Concerns of Wholesalers

The wholesale industry has served an important role in the distribution process for well over 100 years, yet the challenges they face today are raising the stakes as many wholesalers fight to maintain their market position. Some of the critical issues facing today’s wholesalers include:

  • Disintermediation – The growth of the internet as a communication and distribution channel has lead many to conclude that wholesaling will lose its importance as manufacturers and final buyers learn to transact directly. This so called “disintermediation” of marketing channels is a real concern to some wholesalers, especially those that do not function as a dominate party within a distribution channel. For example, assume a retailer operating a gift card store uses a wholesaler only to purchase a specific manufacturer’s products. In this situation, if the manufacturer begins to offer direct purchasing to smaller customers the wholesaler may have little leverage in efforts to retain the retailer as a customer. In instances of disintermediation, wholesalers face the challenge of creating greater value for their services, thus making the retailer’s decision to switch more difficult.
  • Facility Location – Wholesalers who are heavily involved in product shipment may spend considerable time evaluating sites for locating facilities. For organizations needing very large facilities, the decision as to where to locate becomes more difficult and more expensive the closer the location is to major metropolitan areas. In fact, land costs in some regions of the world have risen so high that utilizing this space for wholesaling operations may not be feasible. In addition to land costs, facility location is also affected by access to adequate transportation, such as roads, seaports, airports, and rail terminals. Areas with available land often lack the infrastructure needed to run wholesale facilities unless expensive and time-consuming improvements (e.g., build highway, extend rail line, etc) are made.
  • Transportation Costs – For wholesalers involved in transporting products, the fluctuation of fuel costs over that last 25 years has forced a close examination of how they handle product distribution. Transportation expense can represent a significant portion of overall distribution costs and when fuel prices rise these higher costs are often passed on to customers in the form of higher product prices. However, higher transportation expense also presents opportunities for wholesalers that work hard to control fuel costs with such methods as: using equipment and delivery vehicles that are more fuel efficient, utilizing computer routing software to determine less costly delivery routes, and offering greater incentives to customers to accept deliveries during less congested times of the day.
  • Adapting to New Technologies – In addition to technologies to lower fuel costs, other technologies that assist the distribution process are offering both advantages and disadvantages to wholesalers. New technologies, such as radio frequency identification tags (RFID) placed on shipped products and real-time traffic updates allow wholesalers to maintain tighter control over their distribution activities. However, gaining the benefits associated with these new distribution technologies can be expensive in terms of acquiring and learning to use.
  • Offering Non-Product Assistance – Wholesalers are finding that offering products is not the only thing of interest to their buyers. Many customers also want wholesalers to offer additional value-added services such as employee training (e.g., teach selling skills), promotional support (e.g., financial support for advertising), and assistance in managing their operations (e.g., building an online store). Keeping pace with the services in demand by their customers requires constant research and communication with customers.
Wholesaler Summary Chart