Is it Time for the ‘Whole-Broker’?
Commentary by Bill Bittner, President, BWH Consulting
Is it time to merge the roles of wholesaler and broker into one?
Wholesalers provide the efficiency necessary to distribute products of small manufacturers who are unable to own their own distribution facilities.
Brokers support the information channel necessary to carry the manufacturer’s product message to local retailers and markets. They also provide the local presence necessary to confirm marketing plans, such as shelf space or point of purchase displays. This “free labor” is often important to retailers for maintaining proper store displays.
The Internet has made the information channel much more porous. Marketing messages can be carried down through targeted marketing addressed to individual consumers or associations.
Wholesalers are becoming much more sophisticated in monitoring the distribution channel and providing IT services to their retail customers. They can provide information on which stores are ordering and selling individual products. They can also support the manufacturer and retailer through online services, such as product catalogs and merchandising plans. Promotional messages and discounts can be announced through the catalogs.
The wholesaler is in a perfect win/win situation as the more product a manufacturer and retailer are able to sell, the more the wholesaler ships. The wholesaler benefits by making sure the two other parties are successful.
By providing an online information channel down to the point of sale system in the store, the wholesaler can provide the manufacturer much of the information traditionally obtained through brokers. Online inventories give them the information they need to understand how much product is in the pipeline and better control their production plans. By providing catalogs geared to retailers that promote and explain various category offerings from manufacturers, the retailer is kept informed of market offerings and can pick the best products for their store.
The big question is whether the in-store presence provided by the broker for shelf sets, sampling programs, etc. is so compelling that it makes it impossible to merge the roles of wholesaler and broker. I believe it is important and that the role of the broker cannot be replaced by only electronic messages, but requires the “hands-on support” that comes through physical presence.
Moderator’s Comment: The author raises the question of melding wholesalers and sales and marketing companies (AKA brokers) into a hybrid organization
to improve the process of distribution and supply. Do the grocery and CPG industries need a new distribution model? What changes would you encourage to address the shortcomings
of the current model? –
George Anderson – Moderator
What proportion of manufacturers and wholesalers survey retailers on a careful, frequent basis, to measure their performance? How many have key performance measures that are well-known and frequently monitored? Is this type of measurement done frequently with independent grocers as well as large chains? Without these measures, I do not understand how anyone could reasonably evaluate the current structure’s performance, let alone compare it to a test of a new structure. My impression is that wholesaler and broker performance and capability is inconsistent, from supplier to supplier, and from customer to customer. So making a change might be worth exploring, for certain wholesalers and certain customers, as long as the evaluation is done frequently, before and after any changes. There is no JD Power survey of brokers or wholesalers, but careful managements could make those measures themselves, on a similar basis.
An interesting proposition but, as in most economics, the theory won’t work in the real world. The sophistication of the Broker in the past few years in regards to marketing strategy, research and design, has dramatically increased. Having a daily, physical presence in the store helps them understand the needs of the Retailer as well as the Consumer. Wholesalers do not have that depth of experience or type of mind-set. It doesn’t seem to me to be anything that would be an easy switch-over. It would take years to develop.
This theory works well if the relationship were simply an information exchange. Many times, the manufacturer is looking for an advocate for their products, in addition to someone to gather and synthesize information. In a competitive market, where not all can survive, choices have to be made on what to stock, feature and promote. Whether the Manufacturer is lobbying themselves or outsourcing this function to reduce cost, the wholesaler is too close to a retailer in function to perform the full spectrum of services and maintain focus on their functions. The exception that makes this the rule is the promotion of private label brands that compete with every brand. And try to keep the wholesaler’s trade spend in line with budget when it fits their agenda to remain at the lower cost and employ auditors to attempt to capture further funds.
It sounds nice. I am afraid it is not a reality I anticipate seeing anytime soon.
I’ve watched, with utter fascination, the rebirth of some really useful boutique brokers who truly excel at what they do. Just when I thought there would soon be only two or three brokers (at most) left, these little guys are popping up all over the place, and doing a great job. Just one example: J. Brass Company, out in California. Check out the web site (full disclosure, I know John Brass, but he’s not paying me to plug him and will be quite surprised if he sees this) at www.jbrasscompany.com