Wholesale Trade

Wholesale Trade

Wholesalers (also called distributors) buy goods for resale to retailers (see RETAIL TRADE), industrial, commercial, governmental, institutional and professional users or to other wholesalers. They also act as agents in connection with such sales. Firms engaged in wholesaling, as well as retailing, contracting, service trades, manufacturing, etc, are considered to be primarily wholesalers whenever they derive a larger gross margin (the difference between total operating revenue and the cost of goods sold) from wholesale trade than from any other activity. Some firms are considered to be wholesalers as opposed to retailers regardless of their customer type. These include firms dealing in office furniture, machinery and equipment, computers, lumber and building materials, farm machinery, equipment and supplies, commercial motor vehicles, and all types of industrial and commercial machinery and equipment. With the growth of new large-format retailers such as Home Depot and Business Depot and the dominance of firms such as Canadian Tire and Beaver Lumber in certain retail categories, the current definition of wholesale or retail operations is quite broad.

Wholesalers typically perform basic marketing functions for the firms from which they purchase and for the firms to which they sell. They anticipate customers' needs and demands, carry inventories, deliver merchandise, extend credit, provide market information, offer consulting services and purchase merchandise. For manufacturers, the wholesaler may offer to sell and store merchandise, finance production by purchasing in advance, reduce credit by screening customers and provide marketing information. In order to be successful, the wholesale firm must offer these functions at a lower cost than either the manufacturer or the retailer.

The latest Annual Wholesale and Retail Trade Survey for Canada is for 1994. In that year total operating revenue for wholesale trade was $282.4 billion. Wholesale trade makes a significant contribution to the Canadian economy. It accounts for 6.1% of the GDP, contributes 10.9% of Canadian exports and employs 607 600. In 1994 the operating revenues of the wholesale sector grew by 11.7% over 1993 - significantly higher than the 6.8% growth enjoyed by retailing in Canada.

Wholesalers of food, beverages, drugs and tobacco (eg, Loblaws Companies, Provigo, The Oshawa Group, IGA, IDA, Jean Coutu, Drug Trading, and Imasco) comprise the largest group (20.9% of the sector) with sales of $59 billion in 1994. Other important wholesale commodity groups included: petroleum products ($32.1 billion); industrial and other machinery equipment and supplies ($31.4 billion); motor vehicles, parts and accessories ($24.5 billion); lumber and building products ($21.6 billion); metals, hardware, plumbing and heating and supplies ($17.6 billion); and computers, packaged software and other electronic machinery ($15.4 billion). The average gross margin for wholesalers in 1994 was 21.2%, their net margin was 5.5%, and their ratio to stocks was 8:6.

In Canada wholesalers are successful because of the large number of small- and medium-sized manufacturers and retailers who cannot perform various distribution functions effectively, in part because of the country-wide distribution of cities and partly because of the great distances between manufacturing and intermediate and retail centres.

Types of Wholesalers

Wholesalers can be grouped into 4 categories: - wholesale merchants, who buy and sell goods on their own account and take legal title to them; - agents and brokers, who buy and sell goods for others on commission; - manufacturers' sales branches and offices that distribute their own goods; and - specialized wholesalers, which include co-operative marketing associations (for such primary products as grain, livestock, fish, leaf tobacco, raw furs), petroleum-bulk plants, terminals and liquefied-petroleum facilities.

Wholesale merchants can be further classified as either full-service wholesalers, which perform all of the marketing functions, carry stock and make deliveries, or limited-line or limited-service wholesalers, which offer fewer services. Electrical, hardware and pharmaceutical wholesalers that sell all of the products in the category, for example, are full-service wholesalers. Limited-line wholesalers, in contrast, carry narrow lines such as paint or electric motors. This group includes "cash-and-carry" firms which do not provide credit or transportation to their customers and "agents and brokers." This latter category includes auction companies, agricultural commission merchants, manufacturing agents, food brokers, selling agents, and export and import agents and brokers. They are organized by product lines and assist in negotiations with buyers and sellers. They make their profits by commissions. Finally, manufacturers' sales branches normally are established by manufacturers but also sell the products of other suppliers as well - an important type of wholesaling in Canada.

The various types of wholesalers operate in most of the product categories. For merchant wholesalers, the most important lines of trade are food, petroleum products, and machinery and equipment; for agents and brokers, the most important areas are farm products, petroleum products, apparel and dry goods.

Wholesale trade, at the federal level, is regulated by the Competition Act, which oversees mergers and monopolies, specialization agreements, export agreements, price discrimination, delivered prices, reciprocal buying and resale price maintenance (see COMPETITION POLICY).

Over several decades the dominant position of independent wholesale intermediaries in the domestic marketing system has declined because manufacturers and retailers have grown in size and assumed many of the functions of the wholesaler.

Independent wholesalers continue to dominate in the sale of industrial goods, machinery and petroleum products sold primarily to agricultural segments. In these areas, they have been able to specialize and adapt to the vast distribution of customers throughout Canada. A primary area of growth for all types of wholesalers in Canada is in the export trade.