How to Start a Wholesale and Distribution Business

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Wholesale and distribution businesses come in many different shapes and sizes. The wholesale distribution business model spans from grocery wholesalers with national and international reach and a one-person enterprise with a van that distributes niche magazines to retailers.

TL;DR (Too Long; Didn't Read)

To start a wholesale distribution business, define your niche, curate your product line and start building a customer base among retailers.

Reasons for Starting a Distribution Business

Wholesale distribution allows you to use expertise in a specific area, such as imported shoes or organic spices. If you know your market niche and can forge relationships in your industry, you will be able to develop a strong product line and build a reputation for providing a quality selection, earning you repeat customers. A wholesale distribution business will give you the opportunity to use what you know to provide products that your customers want and need without having to make them yourself.

Wholesale distribution is also a fitting business for someone who is skilled at negotiating prices and terms. The prices you charge to your customers depend on your costs for getting your products from your suppliers. The ability to secure advantageous prices isn't just a matter of aggressive haggling. Rather, it often comes down to negotiating mutually advantageous arrangements with vendors, such as asking for a price reduction in exchange for picking up product rather than having it delivered.

If you develop strong systems, your wholesale distribution business will allow you to step away for personal time such as vacations and family occasions. Unlike a small restaurant that depends on the skill, personality and presence of its chef and owner, a wholesale distribution company has systems for performing its primary functions, including tracking outgoing inventory and alerting you to the need to order more. Wild cards come in the form of vehicle delivery breakdowns and shipments that don't arrive on time.

Defining Your Niche

You can set up your wholesale distribution company to compete head to head with massive, well-stocked competitors, but this is a very expensive proposition that carries considerable risk. A smaller wholesale distribution company has the advantage of being nimble enough to focus on an area of expertise and excel in that domain. You may not be able to offer a complete line of Italian specialty food products, but you could use your expertise in olive oil to build a catalog that generates interest and trust.

A small, specialized distributor is like a curator. You lend your personal touch to your offerings by selecting them with taste and care. As your customers try your offerings and are repeatedly satisfied, you will develop a reputation for selecting high-quality products. Customers may be drawn to try what you're offering simply because you're offering it.

Defining a Scope

A successful distribution focus will be neither too large nor too small. A broadly defined niche such as packaged groceries will be difficult to market to potential retailer customers because they most likely already have a big company providing the same items. As a small distributorship, you may be able to provide better customer service, but it is unlikely that you will be able to provide the same selection, price and level of convenience.

By keeping your focus narrow (but not too narrow), you'll have an easier time finding your target market. Even though the potential market for people who eat is significantly larger than the market for people who appreciate fine olive oil, it's easier to find and approach olive oil connoisseurs than to stand out in a field of distributors providing products targeted to anyone who eats.

Finding Your Suppliers

Your suppliers will be the backbone of what will make you successful as a wholesale distribution business. To be competitive, you will either need to find manufacturers who make unusual or high-quality products or suppliers that can supply you with product at advantageous prices that you can in turn pass along to the retailers who buy from you.

Start with products you enjoy and items that meet your criteria and fall under the scope you define. You may purchase products through retailers or other wholesalers and then use the contact information on a package to reach out and ask about wholesale distribution. Alternately, you can do an internet search for offerings that fit your parameters, sample these products and then decide which of them you want your wholesale distribution company to carry.

Once you have chosen your vendors, you must negotiate terms. These will include cost to you, delivery schedule and other specifications such as whether you or the vendor pays for freight. Also, talk through logistics for your payment schedule, such as whether your vendors can expect payment after seven days or after a month. Although low prices allow you to pass on savings to your retailer customers, you don't want to negotiate prices that are so low that your suppliers can't make ends meet.

Targeting Your Customers

The most likely customers for your wholesale distribution business will be businesses that provide the kinds of products that you offer. An olive oil distributor can find likely customers in specialty food stores, and a purveyor of tanned leather can wholesale to shoemakers and other producers who work with leather.

Gather a list of businesses and names and begin contacting prospects. You can reach out by phone, email or in person by walking into stores, preferably with samples in hand. There is no single right way to market a wholesale distributorship, and your approach will vary depending on whether a prospect is local or distant or large or small. Your approach will also depend on your personal comfort level making cold calls or walking into a business with no prior introduction.

