Retail vs Wholesale

How many wholesalers would you be able to name if I were to ask you? None? Maybe a couple? This is because we, the end-users, buy from retailers more frequently than wholesalers. Now, if I were to ask you to name a few retailers, I am sure you would be able to name a handful. And this is not surprising because we interact with retail businesses in our daily life. Wholesaling and retailing have many similarities and differences; you can read more about them here!

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Table of contents

    Retail vs Wholesale Definition

    The main difference between wholesalers and retailers is that wholesalers sell to retailers, whereas retailers sell to the end customer. To understand these differences in more detail, let's first look at the definition of wholesale and retail.

    Wholesaling

    Wholesalers act as an intermediary between the manufacturer and the retailer. They buy products at a large scale from select manufacturers. Wholesalers then distribute these goods to their customers - retailers or smaller businesses. Wholesalers operate in business-to-business (B2B) industries.

    Wholesaling is the process of acquiring products from manufacturers at a large scale and distributing them at a smaller scale to retailers or other businesses.

    Wholesalers also have value-adding functions. They can deliver the products faster to buyers. This is because they are relatively closer to customers (compared to producers) and are often already trusted by customers. This trust helps them promote and sell new products. Wholesalers can also inform retailers about market developments and other changes. They also play a significant role in warehousing products and bear the risk of damage, spoilage, and theft.

    Retailers

    Retailers buy products at a smaller scale than wholesalers, but they can offer many more varieties of products than wholesalers. This is because retailers buy from different wholesalers, and as retailing is a business-to-customer (B2C) business, their customers will likely purchase in smaller quantities.

    Retailing is the process of purchasing products from wholesalers and distributing them to end-users.

    Retailers play a crucial role in creating a bond between the customers and the brand. They can also influence a customer at the point of purchase. This process of converting shoppers into buyers at the point of sale is termed shopper marketing.

    Wholesale vs Retail Examples

    It is interesting to note that many types of wholesalers and retailers exist. Some examples of wholesalers and retailers are given below:

    Wholesalers

    Wholesalers can be broadly classified into three types - merchant wholesalers, brokers and agents, and manufacturers' and retailers' branches and offices.

    Merchant Wholesalers

    Merchant wholesalers can be divided into two types:

    1. Full-Service wholesalers provide many services - they maintain stock and a sales force, offer credit, deliver, and provide management aid. They can be further divided into:

    • Wholesale merchants - primarily sell to retailers.

    • Industrial distributors - primarily sell to manufacturers.

    Samsung wholesalers also setting up service centres are an example of full-service wholesalers.

    2. Limited-Service Wholesalers provide fewer services and can be categorised as:

    • Cash-and-carry wholesalers - sell a limited line of fast-moving products sold to small retailers for cash.

    • Truck wholesalers or Truck jobbers - deliver and sell semi-perishable merchandise to supermarkets, grocers, restaurants, etc., for cash.

    • Mail-order or Web-wholesalers - maintain websites/catalogues for retailers to order online.

    • Drop shippers - set up a website where buyers can order products, but the seller does not stock these products. On receiving an order, they select a manufacturer, who then ships the merchandise directly to the customer.

    Brokers and Agents

    Brokers facilitate buying and selling for a particular customer type and specialise in a product line. They enable the sale of a product to the customer, from which they earn a commission.

    Agents represent buyers or sellers for long periods. They can be classified into:

    • Manufacturers' agents - Often represent furniture or apparel manufacturers. Helps small manufacturers with field sales and larger manufacturers with entering new territories.

    • Selling agents - sell a manufacturer's entire production under a contractual agreement.

    • Purchasing agents - make purchases for the representing buyer.

    • Commission merchants - often seen in agricultural marketing. Commission merchants bring the product to the market, sell it for the highest price possible, and deduct a commission.

    Manufacturers' and retailers' branches and offices

    These are offices operated by manufacturers where they sell their products that have been manufactured at their plant.

    • Sales branches and offices - set up to improve stock control, sales and promotion.

    • Purchasing offices - part of an organisation responsible for procuring goods.

    Retailers

    We can see a wide variety of retail stores around. Some may be local; others may be international or global stores. Listed below are the various types of retail stores.

    • Speciality stores - offer a narrow range of product lines such as clothing or furniture - e.g. Freddie's flowers.

    • Department stores - offer various product lines - e.g. Marks & Spencer.

    • Supermarkets - offer a wide variety of items, usually at low prices and high volumes. They aim to meet customers' household needs - e.g. Tesco.

