The wholesaler performs useful economic functions. Discuss.

Answer Details

A wholesaler is a middleman who buys goods in large quantities from producers (manufacturers) and sells them in smaller quantities to retailers. In the chain of distribution the wholesaler stands between the producer and the retailer, and in doing so performs several useful economic functions:

1. Breaking bulk. He buys in large quantities and sells in smaller lots to retailers, sparing producers the trouble of dealing with countless small buyers and enabling retailers to buy quantities they can handle.
2. Storage (warehousing). He holds stocks of goods in warehouses between production and sale, so producers can produce steadily while goods are released to the market as needed; this also helps stabilise prices between seasons.
3. Finance. He pays the producer promptly (often in cash) for large purchases and may grant credit to retailers, thereby financing both ends of the chain and freeing the producer's capital.
4. Bearing risk. He carries the risks of price changes, deterioration, damage, theft and changes in fashion while the goods are in his hands, relieving the producer and retailer of these risks.
5. Transport and distribution. He often collects goods from producers and delivers them to scattered retailers, and helps distribute goods over a wide area.
6. Preparation of goods for sale. He may grade, sort, pack, brand or blend goods and sometimes advertises them, making them ready for the retail market.
7. Provision of market information. He advises producers on consumers' tastes and demand and informs retailers about new products, linking the two ends of the market.

Examination reminder: the wholesaler's core justification is that he relieves the producer of holding stocks, granting credit and bearing risk, which is why manufacturers still use him despite direct-selling alternatives.