Wholesale trade: the wholesaler's services: WASSCE Commerce

A soap factory produces thousands of cartons a week; a kiosk sells a few bars a day. Between them stands the wholesaler, who buys by the lorry-load and sells by the carton. This lesson explains what wholesalers do for manufacturers, retailers and consumers, and the different kinds of wholesalers.

Learning objectives

By the end of this lesson you should be able to:

define wholesale trade and the wholesaler
explain the functions of the wholesaler to manufacturers, retailers and consumers
describe the types of wholesalers, including cash-and-carry
state the features of a good wholesaler

What is wholesale trade?

Definition

Wholesale trade is the buying of goods in very large quantities from manufacturers or importers and selling them in smaller quantities to retailers (and sometimes to large users). The wholesaler is the middleman between producers and retailers.

The wholesaler between manufacturers and retailers: to manufacturers it buys in bulk, stores goods, pays promptly, gives market information and bears risk; to retailers it breaks bulk, gives credit, offers variety, delivers and advises

Figure 1. The services of the wholesaler to both ends of the chain. WASSCE Tutor diagram.

Functions of the wholesaler

To manufacturers (and importers)

Buys in bulk, so the manufacturer can produce on a large scale.
Stores goods (warehousing), saving the manufacturer storage space and cost.
Finances production: pays promptly, often before the goods are sold to retailers.
Bears risks of price falls, changes in fashion and damage after buying.
Gives market information about demand, prices and complaints.
Distributes the goods to many retailers the manufacturer could not reach.
Advertises and promotes some products.

To retailers

Breaks bulk: sells in quantities small retailers can afford.
Grants credit, so retailers can buy now and pay after selling.
Offers variety: goods from many manufacturers in one place.
Delivers goods to retailers' shops.
Advises retailers on new products, display and pricing.
Keeps a steady supply from stock, so retailers need not hold large stocks.

To consumers and the economy

Stabilises prices by holding stock in times of plenty and releasing it in times of scarcity.
Grades, packs and branding: some wholesalers sort, pack and label goods.
Ensures goods are available all year round in many places.

Worked example

Why one wholesaler saves trips. Suppose 5 manufacturers each sell to 40 retailers directly. That needs $5 \times 40 = 200$ separate sales contacts. With one wholesaler, each manufacturer deals only with the wholesaler (5 contacts) and the wholesaler deals with the 40 retailers (40 contacts): $5 + 40 = 45$ contacts. The wholesaler cuts the number of transactions, and so the cost of distribution.

Types of wholesalers

Type	Description
General wholesaler	Stocks a wide range of goods (provisions, toiletries, drinks)
Specialist wholesaler	Deals in one line of goods (medicines, building materials, textiles)
Regional / national wholesaler	Serves one region, or the whole country through branches
Cash-and-carry wholesaler	Retailers come to the warehouse, select goods themselves, pay cash and carry them away; no credit or delivery, so prices are lower
Importer-wholesaler	Imports goods in bulk and sells them to local retailers
Producer's own depot	A manufacturer runs its own wholesale branch

Cash-and-carry: advantages to retailers are lower prices, the chance to choose goods themselves and quick service. Disadvantages: no credit, no delivery, and the retailer pays the cost of transport.

Features of a good wholesaler

Adequate capital to buy in bulk and give credit.
Warehouse facilities and good stock control.
Knowledge of the market: what sells, at what price.
Reliable transport and delivery.
Location convenient to both suppliers (ports, factories) and retailers.
Honesty and good relations with suppliers and retailers.

In Sierra Leone

Wholesale trade in Freetown clusters around the port and the commercial areas of Kissy Road, Sani Abacha Street and the East End, where importers and wholesalers sell rice, sugar, flour, onions and provisions in bags and cartons to retailers who come in from across the city and the provinces.

Common mistake

The wholesaler does not "increase prices for nothing". The wholesaler's margin pays for real services: storage, transport, credit, risk-bearing and breaking bulk. If the wholesaler is removed, someone else must perform and pay for these services.

Key points

The wholesaler buys in bulk from producers and sells in smaller lots to retailers.
To manufacturers: bulk buying, storage, finance, risk-bearing, market information, distribution.
To retailers: breaking bulk, credit, variety, delivery, advice, steady supply.
Types: general, specialist, regional, cash-and-carry, importer-wholesaler.

WASSCE examination focus

WAEC tests this

A classic question: "Explain the services of the wholesaler to (a) the manufacturer and (b) the retailer." Other questions ask about cash-and-carry and the types of wholesalers. Set out services under separate headings for each group served.

Quick check

Give three services of the wholesaler to the manufacturer.
Give three services of the wholesaler to the retailer.
What is a cash-and-carry wholesaler?
How does a wholesaler help to stabilise prices?

Answers: 1. Any three: bulk buying, storage, prompt payment (finance), risk-bearing, market information, distribution, promotion. 2. Any three: breaking bulk, credit, variety, delivery, advice, steady supply. 3. A wholesaler from whom retailers select goods themselves, pay cash and transport them away, without credit or delivery. 4. By storing goods when they are plentiful and releasing them when they are scarce.

Wholesale trade: the wholesaler's services