When it comes to running a business, you need to understand the difference between wholesale and retail. Our guide here has you covered.
Keyword(s): difference between wholesale and retail
In the product supply chain process there are two main ways products are distributed: retail, and wholesale. These terms are well known and used often but what sets them apart?
To help you better understand, we've put together this essential guide.
Starting with definitions and then isolating some of their clear differences, you should have a clear idea of the difference between wholesale and retail by the end of this article.
What Is Retail?
A retailer sells directly to the customer, the final consumer of the product. In doing so they essentially act as a middle man between the manufacturer and the customer.
It is within a retailer's best interests to have a range of products to entice their customers to spend money and generate customer loyalty. Their profit margins are also higher as they sell products at a higher price than they buy them.
As they sell to the public, the size of a retail business is much smaller than a wholesaler. This also means that to set up a retail business a smaller investment is required.
Examples of retail businesses would be establishments like department stores, supermarkets, convenience and clothing stores, and any shop that you would traditionally go-to for consumer goods.
What Is Wholesale?
For a wholesale business, the customer base is totally different.
Apart from a few well-known exceptions that sell to the public, the vast majority of wholesalers sell to private enterprise owners and businesses. Their customers include small and large convenience stores, catering companies, and other industries.
A wholesale business knows that their customers need them for their own enterprises. Therefore, they don't need to focus on changing their products to entice clients as a retailer would. In fact, the knowledge that you'll be able to find what you need each time is a plus for their customers.
What they tend to focus on is sourcing products according to their standards and stocking a limited range of said products. Wholesalers will work directly with the manufacturer and therefore get products in bulk. They later break this down into smaller batches for resale.
Due to the sheer quantity of products that they sell, they're much larger than retail stores. Additionally, because of their size and business objectives, a much larger investment is required to start a wholesale business.
Now that we have an understanding of the main goals of each business, let us look at some of the main areas of difference between wholesale and retail.
One thing that will strike you if you head into a wholesale establishment as an individual is the prices of the products in comparison to the stores.
Wholesale businesses can sell products at a far cheaper price than retail.
They can negotiate much better prices with manufacturers due to the leverage that they hold because of the size of their orders. The bare-bones look of a wholesaler business also allows them to save money in areas that a retail store wouldn't be able to. This transfers to the product's final pricing.
Retailers, although buying their products at a low rate, will have to add to the final cost for many factors. These include the rental of their premises, utility costs, staff salaries, and keeping the look of their shop appealing.
One of the defining principles of selling to the public is location. Choosing a place where the footfall is low, or is not frequented by people you know to be your main customer base in retail would be viewed as financial suicide.
Therefore in retail businesses, much time is spent on researching the right location and stores where the people are.
Wholesalers on the other do not have this problem. Their priority when it comes to location is space, and therefore will be found often on the outskirts of towns and cities.
A wholesale business knows that its customers will make the effort to travel to them. As their customer base will tend to buy in bulk, another big difference between wholesale and retail, this offsets what they would lose if they were closer to the public and were open to all.
Advertising and the Shopper Experience
As mentioned, wholesalers will tend to have a bare-boned appearance in their stores. Their products are often placed on palettes on industrially sized storage units. You're often left to your own devices to make your way around them.
This is because they're free of the pressure of making sure that they keep customers coming back. After all, they know that they already provide the most important service to their clients: products with low prices.
Staff will tend not to check to see if you need help. However, when you do, they're helpful and knowledgeable. This is understandable as they are usually dealing with business owners who know much about the products that they are looking for.
Retail stores, in contrast, have much competition. Often, their competitors are located nearby. Their focus is on making sure that people come to their store and keep coming back.
For this reason, advertising plays a big part in the retail business. Much is spent on how the business is presented and the in-store experience had by the customer.
Whether it be fancy lighting, the attention a customer receives, or even the smell of the store, nothing is left to chance.
Understanding the Difference Between Wholesale and Retail Is Important
When we as consumers buy a product, we don't tend to think of the many hands that have worked to get it from the manufacturer to our shopping cart. But knowing things like the difference between wholesale and retail can help business owners make the best decisions about where to source their goods.
As one of the leading label manufacturers, we're happy to work with your business to ensure that your final product is to the highest standards.
Feel free to get in contact with us today.