Wholesale vs retail: Which is more profitable? (2024)

If you are starting asmall business and battling with the idea of whether to start a wholesale or retail business, you should first do an analysis on wholesale vs retail. Wholesalers and retailers are middlemen in the consumer chain. Wholesalers source products from manufacturers and then sell them to retailers who in turn sell them to the consumers who form the final link of the consumer chain.

What is wholesale?

Wholesale means selling products in bulk quantities after buying them from the manufacturer. Wholesale companies are B2B businesses with a warehouse storage space to store the items that they source in bulk.

What is retail?

Retailers sell products directly to consumers. Customers interact directly with the retail business to make a purchase. Retail businesses might use a physical tore, a kiosk, or an online store to sell the products. Products sold by retailers range from groceries to electronic products.

Wholesale vs retail: Differences

Here are some of the major differences between wholesale and retail that will help you make an analysis on wholesale vs retail:

To understand the distinguishing features of wholesale and retail business you must also understand the types of wholesale and retail businesses.

Types of wholesale businesses

Wholesale companies buy products from the manufacturer at low prices and sell them to retailers at higher prices. For example, a wholesale rice company will source 5000 bags of rice from farmers for ₹28/kg and the sell it to multiple retailers at ₹40/kg.

There are several types of wholesale business:

• Merchant wholesalers

Wholesalers that buy products directly from the manufacturer and sell it to retailers are called merchant wholesalers. These wholesalers are commonly a part of the consumer chain in the FMCG industry or the agriculture industry.

There are full-service and limited-service wholesalers. The former offers a wide range of services to retailers including inventory management, transit insurance and delivering goods to the retailers. On the other hand, limited-service wholesalers own a small space where they operate on a smaller scale, and provide fewer services to manufacturers.

• Specialised wholesalers

As the name suggests these wholesalers will have a specific product or commodity that they buy in bulk and offer retailers

• Manufacturer’s mini wholesale office

Manufacturers can act as wholesalers by having a storage space where they are selling the products in bulk from that outlet.

Also read: What is warehouse logistics? Meaning, role, future trends in India

Types of retail businesses

There are several types of retail businesses:

• Supermarkets

This is the most common kind of retail store in the modern-day world. These stores feature a large area with multiple aisles where a variety of FMCG products are stacked for the consumers.

• Franchise

An easy way to enter the world of business is by starting a franchise. Food franchises like McDonald’s and KFC, logistics franchises like Blue Dart and DTDC, etc., are examples of franchise businesses. Franchises sell a host of products offered by a specific brand (the franchisor) under the terms and conditions signified by the latter.

• Convenience stores

These are small grocery and FMCG stores found in residential areas catering to the consumers in that specific locality. The customers who reside in that area visit this store daily to buy everyday necessities like milk, curd, vegetables, etc.

• Specialty stores

A specialty store is an establishment offering a particular category of products like electronics, stationery, clothes, etc. Since these stores cater to a limited audience their reach is limited. Titan, the watch store, is an example of a specialty store.

• Retail chains

A retail chain, as the name suggests, is a chain of stores located in different regions. These stores usually offer a specific range of goods and services. For example, Croma, a subsidiary of Tata Digital is a retail chain selling electronic goods and durables.

• Factory outlets

Factory outlets have become commonplace, especially in cities. These retail stores are owned by manufacturers themselves and they sell products directly to the customers at relatively low prices. These stores are located at the manufacturing facility or close to it. For example, the factory outlets of Jockey.

Wholesale vs retail: Which is more profitable?

This question doesn’t have a definitive answer. As a wholesaler, large quantities of items can be bought from suppliers at lower cost prices, increasing profit margins when selling the stock to retail customers.

However, generally retailers reap more profits than wholesalers. Wholesalers typically earn between 10% and 30% profit, while retailers earn between 20% and 50% profit on the wholesale price when selling the same products to their consumers. The only hassle for the retailer is that the stock moves relatively slowly compared to a wholesaler.

The choice between retail or wholesale depends on the businessperson. Wholesale will mean large warehouses at a location that has easy access to delivery trucks. Retail store owners need to handle a large amount of inventory and therefore must have exceptional inventory management.