Wholesellers are none but middlemen who buy products from distributors (wholesale/retail) and sell them to retailers. In most cases, the retailers come to the wholesellers to buy products to replenish their stock. However, wholesellers may also sell to end consumers, but such sales are minimal.
In the Indian FMCG market, we have broadly two types of wholesellers:
1. Modern Wholesale stores such as Metro, Wal-Mart BestPrice, etc.
2. The neighbourhood wholesellers around the streets in India
Wholesale distributors buy in bulk (high volumes) bargaining low prices from manufacturers. Wholesellers in turn buy products in demand (what retailers ask for?) at low prices from wholesale distributors. Because of this reason that wholesale distributors are bulk buyers, it is generally seen that wholesale is cheaper than retail. But, it also depends on how many middlemen it passes through, as each middleman adds his margin to the selling price.
What’s in it for the retailer?
Few reasons why retailers buy from the wholesellers:
- No direct distribution of a brand to their stores
- Low margins by distributors
- Direct distributors dictating terms
- Better deals at wholesale
- To be aware of the high selling products and brands
Retailers also face some disadvantages in buying from wholesellers:
- Buying goods on immediate cash
- Transportation costs of the goods
- Wholesellers may not take back the unsold inventory/stock
What’s in it for the manufacturer?
The wholesale channel helps the manufacturers achieve sales from markets where they are not directly able to handle retail sales and their shipments. In a country like India, where 95% of the retail environment is unorganized, and spanning across millions of small stores, it is impossible to reach all the stores directly through your distributors.
Most companies will have strong direct distribution in cities like Mumbai, but as you go deep into India, the dependence on wholesale indirect channels increases. Most top selling brands and categories have a good amount of wholesale component. For example, a brand which is selling in Pan-India (across the regions in India) may have a wholesale component ranging from 20% to as high as 50-70% depending on the category/brand’s dependence on Rural India. It is obvious that most of the sales in Rural India happen through wholesellers. In Rural India, you will have strong wholesellers for every group of villages or in the nearby town, where retailers go and replenish their stocks.
Manufacturers would always like to have a higher contribution of retail sales to their overall shipments, as this helps them directly to control the nuts and bolts in the operations such as trade promotions and schemes, in-store visibility, relationship with retailers, pushing and increasing their assortment within the stores, maximising profitability, increased visibility of their sales, etc. The top FMCG companies are driving their direct distribution in Rural India as they mine the Gold at the Bottom of the Pyramid.