Use your network and community to get the word out about your offerings and continue building your web by making advantageous contacts and doing good work. You may only be able to land a limited number of accounts when you first start your business, but these initial customers can be invaluable for forging a reputation and establishing a track record.

Building Your Infrastructure

You'll need a place to put the inventory you're accumulating. Your wholesale distribution business plan should include specifics for rental or construction of a warehouse, at least in the long term. You may be able to get started by storing items in your own basement, but as your company picks up steam, this arrangement will no longer be viable.

If you work with products that have special storage requirements, you'll need to figure these considerations into your costs and your plans. Refrigerated food requires refrigeration space, and plant starts require an environment with light and drainage. These extra considerations require additional investment, but in the long run, this will be less expensive than losing product due to faulty infrastructure.

You'll also need shelving for storage, which should be sufficient enough to hold what you plan to store and sturdy enough to bear its weight. If your warehouse is large, and your offerings are heavy, you'll also need pallet jacks to move product around and retrieve items from high shelves. Again, you may choose to operate with less than you need while you're getting started, but make sure that your warehouse space is safe and outfitted well enough that you won't lose product.

Building Information Systems

Your wholesale distribution business will need systems for tracking inventory and orders. You can monitor this information manually by counting and keeping scrupulous notes, or you can computerize your inventory using digital systems to tally what's been ordered, adjust inventory quantities when items have been removed from your shelves and alert you when stock drops below a certain point and needs to be reordered.

Your business can set up custom inventory and information systems, or you can invest in distribution inventory management software such as NetSuite or CBOS. However, the information systems you set up will only be as good as the energy you put into building and maintaining them. Even if your system is completely automated, you will still need to enter your initial information accurately and update it to reflect changes that can't be tracked automatically, such as spoilage or breakage.

Mapping a Delivery Schedule

As a company that distributes, your wholesale business will be at the mercy of roads, traffic and vehicle mishaps. Make sure your trucks are in good shape, or you could lose more money in unfulfilled orders than you might have spent maintaining your fleet. Choose vehicles that make sense for your product line, using considerations such as size, shelving and gas mileage. If you carry eco-friendly products, invest in an energy-efficient vehicle that is keeping with your brand.

Choose a delivery area large enough to be able to service a sufficient number of accounts but contained enough that you can cover it with the vehicles you have. It may seem like a sound business move to send your truck out to cover a vast area, but if you can't reach all of your accounts during business or delivery hours, you'll need to redeliver. Plan your routes around avoiding the most congested times of day and add additional delivery vehicles when your delivery schedule feels too full.

Advantages of a Wholesale Distribution Business

  • Volume. Unlike a small-scale retailer who sells item by item, a wholesale distributor can move quantities of product at once, allowing you to achieve scale and volume quickly if you carry products retailers want and if you find retailers well suited to your offerings.

  • Buying power. As a wholesale distributor, you'll have leverage when buying from suppliers. Because you're supplying multiple retailers, you can buy in bulk, and this can give you the clout to negotiate advantageous terms or even contract for a custom product line.

  • Adaptability. You can build a wholesale distribution business at a scale that makes sense for you personally and professionally. Your delivery area can be vast or contained, and your warehouse can be compact or sprawling. Similarly, you can delineate your product line in whatever way makes sense for you when you launch your business, and you can shift gears as you learn more about availability and demand.

Disadvantages of a Wholesale Distribution Business

  • Capital intensive. You'll probably need a considerable amount of capital to get a wholesale distribution business off the ground. Initial investments will include leasing and outfitting a warehouse, vehicle purchases and acquiring sufficient inventory. Ongoing expenses will include fueling and maintaining vehicles and keeping inventory in stock.

  • Low margins. The markup you receive on the products you sell will be considerably less than a retailer earns. As a result, you will need to move more product to make ends meet.

  • Space requirements. Because your wholesale distribution business will move plenty of product, it will need plenty of space. Your space requirements will include a warehouse area and places to park your vehicles. If you don't have sufficient space, you may be forced to limit your product lines or risk running out of key items.

References

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.