What’s The Difference Between Wholesale and Retail

One of the most important decisions you’ll have to make when starting a business in the supply chain industry is whether to follow the wholesale or retail business model. 

While both retail and wholesale have unique advantages, they’re fundamentally two entirely different distribution arrangements. As a business owner, you’ll need to acknowledge each one’s specifics when it comes to overhead costs, shipping costs, market trends, and more. 

In the following sections, we explain the difference between wholesale and retail. By having this information, you can optimise your business account management, operations, and most importantly – be able to communicate effectively with your target market. 

What Is Wholesale

In the UK, the grocery wholesale market alone is worth £38.9 billion in 2024.

But what does this business model represent and what are the wholesale benefits?

Under the wholesale model, wholesale businesses sell bulk quantities of goods or services to other businesses instead of targeting the end consumer. 

Via the wholesale business model, wholesale suppliers purchase products directly from the manufacturer or distributor. Then, the wholesaler sells these products to retail companies that mark up the prices and resell the goods or services to individual consumers. 

In most cases, bulk purchasing happens at a discounted rate, which is beneficial for the wholesaler. At the same time, it’s also an advantage for the manufacturer or distributor as they can quickly sell large quantities of products or services with a single purchase.

Wholesale products can be anything from groceries, accessories, clothing, and others. 

While there are many benefits associated with this form of business, perhaps the most exciting one is bulk purchasing, which enables cost savings and lower per-unit prices. At the same time, wholesalers don’t have to think about things like shop location, packaging, product display, or marketing. Their main priority is selling high volumes to retailers. 

What Is Retail

On the other hand, in the retail business model, retailers sell products directly to the end consumer. 

Retail businesses can sell goods via physical stores or online retail stores, where the prices of products or services are usually higher to achieve profit margins. 

In the retail trade, retailers act as the middlemen between wholesalers and customers. Retailers focus on a wide range of activities, including shipping, packaging, storage, marketing, and more. The ultimate goal of direct-to-consumer brands is to create a personal connection with end users who will be prepared to spend with their company. 

There are three main types of retailers that you can come across:

• Department stores – provide a wide array of products and represent a mix of small retail stores that are run by a single group.
• Convenience stores – usually positioned in residential locations where they can offer a small variety of popular products at higher prices due to the convenience they provide.
• Supermarkets – businesses that offer a rich diversity of products that are part of different sub-markets, like food, beverage, fashion, electronics, and others. 

Some of the main retail benefits include opportunities for direct customer interaction, higher profit margins, and full control over the brand and the user experience. 

Key Differences Between Wholesale and Retail

Now that we’ve covered the basics of both wholesale and retail, it’s time to look at how they differ. 

In a nutshell, a retailer sells directly to end consumers while wholesalers sell to retailers. 

But there’s more to the wholesale vs retail topic. Below, we explore the difference between wholesale and retail in more detail. 

The Supply Chain

First, wholesalers and retailers differ in the roles they plan in the supply chain.

While wholesalers play the role of intermediaries between manufacturers and retailers, retailers are the bridge between wholesalers and end consumers. In that sense, retailers are considered as the final step in the supply chain, delivering products straight to individual customers or retail customers. 

Pricing Strategies

Another interesting point of differentiation is between wholesale prices and retail prices. 

The pricing strategy used by these two business models varies dramatically. Wholesalers buy in bulk at a lower price or discounted price from manufacturers. They then resell these products to retailers at a wholesale price. 

At the same time, retailers sell to end customers at a higher price to be able to cover their costs and earn extra, achieving higher profit margins. 

If you’re a wholesaler or retailer looking to calculate your selling price, here are two ways to do this:

• Calculating wholesale price – identify the costs of your manufactured products (cost of goods manufactured) by factoring in the costs of creating the product including materials, labour, shipping, and others. To get the wholesale price, add up your material costs plus the result of labour times value, plus overheads like rent, fixed costs, and electricity, plus your profit margin.
• Calculating retail price – again, start by calculating your costs for manufactured products. The retail price formula is dividing the wholesale price by the result of one minus your markup percentage. 

Keep in mind that these calculations are based on frequent scenarios from the market. You can rely on different pricing strategies to calculate your rates.

Volume of Sales

Retail sales and wholesale sales are also different in terms of quantities sold, as noted above. While wholesalers focus on selling large quantities, retailers concentrate on selling smaller quantities directly to shoppers. 

Naturally, sales channels also differ and it’s important to keep an eye on the sales volumes achieved via each channel. This can help both retailers and wholesalers make informed decisions about future growth. 

Customer Base

Retailers target customers directly and sell directly to the individual who will be using the product or service. On the other hand, wholesalers target companies (like retailers) that are ready to purchase in bulk with the aim of reselling the purchased goods. 

In a nutshell, wholesalers concentrate on B2B sales, while retailers focus on B2C sales. This enables retailers to create more personal and lasting relationships with each customer. While quality is also important for wholesale to some extent, it’s not the driving force behind a transaction.