    • Convenience stores - small stores open for longer hours, often charging higher prices near residential areas - e.g. 7-Eleven.

    • Superstores - stores that meet all customer needs - food and non-food items. E.g. Costco.

    • Discount stores - sell standard products at a discounted price - e.g. Lidl.

    • Off-price retailers - buy from wholesalers at a lower price than usual and sell at a lower price than seen in the market - e.g. TJX stores.

    Similarities between Wholesaler and Retailer

    Wholesalers and retailers have similarities as they work with each other.

    An entity whose primary activity is wholesaling is called a wholesaler.

    And similarly,

    An entity whose primary activity is retailing is called a retailer.

    Wholesalers and retailers both buy goods at a certain price point, which they mark up. Both parties aim to make a profit.

    Both wholesalers and retailers play a crucial role in adding value to products. As they are close to their respective customers, they are informed about their customers' needs and product gaps in the market.

    Both parties influence their customers at the point of sale - wholesalers promote and sell a new product to retailers, who promote and sell this product to their customers - the end-users.

    Retailers, like wholesalers, also bear the risk of damage, spoilage, and theft.

    Retailers and wholesalers perform the activity of bulk-breaking, which is the process of buying products in large quantities and breaking them into smaller quantities. They also buy and sort the products into groups that their respective customers prefer.

    Differences between a Retailer and a Wholesaler

    Just like their similarities, wholesalers and retailers also have their share of differences.

    Retail vs Wholesale: Marketing

    Marketing plays a significant role in retail. Retailers take many steps to attract customers to a product, as a retail store sells many products from a variety of brands.

    Many retail outlets offer similar product lines. Thus, heavy marketing and advertising are required to catch a customer's attention and draw it towards a particular brand's product or the retail store. Retailers should display products in a manner that sparks an interest in shoppers' minds.

    Such marketing cannot be seen in wholesale stores, as they rely on business partnerships and traditional means of reaching out to their customers.

    Retail vs Wholesale: Pricing

    Although both wholesalers and retailers mark up the prices of the products, retailers sell the products for a higher price. Wholesalers buy it from the producer at a specific rate, which they then mark up and sell to retailers. Retailers also mark up the price of the same product, adding to the already higher price.

    Retail vs Wholesale: Expenses

    Retailers have more expenses when compared to wholesalers. This is because retailers have to advertise, market, and encounter other costs to make the shop attractive to customers. They may also have higher rent depending on the location.

    Retail vs Wholesale: Location

    Retailers choose commercial areas or areas where customers mostly spend their time. This makes it easier to attract customers. Wholesalers do not need to set up their stores in a very flashy or attractive area. They usually set up their stores near highways or airports to reduce transportation costs.

    Retail vs Wholesale: Interaction with the End-User

    Retailers can directly interact with end-users as consumers shop at retail outlets. They are closer to the consumer and have the opportunity to understand their needs through their interactions. Wholesalers do not have this opportunity, as they only interact with other retailers.

    Relationship between Wholesale and Retail

    Wholesalers and retailers interact to buy and sell, forming the relationship between the two. They also share market information. Wholesalers inform retailers about new products and other changes from the manufacturers, whereas retailers inform wholesalers about market gaps and customer needs. Both wholesaling and retailing i market segmentation and targeting to differentiate and position themselves and their products appropriately. The wholesaling and retailing industries are both facing new challenges due to the exponential rise of technology in the purchasing experience.

    Wholesaling and retailing are activities that bring products from manufacturers as close to customers as possible. Wholesalers try to make the purchasing journey easier for businesses by serving as a medium to reach their customers quickly and efficiently. Retailers make customers' lives easier by enabling the availability of the products at the customer's convenience.

    Retail vs Wholesale - Key takeaways

    • Wholesaling is the process of acquiring products from manufacturers at a large scale and distributing them at a smaller scale to retailers or other businesses.
    • Retailing is the process of purchasing products from wholesalers and distributing them to end-users.
    • Wholesalers can be classified into three types - merchant wholesalers, brokers and agents, and manufacturers' and retailers' branches and offices.
    • For wholesalers and retailers, marketing, pricing, expenses, location, and customer interactions differ.
    • However, both wholesalers and retailers try to make a profit, add value to their products, and try to influence their customers at the point of sale.

    Test your knowledge with multiple choice flashcards

    Wholesalers also have value-adding functions.

    Wholesalers bear the risk of damage, spoilage, and theft. 

    Wholesalers create a bond between the customers and the brand.

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