Asset Intelligence and Management

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Wholesalers vs Distributors: Understanding the Key Differences

 Wholesalers and distributors are key intermediaries, connecting manufacturers and retailers. The global wholesale market is projected to grow to over $61 billion by 2027 at a CAGR of 5.9%, presenting opportunities for companies to leverage wholesalers and distributors to expand their reach. Many businesses use these terms interchangeably although they refer to distinct supply chain roles.

This article explains wholesalers vs distributors, including their business models, functions, product types carried, and ideal use cases. Whether you are a manufacturer looking to improve your distribution network or a retailer sourcing new inventory, this guide will help you determine if you should partner with a wholesaler or distributor to optimize your supply chain. Let’s dive in!

What are wholesalers?

Wholesalers play a key role in the supply chain by purchasing large quantities of products from manufacturers and selling smaller amounts to retailers, commercial businesses, or consumers. They help distribute products in a more efficient manner to consumers by acting as an intermediary between producers and sellers.

Without wholesalers, it would be incredibly challenging for retailers to source products directly from hundreds of different manufacturers. Wholesalers enable a more efficient process for getting goods to market. For both manufacturers and retailers, partnering with the right wholesaler can provide access to wider distribution and increased sales volume.

Common types of wholesalers

Wholesalers can be divided into several types, such as:

Cash & Carry wholesalers

Cash and carry wholesalers, also known as warehouse wholesalers, sell a wide variety of goods to retailers, businesses, and other wholesalers. Retailers visit the warehouse, place orders, and pay cash to carry away the products themselves. Cash and carry wholesalers offer a large assortment of general merchandise at low prices.

Full-Service wholesalers

Full-service wholesalers not only sell products at their warehouses but also provide services like delivery, customer support, and product promotions. They have a sales team that interacts directly with customers. Full-service wholesalers carry a wide range of products, sometimes specializing in a certain industry.

Specialty wholesalers

Specialty wholesalers focus on distributing a particular type of product or service. Some examples are produce wholesalers, seafood wholesalers, and pharmaceutical wholesalers. These wholesalers sell products that need special handling, storage, or transportation. Their expertise comes from concentrating on a specific product category.

What are distributors?

Like wholesalers, distributors act as product middlemen between manufacturers and retailers. But distributors play a more specialized role. They focus on localized distribution of a manufacturer’s products by taking ownership of the goods. By providing services like sales, marketing, warehousing, delivery, and customer service on a local level, distributors allow for targeted product distribution and brand building.

Distributors allow manufacturers to focus on making their products instead of managing complex logistics. And they enable more efficient distribution than manufacturers could achieve on their own. Distributors serve defined territories and have knowledge of retailers in those regions.

Common types of distributors

Distributors can be of several types, including:

Exclusive distributors

Exclusive distributors sign agreements with manufacturers to only carry and sell their products within defined geographic territories. This exclusivity enables them to specialize in building demand for those specific products. They become experts in the brands they distribute. Their exclusivity ensures they will fully commit to driving growth for those products.

Value-added distributors

Value-added distributors provide important services beyond taking and fulfilling orders from retailers. They focus not just on distribution logistics but building the brands they distribute. Common value-added services include tailored marketing for each territory, managing warranty and returns processes, providing field sales reps, tracking retailer sales data, and offering customer support. 

Specialty distributors

Specialty distributors concentrate their distribution services within a specific product category or industry, such as pharmaceuticals, automotive, electronics, or food and beverage. Their focused expertise equips them to provide targeted distribution services to retailers of those products. They understand the unique needs, regulations, handling and storage requirements that come with distributing more specialized products.

Key differences between wholesalers and distributors

Wholesalers and distributors differ in the following ways:

Target customers

Wholesalers have a very wide target customer base that includes retailers of all sizes, business-to-business customers, government agencies, other wholesalers further down the distribution chain, and in some cases, individual consumers. They aim to sell their broad mix of products to any business or entity that wants to purchase goods from them.

Distributors have a very narrow customer focus, selling primarily to retailers on behalf of specific manufacturers they represent. Their distribution services are dedicated to getting a supplier’s products to retailers in their designated territories. They build close relationships with these retailers to promote the supplier’s brand.