Instead, what matters most in wholesale is the price for a bulk purchase. In contrast, retailers are tasked with building a strong and reliable brand that can help them stand out from the crowd and inspire shoppers to spend with them.

Profit Margins

Another clear distinction worth exploring is that of profit margins between wholesale and retail.

Considering the structures and objectives of these two business models, we can conclude that retailers work with higher profit margins. On the other hand, profit-margin wholesalers work with smaller margins but rely on large volumes per sale. 

Inventory Management

Earlier, we mentioned that wholesalers sell in large volumes to retailers. This inevitably means that they have to handle extreme quantities of inventories, turning the question of warehouse space into a fundamental decision. In addition, wholesalers need to strategically plan their inventory levels to ensure that they can meet demand. 

The good news is that wholesalers usually enjoy peace of mind knowing that they have long-term partnerships and deals with retailers. This makes it much easier to plan ahead and achieve a high inventory turnover ratio. 

On the contrary, for retailers, the focus when it comes to inventory management is consumer demand. Retailers must guarantee that they have product availability whenever necessary in order to process purchases and ship out items on time. 

At the same time, it’s important for retailers that they don’t store too much of a product, which cаn potentially lead to congested inventory, bringing up inventory costs. 

Marketing Approaches

The characteristics of wholesalers and retailers also create differences in terms of marketing. 

When selling wholesale, businesses concentrate on promoting products to retailers. Although this process requires marketing and promotion, the marketing strategy doesn’t have to be anything too complicated. In a lot of cases, wholesalers gain visibility via networking events, trade shows, exhibitions, and gatherings. They can also benefit from having a B2B website that educates and informs retailers about products and updates.

Meanwhile, retailers’ objectives related to marketing are far more complex. In order to gain market share and win consumers, retailers must create a powerful and consistent brand image. They must also carefully address market demand and find creative ways to satisfy this demand better than competitors. 

The marketing strategy of advanced and successful retailers often includes:

• Social media advertising;
• Email marketing; 
• Content marketing;
• Influencer marketing;
• SEO;
• Paid ads, and more.

Retail marketing also requires a sophisticated level of data collection and analysis in order to make informed decisions on how to market your products best. 

Distribution Channels

Last but not least, wholesale and retail differ in terms of distribution channels.

Oftentimes, wholesalers sell their products via direct business contacts, distributors, and specific sales channels that are designed for bulk orders. 

On the other hand, retailers rely on sales channels like brick-and-mortar stores and eCommerce platforms, which enable them to sell directly to consumers. 

The Role of Technology in Wholesale and Retail

Today, there are plenty of digital innovations designed specifically to meet the needs of retail and wholesale business.

For example, companies can rely on inventory management and supply chain optimisation solutions. In wholesale, businesses can take advantage of systems that enable large-quantity product tracking in real time. As a result, wholesalers can eliminate the risks of stockouts or overstocking. At the same time, they can ensure storage space is optimised and operational costs brought down to a minimum. 

Meanwhile, retailers that deal with higher transaction volumes can use similar solutions that concentrate on individual sales tracking. 

Another area where technology can help is data analytics and customer insights. Regardless that wholesalers and retailers target different markets, both can benefit from market data. For instance, in wholesale, such technology would enable businesses to forecast market demand, improve pricing, and compare their performance to others.

In retail, data analytics is of paramount importance for monitoring customer behaviour, preferences, and shopping patterns. 

These are just a few examples of how technology can be used in wholesale and retail. Other digital solutions like eCommerce platforms, marketing automation tools, omnichannel instruments, and payment technology are also extremely valuable. 

Legal and Regulatory Considerations

Just like with any other business structure, wholesalers and retailers must comply with certain legal and regulatory requirements in order to be able to operate. 

In the UK, all businesses must be registered with the HMRC for tax purposes (and Companies House if you plan to function as a limited company). In addition, it’s important to research contract laws in more detail as there are important differences between B2B and B2C agreements. 

Moreover, there are product safety standards that must be met, both for wholesalers and retailers, along with consumer protection laws, data protection, employment law, and more. 

Conclusion: Which Model is Right for Your Business?

Choosing the best business model between wholesale and retail will ultimately come down to your business goals and available resources. To make the right decisions, it’s important to carefully consider multiple factors, including available capital, market knowledge, the type of products you plan to sell, desired profit margins, and more.

If you decide to rely on B2B relationships, keep in mind that you’ll need to handle large transactions and effectively manage supply chains. Meanwhile, if you prefer dealing directly with customers, concentrating on branding, and have strong marketing skills, it may be better to focus on B2C or retail. 

Frequently Asked Questions

What are the biggest challenges in retail?

Some of the biggest challenges in retail are related to inventory management, high operational costs, and aggressive competition.

What are the biggest challenges in wholesale?

In wholesale, some of the most popular obstacles include lower profit margins, relationship management with retailers, and inventory management.

What are some examples of wholesale and retail products?

Popular wholesale products include electronics components, clothing, food and beverages, office supplies, and cosmetics. On the other hand, popular retail products include groceries, personal care products, books and magazines, pet supplies, and footwear.