Why the Stereotype “Wholesalers Boost Sales” Is Wrong — A Real RTM Case Study

Why the Stereotype “Wholesalers Boost Sales” Is Wrong — A Real RTM Case Study

One of the most persistent myths in commercial organizations is: “Wholesalers always bring incremental volume and extra revenue.” It seems logical—but in many FMCG categories this assumption collapses when confronted with real data.

Let’s examine a practical case from the chocolate bar category where the wholesale model clearly fails.

Figure 1. Sales location per channel — company vs. industry

The analysis shows:

1. The company’s channel evolution follows overall industry trends.
2. Yet the company significantly underperforms in the Traditional Trade channel—the most profitable channel in this market.
3. The perceived “overrepresentation” in Modern Retail is not a competitive advantage; it simply reflects a redistribution of sales in line with the company’s 18.8% market share.

Additional facts:

1. Wholesalers account for 22% of total turnover; they are not presented in the analysis above because they are not a channel—only an intermediary.
2. Company’s direct coverage in Traditional Trade: 50,000 outlets out of a 70,000-outlet universe.
3. Nielsen distribution for the brand: 50,000 outlets.

What the Data Tells Us

1. Wholesale does not expand distribution. All 50,000 outlets are already covered by the company’s sales force.
2. The brand lacks top-of-mind status. If it were a #1 consumer choice, wholesalers would naturally extend coverage into remote areas.
3. Wholesalers compete with Sales Reps in the same A/B outlets → creating distribution overlap.
4. Traditional Trade losses occur because wholesalers sell only the top-selling SKU (1 out of 5), while Sales Reps push the full assortment.
5. Pricing architecture is flawed. Wholesalers sell cheaper than Sales Reps, pushing the company out of top Traditional Trade outlets.
6. Sales Reps cover C-type outlets—low-margin and often unprofitable.

Why These Conclusions Make Sense

Business model of (active) wholesalers

(provided the producer’s pricing model is correct):

1. Aggregate bestselling SKUs
2. Deliver to remote and C-type outlets
3. Serve as a single source of supply
4. Charge high margins due to delivery cost, risk, and small order sizes

But here the wholesalers’ business model is skewed

Because they can offer a lower price than the Sales Reps, wholesalers:

1. Shift focus to large A/B outlets
2. Maximize profit/Minimize cost
3. Ignore small and remote locations entirely

Overall Summary

1. The wholesale RTM model is not working. No incremental distribution, reduced assortment in Traditional Trade, and lost profit due to wholesale discounts.
2. Raising wholesale prices will not solve the problem. The brand is not demanded in remote locations or C outlets, so wholesalers will not generate additional sales.
3. Growth requires regaining control of Traditional Trade:
4. Completely stop selling to wholesalers (no reason to discount and lose volume simultaneously)
5. Which will allow the company to increase full-range distribution and merchandising through its own sales team

When the Wholesale Model Does Work

A wholesaler-led RTM is effective only when:

1. The brand is #1 or #2 — strong consumer pull.
2. SKU concentration is high (few SKUs, each with strong turnover).
3. The company lacks the critical mass to maintain its own Sales Reps in low-volume, dispersed channels.

Modern Retail typically generates enough scale to justify direct servicing.

This case demonstrates the importance of understanding channel economics, business models, and their impact on RTM decisions. These principles extend far beyond FMCG.