Ground Report

It is hard to define what a wholesaler is because there are so many different wholesalers doing different jobs.  Some of their activities may even seem like manufacturing.  As a result, some wholesalers call themselves "manufacturer and dealer."  Some like to identify themselves with such general terms as merchant, jobber, dealer, or distributor.

To avoid a long technical discussion on the nature of wholesaling, we’ll use the U.S. Bureau of the Census definition:  "Wholesaling is concerned with the activities of those persons or establishments which sell to retailers and other merchants, and/or to industrial, institutional, and commercial users, but who do not sell in large amounts to final consumers."  So, wholesalers are firms whose main function is providing ‘wholesaling activities.’

It is important for a marketing manager to understand the role wholesalers play in a distribution system, what functions they provide, and the strategies they use.  Each of the ten major types of wholesalers is discussed below:

1. Merchant wholesalers.  These wholesalers own (take title to) the products they sell.  For example, a wholesale lumber yard that buys plywood from the producer is a merchant wholesaler.  It actually owns – takes title to – the plywood for some period of time before selling to its customers.  About four out of five wholesaling establishments in the United States are merchant wholesalers – and they handle about 59 percent of wholesale sales.  Merchant wholesalers often specialize by certain types of products or customers and they service relatively small geographic areas.  And several wholesalers may be competing for the same customers.  For example, about 3,000 specialized food wholesalers compete for the business of restaurants, hotels, and cafeterias across the United States.

2. General merchandise wholesalers.  These are service wholesalers who carry a wide variety of nonperishable items such as hardware, electrical supplies, plumbing supplies, furniture, drugs, cosmetics, and automobile equipment.  These wholesalers originally developed to serve the early retailers – the general stores.  Now, with their broad line of convenience and shopping products, they serve hardware stores, drugstores, electric appliance shops, and small department stores.

3. Single-line (or general-line) wholesalers.  These are service wholesalers who carry a narrower line of merchandise than general merchandise wholesalers.  For example, they might carry only food, wearing apparel, or certain types of industrial tools or supplies.  In consumer products, they serve the single- and limited-line stores.  In business products, they cover a wide geographic area and offer more specialized service.

4. Specialty wholesalers.  These are service wholesalers who carry a very narrow range of products – and offer more information and service than other service wholesalers.  A consumer products specialty wholesaler might carry only health foods or oriental foods instead of a full line of groceries.  Or a specialty wholesaler might carry only automotive items and sell exclusively to mass-merchandisers.  Specialty wholesalers often know a great deal about the final target markets in their channel.  For example, Advanced Marketing is the leading wholesale supplier of books to membership warehouse clubs.  The company offers hardcover best sellers, popular paperbacks, basic reference books, cookbooks, and travel books.  Consumers in different geographic areas are interested in different kinds of books and that affects what books will sell in a particular store.

5. Cash-and-carry wholesalers.  These wholesalers operate like service wholesalers – except that the customer must pay cash.  Some retailers, such as small auto repair shops, are too small to be served profitably by a service wholesaler.  So service wholesalers set a minimum charge – or just refuse to grant credit to a small business that may have trouble paying its bills.  Or the wholesaler may set up a cash-and-carry department to supply the small retailer for cash on the counter.  The wholesaler can operate at lower cost because the retailers take over many wholesaling functions.  And using cash-and-carry outlets may enable the small retailer to stay in business.  These cash-and-carry operators are especially common in less-developed nations where very small retailers handle the bulk of retail transactions.

6. Drop-shippers.  These wholesalers own (take title to) the products they sell – but they do not actually handle, stock, or deliver them.  These wholesalers are mainly involved in selling.  They get orders – from wholesalers, retailers, or other business users – and pass these orders on to producers.  Then the producer ships the order directly to the customers.  Because drop-shippers do not have to handle the products, their operating costs are lower.  Drop-shippers commonly sell products so bulky that additional handling would be expensive and possibly damaging.

7. Truck wholesalers.  These wholesalers specialize in delivering products that they stock in their own trucks.  By handling perishable products in general demand – tobacco, candy, potato chips, and salad dressings – truck wholesalers may provide almost the same functions as full-service wholesalers.  Their big advantage is that they deliver perishable products that regular wholesalers prefer not to carry.  Some truck wholesalers operate 24 hours a day, every day – and deliver an order within hours.  A 7-Eleven store that runs out of potato chips on a busy Friday night doesn’t want to be out of stock all weekend!

8. Mail-order wholesalers.  These wholesalers sell out of catalogs that may be distributed widely to smaller industrial customers or retailers who might not be called on by other middlemen.  These wholesalers operate in the hardware, jewelry, sporting goods, and general merchandise lines.  For example, Inmac uses a catalog to sell a complete line of 3,000 different computer accessories and supplies.  Inmac’s catalogs are printed in six languages and distributed to business customers in the United States, Canada, the United Kingdom, Germany, Sweden, the Netherlands, and France.  Many of these customers – especially those in smaller towns – don’t have a local wholesaler.

9. Producers’ cooperatives.  These wholesalers operate almost as full-service wholesalers – with the "profits" going to the cooperative’s customer-members.  Cooperatives develop in agricultural markets where there are many small producers.  Examples of such organizations are Sunkist (citrus fruits), Sunmaid Raisin Growers Association, and Land O’ Lakes Creameries, Inc.  Successful producers’ cooperatives emphasize sorting – to improve the quality of farm products offered to the market.  Some also brand these improved products – and then promote the brands.  For example, the California Almond Growers Exchange has captured most of the retail market with its Blue Diamond brand.

10. Rack jobbers.  These wholesalers specialize in nonfood products sold through grocery stores and supermarkets – and they often display them on their own wire racks.  Most grocers don’t want to bother with reordering and maintaining displays of nonfood items (housewares, hardware items, and books and magazines) because they sell small quantities of so many different kinds of products.  Rack jobbers are almost service wholesalers – except that they usually are paid cash for what is sold or delivered.

Note that producers who take over wholesaling activities are not considered wholesalers.  However, when producers set up branch warehouses at separate locations, these establishments basically operate as wholesalers.  In fact, they’re classified as wholesalers by the U.S. Census Bureau and by government agencies in many other countries.