The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
Understanding the wholesale model
Wholesalers receive attractive prices from the manufacturer because they deal in large minimum order quantities (MOQs), with larger order quantities reducing handling time and cost and increasing profit. In some cases, the wholesaler and the manufacturer are the same company.
In a traditional wholesale model supply chain, goods may flow from raw material suppliers to manufacturers, distributors, wholesalers, retailers, and finally to consumers. Since most wholesalers do not sell directly to the consumer in small quantities, they sell bulk goods to retail businesses for a profit.
The wholesale model is a business-to-business (B2B) process since wholesalers buy from a manufacturing business and sell to a retail business. This differentiates the model from the retail model, a business-to-consumer (B2C) process where retailers buy from wholesale businesses and sell to individual consumers.
Functions of wholesalers in the wholesale model
Many companies utilize wholesalers and the wholesale model because of the impracticalities of selling direct to consumers. This is particularly true of large retailers, who may operate thousands of stores in hundreds of different regions.
To that end, some wholesalers act as middlemen for retailers and are vital cogs in the supply chain. Here are some of their functions:
- Sales and promotions – wholesalers are typically responsible for meeting sales targets for their particular region through promotional campaigns.
- Inventory management – maintaining sufficient inventory is a critical function of any supply chain. Experienced wholesalers understand that different products sell at different rates. They then use this information to avoid overstocking and understocking issues across the supply chain.
- Breaking the bulk – when a wholesale company receives a bulk order, it must necessarily break the order down into smaller cartons or consignments ready for delivery to the retailer.
- Warehousing – to supply a whole region, wholesalers require a large warehouse space to store inventory. Warehouses must be large enough to accommodate the extra demand for stock during holidays such as Christmas. The warehouse itself must also be economical to operate and not eat into margins.
- Risk management – in most cases, wholesalers are also responsible for inventory losses incurred because of theft, fire, or accidental damage. This makes risk management a priority.
- Market information – wholesalers have a good understanding of the size and potential of a market and share this information with intermediaries up and down the supply chain. Some may also have information on how strong a competitor’s business is in a specific region, which is valuable information to retailers and other wholesalers alike.
The benefits of buying and selling under the wholesale model
Let’s take a look at some of the benefits of buying and selling under the wholesale model.
- Cost and time reduction – as mentioned earlier, buying in bulk helps a business save money on most product ranges. For the retailer, the purchasing process is also more efficient. Wholesalers deal with multiple suppliers for every product, but the retailer only needs to do business with one wholesaler.
- Better deals – dealing with multiple suppliers, the wholesaler can quickly identify reputable companies who deliver high-quality products on time and at a reasonable price. This work also saves the retailer from finding reputable suppliers themselves.
- Higher margins – selling under the wholesale model may require dealing with multiple suppliers and comparison shopping to get the best deal. However, this allows a business to buy low and sell high. Selling direct to consumers will earn the highest margins, while selling to retailers usually attracts a slightly lower (though still attractive) margin.
- Responsiveness – sellers also have a better understanding of high-demand products since they work with both retailers and customers. With supplier relationships already in place, wholesale sellers can also launch new products more quickly than competitors. What’s more, some wholesalers have a deep working knowledge of the timing and organization of the entire supply chain, which gives them a competitive edge.
- Understanding the Wholesale Model
- Electronics: Apple manufactures iPhones and sells them in bulk to wholesalers. These wholesalers then distribute the iPhones to retail stores such as Target, which sell them to individual customers.
- Fashion: Levi’s produces jeans and sells them in large quantities to clothing wholesalers. These wholesalers distribute the jeans to retail outlets like Macy’s, where consumers can purchase them.
- Functions of Wholesalers
- Sales and Promotions: A book wholesaler offers a 20% discount on certain titles to boost sales during the summer reading season.
- Inventory Management: A toy wholesaler increases stock of popular action figures ahead of movie releases to meet anticipated demand.
- Breaking the Bulk: A cosmetics wholesaler divides a shipment of 5,000 lipsticks into smaller batches for distribution to various beauty stores.
- Warehousing: A fruit wholesaler maintains cold storage facilities to ensure fresh produce is stored appropriately before distribution.
- Risk Management: A wholesaler of electronics invests in security systems to protect their inventory from theft.
- Market Information: A sports equipment wholesaler provides insights to retailers about trending fitness gear in the region.
- Benefits of the Wholesale Model
- Buying: A cafe owner purchases various coffee beans from a single wholesaler rather than multiple growers, saving time and effort.
- Selling: A wholesaler specializing in imported chocolates buys rare chocolates in bulk at lower rates and then sells them to gourmet stores at a premium.
- General Examples
- Bakery Goods: A local bakery makes pastries and sells them in bulk to a food distributor, which then supplies them to coffee shops and supermarkets.
- Auto Parts: A manufacturer produces car batteries and sells them to automotive wholesalers. These wholesalers then distribute the batteries to auto parts stores.
- Beauty Products: A company creates a new line of organic skincare and sells it to beauty product wholesalers. These wholesalers then provide the skincare line to spas and beauty stores.
- The wholesale model is a selling model where products sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price.
- The wholesale model helps larger retailers with the impracticalities of selling direct to consumers. Wholesalers perform several critical functions relating to sales and promotions, inventory management, warehousing, risk management, and the divulging of market information.
- For buyers, the wholesale model reduces the time and cost associated with securing multiple suppliers. For sellers, the ability to buy in bulk increases margins when dealing directly with the consumer. Wholesale sellers also have a deeper understanding of the market and supply chain itself, which increases competitiveness.
- Understanding the Wholesale Model: The wholesale model is a selling approach where wholesalers sell products in bulk to retailers at discounted prices. Retailers then resell the products to individual consumers at higher prices. This business-to-business (B2B) process involves wholesalers buying from manufacturers and selling to retail businesses.
- Functions of Wholesalers in the Wholesale Model: Wholesalers play crucial roles in the supply chain, including sales and promotions, inventory management, breaking bulk orders into smaller units, warehousing, risk management, and providing market information. They act as middlemen for retailers and handle large-scale operations to supply regions efficiently.
- Benefits of Buying and Selling Under the Wholesale Model:
- Buying: Buying in bulk helps businesses save costs and time on products. Dealing with wholesalers streamlines the purchasing process as the retailer only needs to work with one wholesaler. Wholesalers can identify reputable suppliers and offer better deals to retailers.
- Selling: Retailers can achieve higher margins by buying low and selling high under the wholesale model. Wholesalers have a better understanding of high-demand products and can launch new products quickly due to established supplier relationships and knowledge of the supply chain.
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