Wholesale distribution is the business of buying goods from the manufacturers and selling them to the retailers. At a first glance, this may seem like a simple logistic business of buying and selling, but there are many dynamics at play in this business. For anyone who wants to start a wholesale distribution business, it is very important to understand the nuances of the trade and then work out a solid business plan for the same. Here are some components of the business and a few tips to help you get started in the wholesale trade.
The buying role
Nor a very glamorous term to use these days, but a distributor is essentially a middleman between the manufacturer and the retailer. Now going beyond this term, a wholesale distributor is the crucial link that connects the manufactures and the retailers.
A wholesale distributor buys directly from the manufacturers or the vendors. It could be from the existing product lines and for the essential commodity goods. Then, wholesale distributors also introduce new products to the consumers by marketing these to the retail stores where they reach the end user.
The selling role
A wholesale distributor buys products to sell to the retail stores. The retailers can be independent stores, supermarkets, and high-end retailers. The product distribution depends on two factors – the demands from the retailers for particular products and the introduction of new products by the distributors via manufacturers.
The business plan
Formulating a business plan is the key step for any new business. There are several steps here that are a must for a solid business plan.
- The first step is market research. The study of the market trends and the state of the market is essential before starting a business. For a wholesale distribution business, you need to know about the leading players in the market in both distribution and the retail sides of the business. You need to study market trends and analyze them, read market studies on the distribution business, learn about profit projections of the retailers, and know your competition.
- The second step is deciding on your specialization. For beginning stages of the business, it is wise to stick to one or two products lines or just a few products from different lines. For instance, if you like the idea of food distribution, you have the options to choose from fresh fruits and vegetables, frozen foods, dry foods, meat products, seafood, or dairy. You can choose 2-3 from the list or choose 2-3 from different, yet related lines such as stationary, books, school supplies, and so on. Specialization is important here, as it will help you focus on your core group and develop a solid foundation for your business. In fact, many successful distributors still deal with only a few products or products lines even after years of business. Specialization also helps develop relationship with a few manufacturers and retailers based on the product. These business relationships form an essential part or the backbone of a wholesale distribution business. Make a list of distributors and retail stores to do your business at the start with learn from about them.
- Then, make the financial plan. For a distribution business, you will need warehouse space and transport facilities. Learn what will be profitable for you – leasing or buying. Add fuel costs, driver salary, and other overheads before calculating the approximate amount. Find out how much additional costs you will have to incur. Obtain money for buying your initial stock. Work out credit plans with the manufacturers or vendors and negotiate discounts. Know that you will need to buy large stocks to get big discounts from the manufactures. These discounts determine the profit margins of a wholesale distributor as retailers get the products at wholesale rates.
- Apply for the permits and licenses if needed for your business.
- Then, market your business and get organized. By this time, your business funds and leases and storage spaces must be in order. Print your business cards and meet your distributors and retailers. Join wholesale business networks and make new contacts. A small website won’t hurt, either. In fact, a website can help a great deal in establishing a new distributing business.
Wholesale distribution is a very competitive business. Find out if you have the necessary skills to begin and thrive in this trade.
- For a wholesale distribution business, excellent negotiation skills are a must. This is the trade where distributors constantly need to work out the best rate to buy and then to sell the same product. This is where the money in this business is made. Negotiations are also needed to get access to promotional offers from vendors or manufacturers to pass them to the retailers. A distributor who arrives with good quality products and promotional offers is always a good deal for retailers.
- Good organization skills in this business are always a boon. Keeping inventory, list of retailers, constant networking, buying stock, and daily upkeep of the business requires organization skills. The better you are at it, the easy it will be to run a wholesale distribution business.
Excellent communication skills are needed to form good working relationships. Manufacturers don’t offer the same discounts to all the distributors. Why one distributor gets a discount of 10% and another 12% depends on the nature of the working relationship. Communication skills also help in networking required in this business and navigating through this trade. A wholesale distributor needs to find new retail stores to do business with and this requires the work of research, analysis, and marketing over and over. A distributor also needs to look for new distributors who might sell a product in your existing line with better discounts. You might also need a new distributor for getting into another line of distribution business.
Money skills, knowledge of accounting, and good financial management will ensure success in this business. In the business of wholesale distribution, you need to constantly work with buying, selling, inventory, discounts, purchases, and credits. Without good knowledge of finances and accounting, it might become difficult to run this business.