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What are the Differences between a Wholesaler and a Distributor?
A company’s supply chain relies on either a distributor or wholesaler, sometimes both, to deliver products to consumers. A distributor and wholesaler help manufacturers secure and distribute their products to the market. Many people often get confused about how wholesalers and distributors work. Some even use the two terms interchangeably .
However, the two distribution channels differ significantly. To clarify the confusion, we have compiled this article to help you understand who wholesalers and distributors are, their roles and differences, and how to choose between them. Keep reading!
What is a Wholesaler?
A wholesaler
is a company or individual who buys goods in large quantities and resells them in smaller amounts to the retailers. The retailers resell the commodities to the consumers. Wholesalers can purchase goods from the distributor or directly from the producers.
Wholesalers earn their income by selling their items to retailers at slightly higher prices to maximize profits. Most wholesalers also don’t manufacture products but focus on buying and distributing to organizations, businesses, government agencies, etc. The importance of the wholesaling industry is that it ensures continuous and quick delivery of goods to consumers.
What is a Distributor?
A distributor
is an entity contracted by a company to distribute its products to the market. The distributor’s primary role is to ensure a smooth flow of products from the producers to consumers. The distributors act as intermediaries between manufacturers and other entities, like retailers and wholesalers.
Distributors’ work involves buying commodities, holding inventories in the warehouse, and transporting goods to different locations for reselling. If you were to draw the distribution chain, it would begin with the manufacturer, the distributor, wholesalers, and finally, the retailers who sell to consumers.
Some benefits of distributors to manufacturers include:
They enhance the company’s reach and expedite responses to meet the consumers’ needs
They also create value-added packages and also provide total solutions to the customers.
Besides, distributors provide companies with logistics and storage support, relieving them of the burden
They also provide after-sale services and manage the inventory
So
,
what are the Differences between a Wholesaler and a Distributor?
The roles of the wholesalers and distributors intertwine, but the terms are not interchangeable. Some ways these roles differ include:
Relationship with Manufacturers
A wholesaler can purchase directly from the manufacturer or the distributor. They, however, don’t enter into exclusive contracts with the manufacturers. Therefore, wholesalers can conduct business with several other manufacturers whose products compete.
Distributors enter into a contract with the manufacturer
to trade in non-competing product lines. These contracts bar the distributors from dealing with the manufacturer’s competing products.
Customers
Distributors sell goods to a wide range of entities in the supply chain, including wholesalers and retailers. They sometimes even sell directly to customers. In contrast, the wholesalers only have the retailer, i.e., both physical and e-commerce, as their only customers.
Distribution Channel
A product passes through different paths when it leaves the company before reaching the consumer. This path is what’s called the distribution channel
. The notable distribution channels include:
The three-level channel is where the manufacturer works with the distributor to supply goods within a specific location. The distributor also sells to the location’s wholesalers and retailers.
In Two level channels, the manufacturer sells directly to the wholesalers, who resell to the retailers. The retailer finally sells to the consumer.
One/direct or zero-level channel involves manufacturers who sell directly to consumers.
Distributors are only present in the three-level distribution channel, while the wholesalers exist in the three- and two-level distribution channels.
Scope
A typical wholesaler sells goods to retailers. The wholesaler’s geographical area coverage is therefore limited. In contrast, a distributor’s area of operation is much larger as they serve both wholesalers and retailers. They also act as the producer’s salesperson. Hence, they also cover a broad scope to reach both large and small businesses.
Revenue
The wholesaler gets revenue when manufacturers and distributors discount for buying bulk. They also repackage and resell these goods to retailers at a higher price. Wholesalers, thus, get their income by subtracting the manufacturer’s selling price from the price the wholesalers sell to the retailer.
Distributors are the middlemen between the producer and the wholesalers and retailers. As such, they act as sales representatives and earn revenue through the percentage of their total sales.
The other difference in revenue between wholesalers and distributors is that wholesalers have more control over their incomes. A wholesaler has the liberty to choose their products and set prices when selling to retailers.
Services
Distributors have a contract with manufacturers, making them salaried employees. The company also relies on them to supply the market with products and offer additional services. They, therefore, engage in activities like pitching, marketing, and selling products.
A wholesaler focuses mainly on bridging the gap between the manufacturer and retailers by supplying the product. They do not engage in any promotional activities to increase manufacturer’s sales. They instead work on improving their sales to their retailers.
How to Pick Between a Wholesaler and a Distributor
Before settling on either a wholesaler or distributor, consider:
The services each offers
. Both wholesalers and distributors supply the customers with the manufacturer’s products. However, distributors go the extra mile by offering additional services like marketing and pitching. Therefore, the sales support that the distributor offers gives them an edge over the wholesaler.
Compare the cost.
Wholesalers and distributors act as intermediaries in the supply chain and have almost similar distribution channels. Manufacturers that want to reduce the operational cost can consider removing one or both links in a distribution channel. Once they have done that, they can compare costs between wholesalers and distributors.
Check your goals.
The channel you select should support your business goals. If you want to sell only settle for wholesalers. Otherwise, distributors are the best option if you are interested in marketing and covering a broad scope.
Understand their roles
. The wholesaler doesn’t enter a contract that restricts them from selling a manufacturer’s product together with its competitor’s. The distributors on the side enter this contract, making them the manufacturer’s employees. Understanding this relationship is crucial in determining which relationship is worth pursuing.
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Conclusion
The choice between a wholesaler and a distributor isn’t hard. While both act as intermediaries, they differ in their objectives. The wholesaler aims to supply and reap huge profits after reselling to retailers. The distributor delivers goods and increases sales by engaging in promotional activity, and they make money as a percentage of the total sales.
So, when deciding which one to pick, examine your long- and short-term goals. Let your business needs and the relationship you want to create with the channels be your guiding principle.