What is the difference between retail price and wholesale price?

Answer 1

Volume. A wholesale price in general will be lower because the amount being sold is much higher. A business may buy say, 5000 bottles of ketchup. At that amount you can lower the price of the ketchup but still make the same amount of profit because you are selling so much. However, if you are only going to sell maybe one bottle, or sell the bottles at a lower rate then you prices will have to be higher because as the supplier you want to make back your costs of production for the good and a little profit as well.

Answer 2

To answer this we need a quick primer on the supply chain. Consider a factory that makes products and sells those products nation-wide in retail stores. Factories rarely sell directly to retail establishments. Instead, they sell to national distributors, who distribute that factory's products, together with other factories' products, to wholesalers in each city or region. The wholesalers in turn sell the products to retail establishments within their region. Then a customer buys the product from the local retailer. In addition, transportation services (air freight, rail, ships, trucking, couriers) may be contracted by these supply chain companies. These links in the commerce sequence - factory, distributor, wholesaler, retailer, and consumer - make up what we call the supply chain. Admittedly an oversimplified description of supply chain management, this description is sufficient to answer the question. Each element in the supply chain before the consumer - the factory, distributor, wholesaler, and retailer - charges a cost for the value it adds to making the product available to the consumer. The amount each supply chain element charges includes the direct and indirect costs of adding the value (moving the product closer to the consumer in a timely fashion) as well as profit. When the consumer buys a toaster, for example, she pays not just for the manufacturing of the toaster, but also for the transportation, warehousing, and handling costs between the factory and the retail establishment, as well as some profit for each and every supply chain company from the factory to the retailer. These charges are seamlessly integrated into the total cost the consumer pays, so the consumer is not aware, and cannot calculate, the value the consumer paid for the various supply chain services. Foreign products may also include duties, excise taxes, broker fees, and value added taxes - all of which are hidden in the overall price the consumer pays. The consumer price - that is the price the retail establishment charges, which includes all the supply chain prices - is called the retail price. The wholesale price is the price the retail store paid the wholesaler for that same product. This is the simple and theoretically correct answer. To answer "what does it mean to purchase something at wholesale prices" is a different issue. The term "wholesale price" is meant to imply that the retailer is passing the product to you with no markup of any kind. In other words, the retailer claims it is not charging you for the cost of handling the product, of operating the store, for hiring the staff, or for any profit. It is possible the retailer is telling you the truth - the problem is there is usually no way to verify the retailer's claim. Strictly speaking, if you are purchasing a product from a retail establishment, then you are paying the retail price, regardless of what the salesperson may claim. Because the supply chain costs are hidden - so hidden that even the retail salesperson does not know most of them - you can seldom verify what the true wholesale price actually is. Some retail establishments, who claim to post their wholesale price on the product and then show their own markup, may omit to tell you about the factory rebates available to the retail establishment. In the end, Caveat Emptor is the best policy - buyer beware.