not make and sell their own merchandise. So, where do they source their products? That is where wholesalers come in.
Wholesalers are not only a great source of merchandise, but when your business grows and develops, they often have the flexibility to support you along the way. This can make them become a true partner in your long-term success. Unfortunately, finding and choosing a wholesaler is not an easy task when you’re first starting out.
But don’t worry, in this post, we’ll write to share everything with you about wholesale, including benefits of buying from a wholesaler, as well as how to find and choose a wholesaler for your business.
Table of contents
- What is wholesale?
- 3 main types of wholesalers
- What is the wholesale price?
- What makes a good wholesaler?
- How can you find a wholesaler for your business?
- The bottom line
What is wholesale?
We all know that a manufacturer cannot sell all of his products directly to end consumers; therefore, he uses different channels of distribution to deliver the products to their target market. And wholesale occupies a pivotal place in that distribution channel.
Wholesale is a business activity that buys goods in large quantities directly from producers or manufacturers and then resells them to other businesses (e.g. retail businesses, small shops). Wholesalers are called middlemen or go-betweens, and the connecting link between these two. Because of high-volume purchase orders, wholesalers can typically buy products at a lower price and add their margins.
For instance, a vegetable wholesaler purchases products directly from the farm and stocks at his own warehouse. He then sells these products to a local retail outlet or restaurant. In this situation, he is running his own wholesale business.
3 Main types of wholesalers
Depending on the industry type and market type, different classes of wholesalers can be found. In highly-fragmented industries, such as unbranded clothes or farm produce, there could even be various levels of wholesalers. Wholesalers, in fact, could also specialize in one function only.
For example, a wholesaler could specialize in warehousing. Such a wholesaler keeps products or goods in a big warehouse, specializes in the storage function, and depends on others for other functions, such as transportation or financing.
So, to make it clear, most experts agree that there are three broad types of wholesalers, including merchant wholesalers, agents & brokers, and manufacturers’ sales branches and offices. Let’s have a quick look at each one.
These are individuals and businesses that will handle most of the business themselves. They connect with suppliers, buy in large quantities, store the inventory themselves, price competitively, and sell directly to retailers. This common type of wholesaler is often found in the FMCG (Fast-moving Consumer Goods) industry, agriculture industry, or private label industry.
Merchant wholesalers consist of some smaller types that are seen around the business world. Below are some of them.
General merchandise wholesaler
As the name implies, this type of merchant wholesaler deals with a large variety of items from different manufacturers and suppliers for a range of customers. They often buy goods in bulk quantity, then sell in a small quantity to retailers or small business owners. Such a wholesaler provides all the services including warehousing, transportation, and financing.
Large general merchandise wholesalers typically dominate a geographic region, supplying merchandise to most of the retail outlets in a particular region. They can deal with multiple brands, though some of them may deal with just one major manufacturer for a particular line of merchandise.
Limited line wholesaler
A limited line wholesaler usually specializes in just one product category and serves a niche market (for instance, laboratory equipment to be sold to medical laboratories).
In certain markets where manufacturers are fragmented and small, limited line wholesalers can become powerful. The industry must rely on these wholesalers to sell to their customers. Such wholesalers have in-depth knowledge about the industry, market, and key players. These limited line wholesalers are very useful for niche manufacturers who serve a small but essential market.
Cash-and-carry wholesaling has recently appeared in India, but its popularity has spread over other countries. The Wal-Mart group’s entry into India is through a cash-and-carry wholesaling format.
In cash-and-carry wholesaling, retailers could buy products in bulk (often carton loads) at a reduced price and then resell at a higher price in their retail outlets. Immediate payment is demanded in the delivery of goods. Small retailers can benefit from cash-and-carry wholesaling, as they get access to goods without any waiting time and at a cheap rate.
Truck wholesalers, or truck jobbers, often transport small quantities of perishable commodities (such as milk, bread, snack foods, etc.) to retail outlets, in which retailers could inspect and purchase goods from the truck.
Such truck wholesalers are often small operators and could carry a variety of multi-brand items. They often do not offer credit lines and are owned by large wholesalers. These wholesalers provide critical transportation and stocking services to the distribution channel.
Dropship wholesalers do not take physical possession of the goods. They collect orders from retailers or industrial buyers and arrange for these to be transported to the customers from the manufacturers. Dropshippers will own the goods from the time the contract is signed with the manufacturer until the goods are received in proper condition by the buyer.
