The manufacturing industry in India has been facing a mammoth task of serving almost 14 million retail points and the end customer – in both the rural and the urban markets. The fast-moving consumer goods sector and durable goods sector has some of the highest demands that manufacturers are required to meet. Furthermore, almost 92% of the retail sector falls under the unorganized category, thus making it difficult for manufacturers to rely on solely the direct distribution channels for catering to the needs of the market’s demands.
All these factors have one easy solution – finding solace in the wholesale market. The wholesale market, in a supply chain of goods and services, stands as an intermediary between the retailers and the manufacturers. Even though both parties sell the same goods and services, their behavior in the market is what differentiates them.
Distributor’s Role –
- Shares a commercial relationship with the manufacturer;
- He may deal with not one but several product lines, but ensures that none of these product lines are in competition with or conflict with each other;
- Services the products to retailers, but may also service wholesalers;
- He deals with providing labor support to retailers to help them become established and may also provide services which primarily include the provision of credit to the manufacturer, but also other services such as providing product-related information, estimation of valuation, technical support, post-sales services;
- Most distributors enter into agreements with the primary manufacturer who in turn supplies products to only limited distributors within a particular territory;
- They are usually very organized and maintain healthy margins with respect to their sales;
- They share a similar equation with retailers as the equation shared with them by the manufacturer.
Wholesaler’s Role –
- Rarely has any commercial or business obligations and operates on his own terms;
- Receives goods in bulk from the distributor for the purpose of resale, usually in bulk to other retailers, distributors, and even to other wholesalers;
- Purchases goods at a lower cost due to purchase being in bulk;
- May purchase a vast range of products and is not restricted in the purchase as long as he is making a profit;
- Mostly rural and some urban retailers prefer buying their products from distributors for the lower cost of purchase and absence of too many terms and conditions;
- Works on narrow margins and thus rarely offers credit; rarely in the business of taking back any unsold stock or products.
Manufacturers ultimately benefit from the collaboration between retailers and wholesalers as they can achieve their sales from markets where they are not expected to handle sales and shipping directly.
Impact of GST on the Wholesale Market –
Distributors and wholesalers alike share a very integral role in the supply chain and it is obvious that manufacturers cannot survive without their collaboration. Even though manufacturers have begun to brace themselves as to what to expect with the advent of the GST, they face major concerns from their retailers and wholesalers and whether these players are able to get up to speed to GST compliance so that the process can function smoothly. Post the demonetization era, the wholesale market has been wounded, however, with the coming into effect of the GST, hopefully, the market will recover and boost growth better than ever, due to the primary reasons of transparency and better organization.
We have provided a snapshot of the ways in which the wholesale market will be impacted by the GST –
|Tax increases for wholesalers – bringing them into the tax bracket and ensuring compliance||
|Destocking against the shift from the indirect tax regime to the GST regime||
|Direct Distribution Channels||
|Open Market policy||
In conclusion, the GST is expected to impact the wholesale market greatly. Even though this impact may not be what the market expects with the first few hits, just like how demonetization was rolled out, eventually the ecosystem will see the benefits and advantages of GST. Anyone can survive this wave if there are ready to be in compliance with the taxation, as ultimately, such adherence will allow all players in the market to reap benefits and achieve higher revenue and overall growth. Feel free to Contact Us.