Distributor vs. Wholesaler vs. Retailer

Danielle Lobo

When it comes to moving products from the manufacturing facility to the hands of the end consumer, there are various key players involved in the process. While manufacturers focus on making physical products, there are a few intermediaries who ‘touch’ the product before the end consumer purchases it. There is the distributor, the wholesaler, and the retailer.

In this post, we'll look at these roles in the traditional sense. Before the internet, the supply chain needed to have multiple players because it would be impossible for one business unit to conduct the distribution of products (at the rate we see it at) successfully. Ultimately, these players share similarities in terms of the processes and system requirements they need to adhere to. While there may be a fine line between a distributor and a wholesaler, both are suppliers serving different areas of the supply chain, contributing to the smooth flow of products from manufacturing to the end consumer.

What is a Distributor?

Distributors play a crucial role by exclusively partnering with manufacturers as dedicated distributors of their products. This business-to-business (B2B) relationship allows for a seamless distribution process.

What is a Wholesaler?

Wholesalers serve as the vital link in the supply chain, establishing connections both upstream and downstream. They purchase products from various distributors (sometimes the manufacturer) in bulk and distribute varying quantities of these products to diverse retailers. Certain wholesalers specialize in exclusively catering to other businesses, this is common for industrial equipment suppliers or pharmaceuticals.

What is a Retailer?

Retailers operating in a B2C environment are the final seller to consumers. Retailers sell through brick-and-mortar physical stores and/or online platforms. They serve as the direct and convenient point of contact for consumers, with a focus on the shopping experience.  It is quite uncommon for retailers to purchase directly from the manufacturer, as they rely on the support of distributors and wholesalers to acquire products for their stores.

In recent years and because of the eCommerce boom, it has become easier and faster for wholesalers and distributors to reach the end consumer. In a lot of cases, distributors and wholesalers will open a store attached to their warehouse or implement a eCommerce site for online ordering. If you're offering online ordering for your B2B Customers, why not offer it to B2C customers as well? Usually the answer is a no-brainer.

Distribution, wholesale, retail supply chain

What Are the Differences?

It's important to note that the below notes are how a distributor, wholesaler and retailer traditionally operate. As mentioned above, in recent years the lines have blurred between the three as distributor and wholesaler are interchangeable and can also be seen as a retailer.

It is important to note that the following points outline the traditional operations of a distributor, wholesaler, and retailer. As previously mentioned, in recent years the lines have blurred between these three roles, with distributors and wholesalers being used interchangeably and even seen as retailers.

Customers

Distributors act as a bridge, ensuring that the products and services provided by wholesalers are delivered efficiently to retailers. These wholesalers, in turn, understand the specific needs and demands of retailers, tailoring their offerings to meet those requirements. Ultimately, it is the retailers who have a direct connection with consumers, providing them with a wide range of products and services to enhance their shopping experience.

Marketing

Accurately understanding the target market will lead to successful and effective marketing strategies and due to variations in customer profiles, distributors, wholesalers, and retailers will require different approaches in their marketing strategies. While distributors and wholesalers may be able to rely on their network and connections to generate sales, retailers need to be more proactive in attracting customers by investing a significant amount of money in marketing initiatives to stand out from the competition.

Pricing policies

When it comes to pricing, distributors and wholesalers have the advantage of setting prices for their products by case or even truckload. This gives them the freedom to cater to the specific needs of their customers. On the other hand, retailers have their own unique strategy when determining the pricing of their products. They carefully analyze market trends and consumer demand to individually set prices that align with their customer expectations. Typically, retailers rely on the MSRP (manufacturer-suggested retail price) as a benchmark, but they also consider factors such as competition, product quality, location and their own brand value. This flexible approach empowers retailers to create a pricing structure that sets them apart from the crowd and attracts loyal customers.

Inventory

Distributors and Wholesalers require similar systems and processes for efficient inventory management. This includes essential functionality like EDI integration (which is required by some major retailers), Kitting, Backorder fulfillment, Multiple Units of Measure (enabling sales in each's, by case, etc.), and so on.

While retailers may not need an inventory management system as robust as that of distributors and wholesalers, they still require functionalities for POS, Order Entry and Invoicing, Purchase Orders, Credit Card Processing, and more.

In fact, everything that retailers could use, distributors and wholesalers also benefit from. The systems used to manage inventory are remarkably similar. Small businesses usually start with an introductory system and gradually upgrade to an ERP system (Enterprise Resource Planning) as they expand. More information on ERP software can be found below.

All three players can benefits from reviewing Inventory Management Best Practices.

Fulfillment

When it comes to fulfilling orders distributors prioritize the seamless movement of products across the supply chain by stocking high value product, wholesalers focus on breaking down bulk orders for retailers, and retailers concentrate on consumer-centric fulfillment, often involving customization and direct-to-consumer shipping.

When it comes to shipping specifically, distributors and wholesalers may engage in global trade handling large orders, while retailers will need to strategize the most effective packaging method for each specific product.

Purchasing

Purchasing policies will differ between the three due to their roles in the supply chain. Distributors and wholesalers will purchase in large quantities prioritizing logistics and operations. Retailers on the other hand will purchase in small quantities and focus on strategic merchandising efforts.

What Are the Similarities?

Market Knowledge

The supply chain in which a distributor, wholesaler and retailer play in will be the same. As an example, it is uncommon for a distributor and wholesaler specializing in apparel to also offer industrial products. Retailers typically adhere to this practice, focusing on a single industry, although there are exceptions for major marketplace retailers like Walmart and Amazon.

The three supply chain players will also have similar understandings of marketing trends and consumer preferences as a way of making data-driven decisions.

System Requirements

In order to successfully run a distribution, wholesale or retail business, companies can implement all-in-one ERP software that seamlessly manages all aspects of the business from inventory and contact management to sales and purchase orders. With its highly customizable nature, ERP software caters to various industries and individual processes including the above "differences". For product-based businesses seeking a single solution that supports scalability and expansion, ERP software is the perfect fit.

How does the supply chain handle refunds, recalls and defective products?

When products are returned or recalled, retailers take the initial responsibility of handling them by instilling refund policies that ensure customers are promptly refunded. In cases of defects, the products are sent back to the manufacturer for investigation into the root cause. Distributors and wholesalers are also informed about any defective products to ensure that the quality of products from their suppliers meets their standards.

In the event of a recall, manufacturers share the information with distributors and wholesalers, who then pass it on to retailers. Retailers are responsible for removing the products from shelves to safeguard consumers, while wholesalers and distributors collaborate with manufacturers to ensure proper disposal.

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