Such type of wholesaler is often seen in commodity markets, where transaction volumes are large, such as coal, oil, and lumber. You can read this article to know more about dropshipping.
Agents and brokers
This group of wholesalers works as middlemen in marketing products for manufacturers and suppliers. Their primary function is to ease buying and selling, negotiate between buyers and sellers, and bring them together. When the deal gets done, they will receive a commission on the deal. They are most commonly observed in the food, real estate, and insurance industries.
The major difference between an agent and a broker is that an agent requires a long-term process, and specializes in the repeated purchase so that he or she stays for a longer time with the company and works for the betterment of the company. Meanwhile, a broker remains a short term, and he or she will be there for a couple of orders. For instance, insurance companies have agents (repeated purchasing), and real estate has brokers (single purchasing).
Manufacturers’ sales branches and offices
Manufacturers may take part in wholesaling through their sales branches and offices. Instead of relying on other wholesalers and receiving low production margins, some manufacturers are large enough to have their own sales team that can sell products directly to retailers. This enables manufacturers to improve their inventory control, selling, and promotion flows.
What is the wholesale price?
The wholesale price is the price charged for a product as sold in bulk by wholesalers to retailers. The wholesale price is typically lower than the price that is charged in a retail outlet. This mark-up in price provides the retailer with the profit he needs to keep his business running.
When selling in bulk, a business gains “economies of scale.” Simply put, the costs to produce, package, promote, and distribute 10 units of a product to one buyer are much cheaper than the costs when selling 10 units to 10 different consumers. This economic principle is one reason that prompts wholesalers to sell to retailers at lower-than-retail prices.
Benefits of buying from a wholesaler
Buying goods in bulk or wholesale has several perks, and it is much more preferable than manufacturing your own material or getting associated with expensive suppliers who will drain your money. If you still feel unconvinced, read on to know the top 5 benefits of buying from a wholesaler.
Get better deals and much lower prices
One of the most significant advantages of buying wholesale is that you can get attractive deals and hugely discounted prices. Each product comes at a much lower price when compared to individual selling prices. This makes sure you get great deals and save hundreds of dollars in the same deal.
Besides, it also means you can charge the same or less than your competitors to make a good profit. This is especially beneficial for people looking to start small businesses in this competitive marketplace.
Have more choices
When opting for wholesale purchases, you will find a wide variety of goods available. So, you have the potential to expand the types of items that you offer through your retail business. You can also select a specific product and buy a large quantity of it, depending on your niche market and business goals.
Reduce shipping costs
It is essential to take time to factor in shipping costs when it comes to the overall price of the goods you are buying and the profit you can make from them. When you purchase wholesale pallets, you will find that the shipping costs tend to be substantially lower than if you were to order separate products. Having lower shipping costs means even more savings for your business.
Besides, most of the large wholesale centers provide a shipping service for large orders. So, it’s a convenient option for those businesses that don’t have regular access to suitable transportation.
Gain high brand recognition for greater sales
When you are buying wholesale, you have the chance to buy from well-known brands and e-commerce giants that people already know, love, and trust. These brands have already had high recognition value among customers, so you will easily gain their trust and loyalty.
Therefore, when choosing pallets and merchandise to buy wholesale, pay attention to the brands that are available. This can give you a better idea of the overall gains that the products could offer you.
Avoid the risk of selling out
By stocking up and buying in bulk, you can avoid the angry, and dissatisfied customers, especially when products are running out and you are waiting for new stock. By being prepared and having extra storage, you always remain one-step ahead. This can be a great advantage for busy periods and holidays, such as Christmas, depending on what type of products you stock.
What makes a good wholesaler?
There are many criteria that determine what makes a good wholesaler for your business. However, in general, a high-quality wholesaler should meet these requirements.
- Have a good reputation in your industry
- Make sure to supply the volume of goods required to meet your demand in a reliable and timely manner
- Take responsibility for the quality problem and work forward to address it quickly
- Be clear about the terms and conditions, credit facilities, and relevant regulations
- Maintain clear and comprehensive recordkeeping
Ultimately, a good wholesaler is determined by a combination of all these above factors, which may vary in priority, depending on your specific requirements.
How can you find a wholesaler for your business?
