Wholesale price – definition and meaning
The wholesale price or trade price is the price of products when they are sold in bulk by wholesalers to retailers, hence the name. Wholesale prices are cheaper than retail prices. Retail means shops and stores – selling directly to the public.
The producer sells goods at a certain price to the **wholesaler, who sells on those goods at a slightly higher price to the retailer, who then sells them at an even higher price to the consumer.
** The wholesaler is the ‘middle-man’, the ‘go-between’, between producer and retailer.
The wholesale price is always lower than the retail price. Sometimes a supermarket chain might sell a specific product at cost – the amount they bought them for – or even below cost in an attempt to attract customers, or in response to moves by other supermarket chains.
As this image illustrates, there is a big difference between the prices at which goods are sold by the producer to the wholesaler, wholesaler to retailer, and retailer to consumer. The consumer can buy just one item, the retailer has to purchase considerably more in each purchase, and the wholesaler typically has to buy in even greater volumes from the producer.
According to Dictionary.Cambridge.org, the wholesale price is:
“The price that a store or business pays for goods that it will then sell to the public.”
In the current supermarket price war in the United Kingdom, it is not uncommon for the retailer to refuse price increases from the wholesaler. In October 2016, Britain’s supermarket giant Tesco refused to accept higher wholesale prices from several Unilever products, including Persil, Flora, Berttolli, Marmite and Knorr.
Wholesale price allows for markups
The wholesale price is the producer’s price plus the margin (profit) that the wholesaler makes when selling on a product to the retailer.
When goods are sold at wholesale prices, they are sold in bulk – in large volumes – so that the wholesaler can make a profit on a small margin.
MSRP – Manufacturer’s Suggested Retail Price – is calculated so that there is room for both a wholesale and retail markup.
The World Bank writes: “Wholesale price indexes are based on the prices at the first commercial transaction of commodities that are important in a country’s output or consumption. Prices are farm-gate for agricultural commodities and ex-factory for industrial goods. Preference is given to indexes with the broadest coverage of the economy.” (Image: adapted from The World Bank)
Wholesale price in investment markets
In the world of assets and markets, the wholesale price is the value of an asset in a market where the big players make transactions in that asset with other large professional participants.
InvestorGuide.com makes the following comment regarding the wholesale price:
“In the Inter-bank Forex market, the standard wholesale price spread is roughly five pips in normal market conditions for the major currency pairs, although spreads can be considerably tighter than that in the retail Forex market due to the much smaller transaction sizes involved that are executed electronically.”
Wholesale Price(s) Index
The Wholesale Price(s) Index (WPI) is an index that tracks and measures changes in the prices of products in the different stages before the end user (consumer) buys them in a shop. Some countries use the term Producer Price Index for the same thing.
The long form of WPI may be written in either the singular and plural form – ‘price’ or ‘prices’.
In most countries, the WPI is used as an important measure of inflation. Monetary and fiscal policy changes are in large part influenced by WPI changes.
The OECD has the following definition for the Wholesale Prices Index (OECD uses the plural form):
“A measure that reflects changes in the prices paid for goods at various stages of distribution up to the point of retail. It can include prices of raw materials for intermediate and final consumption, prices of intermediate or unfinished goods, and prices of finished goods. The goods are usually valued at purchasers’ prices.”
Video – What is a wholesaler?