Anna Zubacheva, ROP TOP sharing center told about the reasons for the drop in wholesale sales
Wholesale distribution is tied to the end customer, i.e., to retail. I mean the segment where wholesale is being distributed into retail (in the stores), and the stores are selling to the end buyer.
Traditional wholesale existed prior to the appearance of the federal networks. Those were separate stores. Naturally, the whole volume of goods was split between the retail units located on the territory.
After that, the federal networks were established. For instance, Lente, AUCHAN, Magnit. With them, the center where the decisions are made is outside of the region where the wholesale company is located. There is a decline in sales of small retail units because the end customer goes to federal networks.
This way, there is a certain market volume — consumption capacity. For example, in a month the Moscow Region consumes 800 liters of packaged juice. These 800 liters were distributed among all units of Moscow and the Moscow Region. Then the federal network was established, and the end customer chose them. Now they are buying from the shelves there.
Let us assume that the federal network is from Krasnodar, and it is Magnit. The procurement center is located in Krasnodar. Accordingly, the Moscow Region is losing its goods volume because the additional volume is coming from the Krasnodar Region. The first reason for the decline in wholesale is the redistribution of the market.
The second reason is redistribution along the sales channels. Marketplaces selling juice were formed. In regular stores, they sold Dobry juice. As for OZON — they started selling Ya juice.
The consumers started purchasing it there. The total consumption is the same. However, there was redistribution between the sales channels. The marketplace took over the volume.
Some examples of a decline in wholesale — federal networks began to actively form in the Urals in 2012-2015. Those were Pyaterochka, Magnit, Diksi. Naturally, they began to push out the retail that existed in the region at that time.
The pressure was on separate stores and private entrepreneurs. It happened because the federal networks have more attractive prices, their advertisement campaign is more developed, etc.
The end customer goes to Magnit. The small store nearby closes. The more Magnit stores are opened, the smaller trade units are out of business.
An example in practice. In 2020, all petty retail, without regard to the location of the stores, was made to install a service terminal issuing checks. The government decided to make the revenue of the entrepreneurs transparent.
The taxes were calculated according to these cash reports. Not everyone was happy about this. Many small trade units were closed because it was not profitable for them to work anymore. We saw a decline in wholesale.
The marketplace also launched a blow at the small stores which didn’t do business with online display units.
How to maintain the required level of wholesale?
To support wholesale, it is necessary to track the tendencies of the market and the redistribution of the end customer flow. It is also important to sign contracts with the organizations servicing the end customer. It can be a federal network or an online platform.
Also, wholesale can be supported by expansion.
Let us imagine a wholesale company working with ten sales units and getting significant revenue from it. But then a federal network is established in the city, and these ten sales units are forced to close.
This causes the need to attract the same number of clients that provided the required volume to the company. It means that one needs to have a constant client base with which it will be possible to work at any time.
What to do if the sales have already declined
The first measure is the analysis of the possible reasons for such a decline. This decision will serve as a basis for the decision: to expand the business client base, to change the product, or to change the method of distribution.
Since the last year, a large number of large wholesale companies have almost completely gone online. There is a Sima-Land company in the Urals. It is the biggest supplier of Chinese goods.
Currently, the store is only selling the goods through the internet platform. The buyer can purchase anything, from food products to major appliances. Even though until recently Sima-Land was a fully offline supplier. This is an example of correctly selected measures to support business in response to market changes.
How to motivate wholesale managers?
You need to show the manager the points of growth, both their own and the territorial (client) area they are responsible for. It can be done this way: drive to all the client locations together with the manager.
You both can analyze the placement of your goods and the goods of your competitors. Evaluate the percentage of the product on the shelf. Form a new plan for this sales unit.
Also, you cannot forget about human support. It is important to not only remind the manager about their weak points but also about their merits.