As a retailer or a small business, you may work with one or several wholesalers. However, it is not an easy task to find an appropriate wholesaler for your business. Finding wholesalers matching minimum quantity, cost, and shipping requirements is crucial for retailers and requires some research.
Here are 6 ways we’ve compiled to help you find a good wholesaler for your retail business.
1. Try the manufacturer first
Paying wholesalers reduces your profits, so to remove middlemen, you can start at the source.
If you are selling branded items, contact directly with the manufacturer of the product. They might sell to you depending on their minimum order requirements. If your business is too small for them or they just sell through established distribution channels, you can ask them for a list of their distributors.
The fewer channels you have to go through, the lower your cost will be, enabling you to be more competitive in the marketplace.
2. Ask for referrals from local business networks
Most cities and regions have one or several local professional networks, such as the Chamber of Commerce, manufacturer associations, business cooperatives, and so on. The beauty of being part of that network is being able to reach out directly to other business owners with a variety of expertise.
Therefore, you can connect with these experts and ask if they can recommend some good wholesale suppliers. Remember that even when your contact may not know a wholesaler, chances are they know someone who does.
In case you end up realizing that the wholesalers to which your contact referred you are not the right fit, you can still ask them if they can recommend other wholesalers who can meet your requirements.
3. Conduct online searches
It seems obvious to search on Google or other search engines to find wholesalers. However, you may notice that most wholesaler websites are rarely updated. As a result, their websites are not as organized and informative as retailers would like them to be.
Moreover, because they overlook Google’s algorithm, their websites may not be optimized. This means that you will need to find more beyond the first page of Google’s search results. And remember to try different search terms, like wholesale, wholesaler, distributor, warehouse, etc. to make sure you find as many potential wholesale suppliers as possible.
Apart from search engines, you should also look into social media platforms for wholesalers. LinkedIn, for example, is a great place for connecting with B2B professionals. A quick search on the site with the right keywords will give you a list of wholesale distributors you may be interested in.
Or the giant social network - Facebook, also offers huge opportunities for your business to connect with both manufacturers and wholesalers. You should join groups on these social media channels to keep updated with the latest information, as well as approach potential wholesalers.
4. Check major B2B marketplaces
There are nowadays many large B2B marketplaces online where you can buy in bulk at low prices. For instance, Alibaba is one of the best platforms to work with if you’re a beginner. As the largest B2B marketplace of manufacturers, importers, and wholesale distributors, Alibaba offers a wide range of products for you to choose.
You can find other B2B marketplaces, including Global Sources (USA), Buyer Zone (USA), EC Plaza (Korea), Busy Trade (Hong Kong),… The important thing is to look for a marketplace that serves your country or region, and meets your specific requirements.
5. Subscribe to your industry’s trade publications
Trade magazines contain a wealth of information about businesses and relationships in your industry. Every advertiser in these types of publications will most likely be a manufacturer or distributor. Unlike wholesaler websites, trade publications usually have ads with up-to-date contact details, and are expecting retailers like you to give them a call.
In addition to magazines, you can also subscribe to all of the online newsletters and blogs. This will ensure that you catch up with industry news, updates, and important things you need to know. Start a quick search by typing “magazines for [your business type or niche]” into your search box.
6. Attend trade shows
Trade shows are one of the most effective ways to build and grow your business. These events are held for retailers and small business owners to connect with major manufacturers, wholesalers, and other retailers.
Trade shows allow you to meet and speak directly with manufacturers and wholesale suppliers and build a list of options to choose from. These face-to-face conversations often avoid communication difficulties or misinformation that can occur when contacting people online. Besides, trade show participants usually offer special deals during the event, which are great especially for beginner retailers.
There are a number of websites for you to find schedules of local trade shows, such as Trade Shows News Network, Trade Fair Dates, Events Eye Trade Show Directory, and so on. You can search by industry, city, state or country, date, and event name.
The bottom line
Wholesale business is an integral part of any distribution system. By understanding this channel thoroughly, you will know how to operate and run your retail business more smoothly.
So, in this article, you’ve learned everything about wholesale, including the definition, 3 main types, benefits of buying from wholesalers, and the wholesale price. Furthermore, with 6 ways recommended, you will know how to find appropriate wholesalers for your business. It will, of course, take time to learn and practice, but as long as you try hard, it will pay dividends over time.