Product range

Wholesalers offer an extremely vast, diversified range of products from hundreds or thousands of different brands and manufacturers. Their role is to consolidate products across industries for resale to their varied customer base. They do not limit themselves to certain brands.

On the contrary, distributors only carry and sell products from the manufacturers they have agreements with. Each distributor represents a select number of brands and provides in-depth distribution services for those specific products within their regions. They focus on specializing in the brands they distribute rather than offering a vast product assortment.

Pricing and discounts

Wholesalers set their own competitive pricing for products and offer discounts or deals to attract different types of buyers. They have the flexibility to adjust pricing to appeal to customers and drive sales volume. Their discounts may vary across customers.

Conversely, distributors must adhere to the pricing terms set by the manufacturers they distribute for. They cannot adjust pricing on their own. However, distributors may offer promotional pricing, discounts or retailer incentives provided they align with the manufacturer’s policies and sales goals. Their role is to promote the brands according to supplier guidelines.

Inventory type

Wholesalers take legal ownership of the wide range of inventory they purchase in bulk quantities directly from many manufacturers and suppliers. This inventory is stored in the wholesaler’s own warehouses or facilities until it is sold and shipped to their customer base. Wholesalers buy and own the goods.

In contrast, distributors typically do not take legal ownership of inventory. They do not buy and own the products they distribute. Instead, distributors facilitate the sales and distribution of products on behalf of the manufacturers they have agreements with. The suppliers maintain ownership while the goods are in the distributor’s custody.

Value-added services

Wholesalers provide basic services to facilitate transactions, such as bulk breaking products into smaller quantities, warehousing/storage, delivery to customers, and some customer service. Their core function is aggregating inventory for resale.

Unlike wholesalers, distributors offer extensive value-added services to support product sales, positioning and growth for the brands they distribute. This can include marketing, sales support, order processing, managing warranties, providing field reps, and offering extensive customer service. They focus on brand building more than just order fulfillment.

Contractual relationships

Wholesalers have non-contractual, transactional relationships with the various suppliers they purchase inventory from. There are no binding contractual agreements governing the terms of the relationships between wholesalers and suppliers. Purchases are typically done on an individual purchase order basis.

Conversely, distributors enter into formal contractual agreements with each manufacturer they choose to represent. These legally binding contracts detail the exclusive terms to which distributors must adhere when representing and selling the suppliers’ brands in their assigned regions.

Conclusion

Wholesalers and distributors both facilitate product distribution but in different ways. Key differences include their customer targets, product ranges, inventory ownership, pricing control, and supplier contracts. Wholesalers operate broadly while distributors distribute exclusively. Understanding their unique functions, assets and relationships allows manufacturers and retailers to select the best distribution method for their needs and optimize supply chain efficiency.

EZOfficeInventory can help you optimize your distribution operations by tracking goods across complex supply chains. Its robust features help you track purchase orders, receive inventory, manage vendors, and analyze procurement data. By keeping tight control over inventory, costs and vendor relationships, EZOfficeInventory empowers businesses to scale and achieve distribution success.

Frequently Asked Questions (FAQs)

1. What differentiates wholesalers, distributors, and retailers?

Wholesalers sell large quantities at low prices to commercial buyers. Distributors represent and promote brands in regions while providing services like logistics. Retailers buy inventory from wholesalers and distributors to sell individually to consumers through stores and websites.

2. What is the major difference between a wholesaler and a distributor? 

Wholesalers and distributors both deal in bulk goods, but play different roles. Wholesalers buy large quantities from manufacturers and resell them in smaller amounts to retailers. On the other hand, distributors represent manufacturers exclusively in certain regions. They actively promote and sell the manufacturer’s products, sometimes offering extra services like warehousing and logistics.

3. How to effectively manage vendors?

Managing vendors and procurement efficiently is key for supply chain success. Solutions like EZOfficeInventory provide robust, centralized platforms to control the entire process – from purchase orders to receiving inventory to analyzing costs. This allows you to build strategic relationships with vendors, reduce expenses, and optimize your supply chain.