What is Wholesale Trade? – Importance, Types, and More

Wholesale trade, also known as wholesaling, is a profitable activity that involves the distribution of goods and services.

A wholesaler buys foodstuffs in large quantities directly from manufacturers and resells them to merchants in smaller amounts.

The main characteristic of indiscriminate trade is that it does not have direct contact with the end consumer.

This distinguishes it from a retailer, a commercial agent who sells products at retail.

Importance of Wholesale Trade

1. The importance of wholesale distribution is evident when considering the role that wholesalers play in the distribution chain.
2. These companies are responsible for coordinating the movement and distribution of finished products from manufacturers to the retail market, as well as of intermediate goods between manufacturers.
3. This means that wholesalers optimise the distribution process between businesses, whether manufacturers or retailers, so that products ultimately reach the end consumer.
4. Their specialisation in product distribution makes them an integral part of the supply chain, reducing transportation and delivery costs.
5. This has a positive effect, as it reduces the risk of inventory buildup at manufacturers and shortages at retailers.
6. Similarly, wholesale distribution increases the profitability of both manufacturers and retailers by reducing the costs associated with the distribution and storage of specific products.

Types of Wholesale Trade

Specifically, there is no standardised classification of wholesale types. This means that we can find various interpretations of these wholesale commercial agents.

In this regard, the following categories can be distinguished:

1. Wholesale Agents by Sales Volume

Small Wholesaler

Despite their relatively low sales volumes, these wholesale companies distribute products to retailers.

They typically operate in sectors with difficult market access or where retailers lack the financial capacity to cover the high costs of transportation, storage, and distribution.

Big Wholesaler

These are companies with a financial and operational structure large enough to handle high volumes of goods.

This allows them to obtain preferential pricing from manufacturers, translating into significant advantages in marketing, warehousing, and transportation.

2. Wholesale Trade Agents According to the Manufacturer

Intermediary Wholesale Agents

This is a company that typically stores and distributes products without owning them.

This type of wholesaler usually earns its income through commissions.

Commercial Wholesalers

This is the most classic type of wholesale trade. In this case, a company buys large quantities of products, takes ownership, and resells them.

Threats to Wholesale Trade

Currently, many manufacturers seeking to increase sales volumes are employing various business strategies to minimise the number of intermediaries.

On the one hand, this has a positive impact on the consumer’s final price, provided that the costs of storing and delivering the purchased goods do not increase excessively.

However, while this benefits the end consumer, it eliminates wholesalers from the supply chain.

There is also a trend toward vertical integration of marketing strategies with other manufacturers or retailers, displacing wholesalers.

Added to this are market trends toward product customisation, which conflict with the product standardisation business model typical of wholesale trade.

All of these are challenges faced by wholesale businesses. However, there are currently enough niches across various markets that require wholesalers’ participation in the distribution chains of numerous products.

Advantages and Disadvantages of Wholesale Trade

Wholesale trade, given its specific characteristics, presents various advantages and disadvantages for the entire distribution chain. The main benefits include:

• It allows for the simultaneous movement of large volumes of products from the manufacturer to the retailer. This prevents the accumulation of excess inventory at the manufacturer and shortages at the retailer.
• It reduces the manufacturer’s storage and distribution costs.
• It allows retailers to obtain large volumes of products to purchase or manage for subsequent sale.
• It facilitates access to products in remote regions.
• It promotes market development and strengthens existing business relationships.

Disadvantages of wholesale trade:

• The presence of intermediaries increases product costs; consequently, retailers’ profits decrease, which in turn affects the final price.
• The concentration of goods in intermediaries’ hands can generate market distortions, such as shortages and supply disruptions in certain regions.
• These factors discourage the purchase of customised products.

The Function of Wholesale Trade

Wholesale trade is characterised by the purchase of goods from manufacturers and other wholesalers and their subsequent distribution to other wholesalers, distributors, retailers, and even manufacturers, but not to final consumers. These are the main functions of wholesale trade.

The performance of wholesale trade can be classified according to various criteria:

1. kind of Product

• The company organises wholesale activities in 7 areas:
• Agricultural and food products;
• Textiles, clothing, and footwear;
• Pharmacies, household goods, and personal care products;
• Vehicles and accessories.
• Durable goods.
• Inter-industry trade.
• Other wholesale trade.
• The pharmaceutical industry belongs to the third section and defines the sector dedicated to the production and preparation of medicinal chemical products for the prevention or treatment of diseases.

2. Property Relationships

• Wholesalers can be independent companies or have ownership relationships with other channel participants (manufacturers or providers).
• The pharmacological distribution sector is highly fragmented compared to other countries, although it has undergone significant consolidation through mergers and acquisitions in recent years. This situation is due to the crucial roles of size and geographical reach.
• Pharmacists own most national pharmaceutical distributors. This type of possession affects not only cooperatives but also distributors registered as limited companies.
• However, except in exceptional circumstances, the shareholding structure of pharmaceutical distributors is highly fragmented, with a clear separation between control and ownership.
• Generally, pharmacists are excluded from management, which, along with their minority stake, leads to two significant consequences: limited participation and reduced individual control over potential acquisition options by third parties.

3. Product Location

• Generally, depending on the type of Product, wholesale companies may be located at production plants, distribution centres, or consumption areas.
• In the case of pharmaceutical distribution, given the number of market operators across the country, we observe a heterogeneous landscape due to the proximity of manufacturers to both laboratories and retail chains.

4. Type of Activity

• Various distributors in the pharmaceutical distribution market compete with one another or collaborate through purchasing groups.
• However, although all wholesalers operating in the market can supply both products funded by social security and other products not subject to official price restrictions (advertised medicines, parapharmaceuticals, and medical instruments),
• in this situation, direct sales from various pharmaceutical companies are becoming increasingly important due to the high demand from numerous pharmacies, commercial groups, and online networks. This importance is such that some companies already estimate that their direct sales to pharmacies account for 30%.
• Finally, the activities of integrated logistics operators, which guarantee the collection, distribution, and storage of pharmaceutical, parapharmaceutical, and surgical products for warehouses, hospitals, and pharmacies, are becoming increasingly significant.
• Finally, it is worth noting the interest of many pharmacists in exploring the possibilities of direct purchasing from the pharmaceutical industry. Some do so through pharmacy groups (with the primary objective of joint purchasing), while others do so directly, thanks to their high sales volume.

5. Ownership or Possession of the Products

Most wholesalers own the products they distribute. However, some market participants may only own the products or even act on behalf of the seller:

Broker: This intermediary serves as the intermediary between the manufacturer and the buyer. This neutral intermediary is primarily responsible for advising on commercial negotiations. They usually act as the seller’s representative, who typically signs a contract with them and pays for their services.

Agent or sales representative: This intermediary serves as a liaison between the manufacturer and the retailer. They usually maintain a stable, long-term relationship with the manufacturer and receive a commission on sales.

Commission agent: a temporary employee who receives financial compensation for services provided.

It is worth noting that many pharmacists are interested in exploring the possibilities of buying directly from the pharmaceutical industry. Some do so through pharmacy groups (with the primary objective of joint purchasing), while others do so directly, thanks to their high sales volumes.