Dear readers, I am Yuan Lai from New Distribution. Although the first half of 2024 has not yet fully concluded, I have been quite active around the distributor community. During the Spring Sugar Fair, we held the second China FMCG Distributor Conference, and organized four offline distributor seminars and study tours in Luoyang, Nanning, Shenzhen, and Nanjing, engaging in in-depth exchanges with local distributor owners. Additionally, there were three distributor annual meeting trainings for brand owners. All in all, I visited over a dozen cities. While I haven't counted precisely, I believe I have met one-on-one with at least 100 distributors. From these exchanges and discussions, I have summarized the 10 most critical business insights. Although they are not yet fully supported by data, they are genuine observations from the front lines, and I hope they can offer food for thought and inspiration to distributor owners.

The market indeed has some problems The current market indeed has some problems, which are common rather than individual. Therefore, distributors should not be overly anxious. Since everyone is in the same boat, why dwell on it? At the store level, the same market actions as last year have not led to growth but rather a decline. Either the store business is struggling, or competitors are grabbing more aggressively—there are only these two reasons. Distributors need to clarify what exactly is causing the decline. Recently, I spoke with a distributor owner who mentioned losses over the past two years. He emphasized that it wasn't due to his small business scale. A friend of his in another city, with a business volume of 100 million yuan, has also been losing money over the past two months. The harder the market, the more you need to think about your business strategy. From an external perspective, the difficulty is something you cannot change. From an internal perspective, the difficulty is the negative result of a series of past operational actions. To change the current 'difficult' outcome, you must rethink your future operational actions.

New era inevitably brings new opportunities I just said not to be overly anxious because the market environment we face has completely changed. New changes inevitably bring new opportunities. Many distributors are beneficiaries of the past era, having gained business growth and wealth accumulation. Similarly, when a new environment emerges, it will inevitably create a new set of stakeholders. The emergence of new stakeholders will inevitably carve up and erode the interests of the old beneficiaries. In the offline space: FMCG B2B, frozen food B2B, ingredients B2B, flash warehouse supply chains, snack discount chains, daily chemical whole-store output, community group buying, warehouse discounts... The once whole business (retail) has been fragmented into piecemeal businesses. For distributors, it is crucial to detect changes promptly, evaluate and analyze them, and make choices. Distributors cannot do every type of business; they need to deeply consider what kind of business they truly want to run.

Distribution-Retail Integration vs. Retail-Supply Integration If a distributor wants to grow their business in a city, they inevitably extend their reach to retailers, capturing the numerous small mom-and-pop stores and providing one-stop FMCG supply chains. We call this 'distribution-retail integration.' Retailers, on the other hand, have traditionally relied on selling shelf space, displays, and barcodes to make money, but this model is becoming increasingly ineffective. The first step for regional supermarket transformation is 'product reform.' Shift from a shelf business to a product business, from contract and financial management to product management. This is called retail-supply integration, or zero-supply integration for short. The big direction is clear: shorten the supply chain, reduce procurement costs, streamline SKUs, and build proactive product selection capabilities. Distribution-retail integration: distributor + mom-and-pop stores (one-stop product supply). Retail-supply integration: regional retailers + direct product sourcing (reducing the number of distributors).

View the trading business from a city-wide perspective Over 90% of distributor businesses are based in local cities, unlike upstream brands that operate nationally or downstream retailers that can be regional or cross-province. Doing business in one city is the scope defined by upstream brands. As long as you are in the trading business, it is hard to break out of this circle, and the geographical environment cannot be changed. In a city's trading business, your competitors are not upstream brands or downstream retailers. Upstream and downstream are your negotiation partners, not your competitors. Your only competitors are local distributors of the same category. If you are stronger, have more brands, more staff, and better service, you can secure floor displays and end caps at 500 yuan less than your peers. Distributors only deliver value. The best way to deliver value is through resource monopoly.

KA stores will never completely eliminate distributors Although we keep talking about zero-supply integration, regional and national supermarkets cannot 100% eliminate distributors. From the brand's perspective, distributors' capital, distribution, and local frontline execution cannot be replaced. Even if regional supermarkets open a green channel for brands, with payment on delivery and direct shipment from factory to central warehouse, there is one core issue that cannot be avoided: the competition between core leading brands within the same category in the store. When two brands compete in one store, what is needed is two independent interest entities, not two departmental entities. If you are a Tsingtao distributor and I am a Snow distributor, compared to being Tsingtao's department and China Resources Snow's department, independent interest entities are always more efficient in execution than two departmental entities. This is human nature. Of course, this refers to category competition led by leading brands. There are also categories like bulk foods and snacks that are not led by leading brands, where the possibility of eliminating distributors is much higher.

B2B supply chain platforms are a slow but correct path B2B supply chain platforms, after two years of development, have been increasingly recognized by distributors and are being put into practice. Although the path for B2B platform operators is clear, there are still differences. First, distributors' past business cognition differs—whether they were in wholesale, KA supermarkets, retail, or brand/category management—affects their understanding of B2B. Second, the paths and methods for entering B2B vary by category. A B2B one-stop supply chain platform is a business model, and full-category product supply is the ultimate result. Initially, distributors can start with snacks, beverages, or condiments. The core is to form stable and lasting partnerships with downstream BC stores through a combination of multiple products. If you only have daily chemicals or condiments, the operational costs with downstream stores may not be covered. Can you balance costs by adding condiments or daily chemicals plus some best-selling beverages and convenient snacks? Stable and continuous cooperation with BC stores is the first step toward a B2B supply chain platform. Build on your past accumulated resources rather than launching all 3,000 SKUs at once. B2B supply chain is a slow but correct path. Don't rush; take it slowly.

