What is the meaning / definition of Wholesaler in the hospitality industry?
A Wholesaler is a 3rd party organization that sells hotel room nights. Wholesalers are companies that buy rooms in bulk then sell them to travel agents and OTAs, allowing hotels to generate more sales. Wholesalers are operating in the B2B segment, meaning they do not sell directly to the public but to other 3rd party sites and distribution channels.
Pre-internet a hotel would sell rooms to a wholesaler, which would sell it to a travel agency, which would then to sell to the end customer. All transactions would include a markup, so that all parties would be able to make money off the sale. Since internet, wholesalers will commonly sell their rooms to any kind of OTA (large or small and unknown) and other wholesalers. This causes confusion for hotels and drives profit margins down. High wholesaler / Travel Agents / OTAs profit margins mean profit loss of the hotel!
To fix this, hotels are turning their effort into marketing their property and developing their own online booking reservation systems to drive direct bookings. Some chains have even adopted price match guarantee, where if a guest finds a price for the same room on a different site, the hotel will match it (the lower rate which the guest may find ‘somewhere else’ is because it does not include large markups and commission from OTAs). Hotels nowadays should to be careful while signing contracts with wholesalers and make sure to clarify the room re-selling process in the terms and conditions.
The benefits of working with wholesalers are:
- they are specialised in provide access to a wide range of markets that you might not be able to reach directly
- working with them is kind of a ‘free marketing’ for you
- wholesaler contracts let you forecast occupancy patterns
- you avoid the fragmentation of demand in many of the source markets
- you are able to generate volume business
The disadvantages of working with wholesalers are:
- by demanding low net rates (or high commissions) they drive down your profitability
- in some markets they are powerful and take advantage of it, not playing fairly
- their operations model is not transparent
- they don’t fill allocations based on their commitments
- the pricing is static for long periods of time
- Merchant Model
- Distribution Strategy