What does a Wholesaler do?
Wholesaling companies are huge enterprises specialized in product acquisition and distribution. These companies have the advantage of huge capital investments, which allows them to get economies of scale when buying products from the manufacturers. By doing this, the wholesale company can buy hundreds or thousands of products to the same manufacturer at a lower price, sometimes with discounts of up to 50%! Therefore, the primary function of most wholesalers is to provide better prices to retailers and distributors.
In a few words, wholesalers become the favorite customer of manufacturers and producers.
What are Economies of Scale?
This economic term is used to describe the advantage the buyer has when purchases in big lots. This means that any company can benefit from unique prices and discounts when purchasing huge amounts of one single product.
In other words, the unit cost of buying 1 products will always be higher than the unit cost of buying 1,000 units. Clearer now?
What is the Advantage Wholesaling Companies have?
By doing bulk purchases, wholesale companies can benefit from unique prices. Actually, the bigger their acquisition power, the better prices they will get, thus the bigger their revenue will be when reselling these products to distributors or retailers in B2C stores..
However, starting a wholesaling company requires a very high capital investment. Economies of scale only happen when the buyer acquires hundreds or thousands units of one single product. Therefore, the stock risk is very high for wholesale companies.
What is the difference between…?
Now that we know more or less what a wholesaling company does, why don’t we think a bit further and compare wholesale companies against other business models?
Wholesaler vs Distributor
We know that wholesalers have very strong agreements with manufacturers and producers of goods: they will buy thousands of their products at special prices. However, we also know that distributors also have agreements with manufacturers and producers. So, what is the difference between a wholesaler and a distributor?
On the one hand, the wholesaler will acquire big lots of products to the manufacturer. By doing this, the wholesaler will become the seller itself. The manufacturer will never have to deal with the wholesaler or the customer again. However, on the other hand, the distributor must be in contact with the manufacturer all the time. The distributor will be the selling hand of the manufacturer and will help the business to grow all over the world.
In summary, wholesalers are the starting point of the business model, whereas the distributors are just mere intermediaries in the selling process.
Wholesaler vs Retailer
This is probably the easiest one to spot. We know that wholesaler companies buy big lots of products. Furthermore, we also know that retailers ALSO buy products from the manufacturers. So what is the main difference between them?
Weill, the most obvious one is the capital investment. Whereas the wholesaling company requires huge levels of investment to benefit from economies of scale, the retailing company only needs a few thousand dollars to start running a very smooth store.
The wholesaling company MUST acquire huge quantities of goods to make money, which will also cause big stock risks for their business. However, retailers can operate their stores with very little stock while they buy products on-time or weekly from wholesalers or distributors.
In summary, retailers can be referred as the final customer of Wholesalers and Distributors, but will rarely have to deal with the manufacturers or producers.