The ultimate capability for distributors: category management A couple of days ago, a friend asked me what I was researching regarding distributors. I said I was studying retail 'category management.' He laughed and said, 'You study distributors, but you're researching retail.' I seriously replied: The ultimate capability for a distributor's business is to master category management. For distributors, warehousing, logistics, capital, credit terms, and store penetration are basic capabilities. The core differentiator in the future will be product category management capability. The larger the distributor, the more they need to understand retail. Understand what about retail? Not the design of customer flow lines or shopper purchase decision research, but the management capability of one or two categories within a retail store. For snack distributors, once business scale exceeds 70-80 million yuan, I still suggest opening one or two stores. But the purpose is not to chain or chase trends, but to truly attempt to understand retail. Simply selling products, you don't know the store's operational metrics or how well a category is performing, making it hard to truly master. Opening three to five stores can also feed back into optimizing the product structure of your trading business. Based on consumer retail logic, distribute good products.

In the future, there will only be two types of distributors In the future, there will only be two types of distributors: retail-oriented distributors and brand-oriented distributors. Brand-oriented distributors, to put it bluntly, work for upstream brands. They earn the gross margin designed and allocated by the brand. If you manage well, profits are higher; if not, profits are lower. They follow the upstream brand's directions. Examples include Mengniu, Yili, Nongfu Spring, Arawana, Unilever, Master Kong, etc. Retail-oriented distributors focus their eyes on the store and the shelves. If there are 12 shelves in a category, I take them all, a full takeover. Then, based on that category's shelves, I curate products, dividing by low, medium, and high price points, and by consumption scenarios, functions, specifications, and flavors. A distributor should become a category operation expert. Essentially, they are the procurement head under the retail system's category management. Should you be a brand-oriented distributor or a retail-oriented distributor? There is no right or wrong. Taking the brand-oriented route can make your business more stable, based on past inertia. But taking the retail-oriented route can make your business last longer.

Cannot rely 100% on upstream brands Currently, many distributors still have a 'working for the brand' mentality, focusing on achieving brand sales targets. For businesses over 100 million yuan, 80% comes from three or four brands. To achieve the tasks set by brands and obtain rebate policies, they seek various business opportunities: wholesale, group buying, channel flow, supermarket promotions, etc. In the past, we emphasized that a distributor's core competitiveness is not which brand resources you represent, nor your ability to shoulder the tasks set by brands. Brand representation is important and cannot be ignored, but it is only a vehicle for achieving your business goals. Today, you complete sales for Brand A. If Brand A stops working with you, you can still complete tasks with Brand B. The reason behind this is your control over downstream channel outlets. The ability to distribute and drive sell-through based on stores is the true core of a distributor. Achieving the manufacturer's task is just the win-win outcome, not the core capability in the process.

Take time to think about the path to business growth Where did your business growth come from in the past five years? Was it from growth in supermarket channels, from adding a new brand, or from community group buying or B2B growth? Wherever owners spend their time, energy, and effort, growth follows. To see if a distributor owner is truly thinking and studying the business, judge from these points: Look at what's on his desk. If there's not a single product in his office, it's hard to believe he can be a store product selection expert or category operation expert. Look at what's on his computer screen. Store data, product data, personnel data, sales, gross profit, even net profit. Without this data on the screen, it's hard to believe he clearly knows where the business is. Look at what he talks about in daily meetings. The content of meetings is the most core reflection of the distributor owner's business cognition. Does he talk about stores, products, or displays? Or perhaps he talks about upstream manufacturers' tasks and targets. Where time is spent, results are achieved. This is the simplest truth.

In conclusion Over the past decade or more, distributors have grown continuously due to demographic dividends, store expansion dividends, and product demand dividends. With people, vehicles, and products, you could make money. But now, with the diversification and fragmentation of retail formats, increasing competition, the value distributors deliver locally is being diluted and even replaced. Low-price impacts, direct manufacturer control, and business diversion are becoming more common. With the differentiation of retail channels and competition for existing demand, the distributor business has entered an era of meager profits. In daily operations, if you're not careful, you don't make money and end up doing fake business. Can the business still be done, and where should it go? Many distributor owners report: confusion! We believe that given the current environment, in 2024 and the near future, the focus for distributors should be: survive, outcompete peers; go out, expand your survival radius. When facing business confusion, looking inward often doesn't yield answers and may lead to more involution; looking outward, observing the thinking and practices of excellent large distributors, may bring you different inspiration and thoughts.

From August 20-22, 2024, the 6th China FMCG Conference, themed 'Crossing the Era of Shrinkage,' along with the 3rd China FMCG Hard Discount Conference and the 3rd China FMCG Distributor Conference, will be grandly held in Shanghai. At this conference, we will continue to implement 'professional methodologies' and 'case growth theories,' bringing together all roles in the FMCG industry chain, with top guest lineups, leading retail platforms, and outstanding national distributors, interpreting the truth of industry changes from multiple perspectives, deeply linking upstream and downstream of the industry chain, and efficiently connecting cooperation opportunities! At the same time, three exclusive industry reports will be released and deeply interpreted on site! Keynote speeches, roundtable dialogues, report interpretations, closed-door salons, and networking dinners—rich in format. Come to this conference and refuse to be a 'frog at the bottom of a well'!

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