What are Distributors?
Distributors are business entities that are responsible for handling the distribution process of products and services. A distribution process is an activity that involves the spread of a product in a market so that the consumer can buy it.
What are the Types of Distributors?
Distributors can be divided into various categories depending on the niche, route of distribution, and product exclusivity. Listed below are the common types of distributors.
Intensive Distributors
Intensive distributors are those who are required to sell the products as fast as possible to an extensive channel. Manufacturers often hire these distributors when they need to sell their products at an aggressive pace.
Businesses that acquire the services of intensive distributors sell their products to small firms as well as established franchises. This enhances the probability of the customers finding the product in a variety of markets.
Direct Distributors
Distributors who sell products and services directly to the end user are known as direct distributors. Direct distributors do not involve any intermediaries such as wholesalers or retailers and are in direct contact with the consumers.
Exclusive Distributors
Exclusive distributors are a type of distributor that distributes products to a specific market or niche. Every market territory usually has a single exclusive distributor. Businesses that are serious about their brand image, channel exclusivity, and high prices acquire the services of exclusive distributors.
Selective Distributors
Selective distributors are those who supply the products or services to some selected outlets. Manufacturers choose selective distributors to enhance product quality and availability and to maintain a brand image. Selective distribution is a blend of intensive and exclusive distribution.
Indirect Distributors
Indirect distributors include a wide range of suppliers such as wholesalers, retailers, and resellers. All these intermediaries work in close coordination with each other to distribute the products and services to the consumers.
There can be more than one indirect distributor in a territory depending on the wide range of customers. Manufacturers mostly need indirect distributors due to:
- Product Type
- Size of business
- Volume of sales
What are the Benefits of Distributors?
Sales & Marketing Expertise
Distributors are masters of their craft. They have an in-depth knowledge of the market and are experienced in understanding the trends and customer needs. Moreover, they are well aware of the sales and marketing demands and know what works in the market and what does not.
That is why they are the safest bet for those manufacturers who have no prior knowledge or experience regarding customer dealings. Learning about sales and marketing is a necessary skill for a distributor if they want to make profits in the industry.
Established Customer Base
This is probably the most important aspect of distributors. Distributors have been in the business for some time and therefore have an established network of retailers, resellers, customers, or other distributors.
Manufacturers can benefit from this wide consumer base and established customer base. Once they have supplied the products to the distributors, they do not have to worry about sales generations. The distributors then provide the customers with the products, which leads to profit generation.
Storage and Logistics
Manufacturers who rely on distributors for product outreach do not have to make a substantial investment in buying storage spaces. Distributors have these storage facilities, which come with the option of inventory and logistic management. This means that they are able to handle the storage of products efficiently.
Where do Distributors Fit in the Supply Chain?
A supply chain is an interconnected journey of processes following the product from its initial phases to the final form when it reaches the end users.
A supply chain usually consists of the following entities.
Manufacturers → Distributors → Wholesalers → Retailers → Consumers
From the sourcing of the raw materials to the final shape and form of the products, supply chain management is a practice that keeps all of these processes and entities involved under check.
Distributors come after the manufacturers in the supply chain. After the gathering of the raw materials and the product assemblage to some extent, distributors receive the products and goods from the manufacturers and provide them to either the wholesalers or retailers.
What is the Business Model for Distributors?
Distributors are the entities that directly buy products from manufacturers. They often buy products or services at low costs. The distributors are then in charge of selling the products and services to the retailers at a markup price.
The main goal of a distributor is to buy the products at the lowest possible price from the producer or the manufacturer. Then they will sell the products to the retailers or consumers at a higher price, ensuring all sorts of profits in the process.
To determine the products that can be obtained from the market at relatively cheap prices, distributors should have a sense of market trends, analytics, prices, and consumer demands.
Forecasting market trends is a tough nut to crack. Therefore, the manufacturer and retailers do not distribute the products themselves. They often rely on a third-party distributor to carry out this task of product distribution.
What are the Must-Have Skills for Distributors?
Supply Chain Management
Supply chain management is a managerial practice that ensures the smooth flow of all the processes involved in the transformation of raw materials into goods and services. Distributors need to learn how to handle product distribution as well as inventory management. This will allow them to run the business smoothly and efficiently.
Ability to Negotiate
As distributors are stuck between manufacturers and retailers, they need to have efficient negotiation skills to obtain profit from both ends. It is necessary for them to have good communication skills so that they can buy the products at a low price and sell the product at a high price. They should be able to buy the most inexpensive products and then should be able to sell them at a record price to ensure profit.
Logistics Management
In order to ensure long-term relationships with the customers, the distributors should have an understanding of logistics management. One of the most important things that distributors need to get right to ensure long-term relationships with customers is the management of logistics. Because if they fail to do so, it will affect their relationship with both the involved parties – producers and retailers. Therefore, good logistics management is a necessary skill that every distributor should learn about.
Marketing Ability
In addition to negotiating the product price and managing the logistics, distributors should also market the products effectively to gain new clients. This skill will expand the product outreach and will allow the business to gain new customers.
What are the Roles of Distributors?
For Consumers
Distributors are responsible for supplying the products and services to the right channels so that the consumers can have access to their desired products.
For Producers
Producers utilize distributors and their services to tap into the customer market with their products and services.
What is the Difference between Wholesalers and Distributors?
Although it is easy to confuse a wholesaler and a distributor because of them being part of the same supply chain, there are some differences that make these two business entities differ from each other.
Distribution Channels
Wholesalers and distributors can easily be distinguished based on their distribution channels. One of the most significant differences between wholesalers and distributors is their distribution channels. A distribution channel is a journey that the product takes before it reaches the customers. There are four types of distribution channels:
- Zero-level channel
- One-level channel
- Two-level channel
- Three-level channel
We are only concerned with level 2 and level 3 distribution channels. Wholesalers belong to both channels. Level 2 of distribution is where the manufacturer is selling the product to the wholesaler. In level 3 of distribution, the manufacturer is selling the products to distributors, who then sell the products to wholesalers, retailers, and other distributors.
This means that wholesalers have two distribution channels, i.e., level 2 and level 3 distribution. While distributors belong to level 3 of the distribution channel.
Customers
The main goal of both the wholesalers and distributors is to supply the products from the manufacturers to the customers. But the customer differs from wholesaler to distributor. For a wholesaler, the retailer is the customer. On the other hand, a distributor can supply the product to a manufacturer, a retailer, and a wholesaler.
In a business scenario where a wholesaler is serving a retailer’s needs by providing them with products, distributors are ensuring a smooth flow of product distribution so that it can reach all the customers.
Relationship with Manufacturers
Wholesalers do not have to worry about the exclusivity of the product or the brand image. They do not have to sign various contracts with the manufacturer to keep the products exclusive. They can purchase the products from various manufacturers or distributors and then supply them to the retailers without any burden of keeping the products exclusive.
Distributors, on the other hand, have to go through a lot of legal jargon to ensure the brand image they are associated with. They sign certain contracts that bind them to sell the products to only the selected market or retailers.
Top Food Distributors in the USA
- Sysco
- Shamrock Foods Service
- Gordon Food Service
- Buffalo Rock Co.
- The Martin-Brower Co.
- Golden State Foods
- KeHE Distributors
The Bottom Line
Distributors are known to reduce the gap between the product and the consumer by ensuring the availability of the product in a manner that allows the product to reach a wide channel. They are an essential part of the supply chain and ensure the distribution of products so that the consumers are able to benefit from them.