Emerging Wholesale Strategy

Key Management Issues: Each wholesaler has to determine a unique business strategy that defines the niche it wants to fill in the overall channel process. One of the most fundamental decisions concerns the wholesale role it intends to perform. This role will identify the product assortment and functional service that it will offer participating manufacturers and retailers. As far as product assortment is concerned, the decisions can range from complete specialization (carrying only nuts and bolts) to a broad general line within a product group (carrying a complete line of hardware). The strategy could be to cut across commodity groupings in an unorthodox manner. Similarly, decisions can range from complete performance of all functions and their components elements to highly streamlined or specialized functional arrangements.

Building on basic functional and product assortment decisions, each wholesaler must seek to arrange operational capabilities in a manner that will position it as the preferred supplier. The service package offered by a wholesaler is the main way it gains a differential competitive advantage. Other key management issues include a wholesaler’s geographic decisions with respect to the extent of the market to serve (national, regional, state, etc) and the choice of location.

The range of differences in wholesale strategy is illustrated by review of two food wholesalers. Super Value stores distribute food and general merchandise through both corporate owned and independent retail stores. Super Value carries both private-label and manufacturer’s label products, which are sold to over 3000 stores in thirty three states. With twenty warehouse facilities throughout the country, Super Value has a total sales volume of over $10 billion.

First World Cheese markets distributes brand cheese and specialty foods to the delicatessen section of supermarkets. Cheese are purchased from independent manufacturers and marketed under the company’s proprietary trademark. The company also produces private label cheese for retailers located in the western United States. Additionally, the company purchases and distributes a line of cheese to the food service industry on a nationwide basis. Sales volume for 1988 was $72 million.

The two firms, both of them wholesalers in the food business, have established different strategies for product assortments chose, functions performed, and geographic locations covered. Nevertheless, each has combined a unique set of managerial decisions, which has resulted in highly profitable operations.

To remain viable in an increasingly competitive environment, wholesalers have come up with several strategies for continued success. Some of the more important of these are discussed.

Proprietary Brands: Virtually all successful wholesalers have developed strong proprietary brand products as one aspect of gaining and maintaining a sustained competitive advantage. W.W Grainger, which distributes electrical equipment and tools to commercial and industrial markets, achieves 50 percent of total sales from proprietary brands. Inmac Corporation, which sells computer supplies and accessories to businesses, enjoys over 90 percent of its sales from brand products.

International Expansion: Wholesalers, like other organization, are becoming more aggressive about expanding operations into international markets. Snap-On Tools distributes more than 12,000 different hand tools, electronic products, and tool storage units to professional mechanics throughout the world. Foreign operations account for almost 18 percent of Snap-On’s $850 million in revenue. All indications are that international expansion will continue as leading wholesalers enter joint ventures and marketing alliances to penetrate foreign markets.

Value added Services: Wholesalers are constantly striving to find value added services to expand margins and strengthens relationship with key customers. For example, United Stationery is the largest distributor of office equipment and supplies the United States. It has developed specialized pricing and merchandising program for office supply dealers to support aggressive competition against office supply superstores and warehouse membership stores.

Niche Marketing: Some wholesalers are enjoying substantial success by perusing niche marketing strategies that specialize in limited or unique product categories. Richardson Electronics, for example, is a specialized distributor of electron tubes and semiconductors which describes itself as being on the ‘trailing edge of technology’.

New technology in wholesale distribution involves the development of online order entry systems, advanced inventory management systems, mechanization and automation of warehouses, and other computer device applications, which streamlines operations and strengthens relations with both customers and suppliers. Computer-to-computer linkages with both sides if the distribution channel are increasingly common as application of new technology becomes a prerequisite for success in wholesale trade.