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If you are starting a small business and battling with the idea of whether to start a wholesale or retail business, you should first do an analysis on wholesale vs retail. Wholesalers and retailers are middlemen in the consumer chain. Wholesalers source products from manufacturers and then sell them to retailers who in turn sell them to the consumers who form the final link of the consumer chain.
What is wholesale?
Wholesale means selling products in bulk quantities after buying them from the manufacturer. Wholesale companies are B2B businesses with a warehouse storage space to store the items that they source in bulk.
What is retail?
Retailers sell products directly to consumers. Customers interact directly with the retail business to make a purchase. Retail businesses might use a physical tore, a kiosk, or an online store to sell the products. Products sold by retailers range from groceries to electronic products.
Wholesale vs retail: Differences
Here are some of the major differences between wholesale and retail that will help you make an analysis on wholesale vs retail:
|Buys products in bulk from the manufacturer
|Buys products in bulk from the wholesaler
|Requires more capital
|Requires less capital
|Requires a large warehouse to store goods
|Relatively smaller warehouse space
|Product range is limited
|Product range is wide
|Sell products in bulk at discounted prices
|Sell products at higher prices to customers in lower quantities.
|No need for much promotion
|Requires efficient marketing tactics
|Limited customer base
|Wide customer base
|Usually situated at a central location with easy access to highways and major roads for easy reach
|Usually in strategic locations like residential areas, urban areas, transport hubs, etc.
To understand the distinguishing features of wholesale and retail business you must also understand the types of wholesale and retail businesses.
Types of wholesale businesses
Wholesale companies buy products from the manufacturer at low prices and sell them to retailers at higher prices. For example, a wholesale rice company will source 5000 bags of rice from farmers for ₹28/kg and the sell it to multiple retailers at ₹40/kg.
There are several types of wholesale business:
- Merchant wholesalers
Wholesalers that buy products directly from the manufacturer and sell it to retailers are called merchant wholesalers. These wholesalers are commonly a part of the consumer chain in the FMCG industry or the agriculture industry.
There are full-service and limited-service wholesalers. The former offers a wide range of services to retailers including inventory management, transit insurance and delivering goods to the retailers. On the other hand, limited-service wholesalers own a small space where they operate on a smaller scale, and provide fewer services to manufacturers.
- Specialised wholesalers
As the name suggests these wholesalers will have a specific product or commodity that they buy in bulk and offer retailers
- Manufacturer’s mini wholesale office
Manufacturers can act as wholesalers by having a storage space where they are selling the products in bulk from that outlet.
Types of retail businesses
There are several types of retail businesses:
This is the most common kind of retail store in the modern-day world. These stores feature a large area with multiple aisles where a variety of FMCG products are stacked for the consumers.
An easy way to enter the world of business is by starting a franchise. Food franchises like McDonald’s and KFC, logistics franchises like Blue Dart and DTDC, etc., are examples of franchise businesses. Franchises sell a host of products offered by a specific brand (the franchisor) under the terms and conditions signified by the latter.
- Convenience stores
These are small grocery and FMCG stores found in residential areas catering to the consumers in that specific locality. The customers who reside in that area visit this store daily to buy everyday necessities like milk, curd, vegetables, etc.
- Specialty stores
A specialty store is an establishment offering a particular category of products like electronics, stationery, clothes, etc. Since these stores cater to a limited audience their reach is limited. Titan, the watch store, is an example of a specialty store.
- Retail chains
A retail chain, as the name suggests, is a chain of stores located in different regions. These stores usually offer a specific range of goods and services. For example, Croma, a subsidiary of Tata Digital is a retail chain selling electronic goods and durables.
- Factory outlets
Factory outlets have become commonplace, especially in cities. These retail stores are owned by manufacturers themselves and they sell products directly to the customers at relatively low prices. These stores are located at the manufacturing facility or close to it. For example, the factory outlets of Jockey.
Wholesale vs retail: Which is more profitable?
This question doesn’t have a definitive answer. As a wholesaler, large quantities of items can be bought from suppliers at lower cost prices, increasing profit margins when selling the stock to retail customers.
However, generally retailers reap more profits than wholesalers. Wholesalers typically earn between 10% and 30% profit, while retailers earn between 20% and 50% profit on the wholesale price when selling the same products to their consumers. The only hassle for the retailer is that the stock moves relatively slowly compared to a wholesaler.
The choice between retail or wholesale depends on the businessperson. Wholesale will mean large warehouses at a location that has easy access to delivery trucks. Retail store owners need to handle a large amount of inventory and therefore must have exceptional inventory management.