Importance of retailing

1) When retail gets services by the company rep he sells the entire range of products, analyzes the depth in the store and pushes the retailer to buy and stock more of his product. However, when the rep sells to wholesale and wholesale in turn services that retail, the products that are sold are ones that the retail asks. Hence only the top brands get sold and that too in quantities that are not exactly what would be required in the retailers shop (most times less than more).

2) The retail in a town might increase in terms of number of outlets or in terms of capacity and the rep would not have any clue that this is happening. So there would be a loss of sale.

3) Retails capacity to sell newer categories might have grown and since your new products are not present you might miss out again. Like he might be selling the entire range of shampoos of HLL but a newly launched Garnier shampoo might not find its way to his shelf because he did not know that it was launched in the first place.

4) Wholesale needs greater schemes to buy more. These schemes at times get used to capture the sales of retail outlets that the company is servicing directly. This is done by cutting the rates of bigger brands so that the retailer thinks he as got a great bargain and recovering it in smaller brands. Since the rates at which companies sell to retail are fixed the distributor is unable to compete against this competition.

5) Most importantly wholesale dependency makes the company's position weak and also makes it vulnerable. Retailing gives the company a strength - a strength derived out of hedged risks among many small retailers rather than a small set of wholesalers.

Due to all these reasons it is necessary to be cautious about the above mentioned trait and service the retail directly whenever it is viable. The dream distribution system for most companies is one in which servicing the smallest of the shops directly is also profitable. In this ideal world there would be no wholesale. This happens only with companies having very strong brands. ITC would be able to reach closer to this dream than most other companies.

However it can get even better when customers want your product so much that they would come wherever you are to buy it. iPhones are an example of this elevated state. So the best brands are ones in which the demand comes from the elements which are farthest away from the company in the sales flow. (Sales flow: Company => distributor => wholesaler => retailer => customer/consumer). I have explained this further in the article "An Archimedian explanation of Marketing"