Whole sale trade is defined by the bureau of the Census as “all establishments or places of business primarily engaged in selling merchandise to retailers, to industrial, commercial, institutional, or professional users; or to other wholesalers; or acting as agents in buying merchandise for a selling merchandiser to such persons or companies.
Wholesale Structure: In 1987, total sales by wholesalers in the United States exceeded $2.5 trillion and involved 466,000 separate establishments employing over 5.5 million people. It is important to understand that there are many different types of wholesalers, all of which differ in product categories handled as well as in specific marketing functions performed. Generally three basic types of wholesale establishments can be identified: merchant wholesalers, merchandise agents and establishments owed and operated by manufacturers. Within these categories there are also important subcategories.
Merchant Wholesalers: Merchant wholesalers are the backbone of the wholesale structure. They are the primary institutions that buy and sell merchandise among manufacturers and retailers. The distinguishing features of merchant wholesalers is that they take ownership and associated risk related to the goods in which they trade. Merchant wholesalers accounted for over 80 percent of all wholesalers firms in 1987and were responsible for about 58 percent of sales volume. The percentage of wholesale volume that moves through merchant wholesalers has been steadily increasing for over forty years.
The most common type of merchant wholesaler is the full function or full service merchant. This type of wholesaler is also often referred to as distributor or jobber. As the name implies, full function wholesalers typically perform a broad range of marketing functions in the value added distribution process of the channel in which they operate as intermediaries. They assume risk as a result of purchasing inventory and they typically provide storage and transportation, maintain a sales force to service retail or industrial accounts, provide financing through the extension of customer credit and disseminate market information to both manufacturers whose products they sell and retailers whom they service.
In addition to the full function merchant wholesaler, there are also numerous specialized firms that perform a unique combination of services. The following paragraphs review some of the more significant ‘limited function’ or ‘limited service’ merchant wholesalers.
Rack merchandisers specialize in handling all aspects of distribution, from the manufacturer to placements of merchandize on display racks or shelves, which they provide to retail customers. Frequently rack merchandisers sell on a consignment basis to retailers only charging for items the retailers sell to customers. This form of specialized wholesaler is frequently used by grocery stores and convenience markets for nonfood items such as pet products, house wares, toys, games, books, and magazines.
Cash and carry wholesalers, as the name implies, typically do not provide customer credit or delivery. Once tough to be vanishing form of wholesaling growth has been re-stimulated through the establishment of such firms as Costco, Price Club, Office Max, and Sam’s Club. Although the primary customers who patronize these companies are individual consumers over 50 percent of the company’s sales are made to small businesses for resale or to businesses purchasing office and operating supplies.
Wagon or trick distributors are firms that sell an assortment of merchandise from stock carried on board vehicles. This form of wholesaler combines the functions of sales and delivery using a driver representative.
Drop shippers typically sell bulky commodities such as lumber and building materials. They arrange for direct shipment from manufacturers to retailers thereby avoiding the need for physical possession and intermediate storage.
Mail-Order wholesalers typically perform the full range of merchant wholesaler marketing functions except personal selling. Catalogs featuring the wholesaler’s product lines are provided for industrial or retail customers who typically place orders by telephone or mail.
Terminal grain elevators are establishments that purchase grain or other agricultural products from farm assemblers, which they store and resell to such commercial firms as flour millers, distillers, brewers, and exporters.
Merchandise Agents: Merchandise agents are wholesalers who perform selected marketing functions buying and selling for other firms. They typically negotiate sales as representative of other firms and do not take title to merchandise. In actual practice there is considerable vagueness and overlapping of terminology, so that it is often difficult to distinguish one type of merchandise agent from another. This category of wholesaler is extremely important to channel operations.