Dear friends, it's a pleasure to connect. I'm Yuan Lai from New Distribution. Over the past six months, I've been deeply involved with the distributor community. We established a distributor member club, and within just over 100 days, we've already reached 205 members. Their combined annual revenue exceeds 30 billion yuan, and each member is a top-tier distributor in their local market, either in a specific category or across all categories. Additionally, we organized four offline study tours for benchmark distributors nationwide, visiting Xi'an, Tangshan, Nanchang, and Guangzhou for in-depth exchanges and discussions. It's clear that face-to-face interactions yield far better results than online community discussions. Over these six months, I've traveled to over a dozen cities to meet and discuss with distributor owners. While I haven't counted exactly, I estimate I've had one-on-one conversations with at least 100 distributors. From these exchanges, I've distilled the 20 most critical insights and suggestions, hoping they provide food for thought and inspiration for distributor owners.
Next Year Will Be Even Harder If you asked distributor owners in 2020, 2021, 2022, "How's business this year?" 90% would say, "It's been tough!" Whether it's genuinely hard or not, this year feels different. The overall macroeconomic downturn, rational consumption, reduced impulse buying, careful budgeting, and emphasis on cost-effectiveness have become the keywords for 2023 consumption. What about 2024? Undoubtedly, next year will be even harder, and it will get progressively tougher. The difficulty is relative to the past; we can't afford to be complacent, rely on manufacturers, or depend on stores. We must rely on ourselves. Growth through internal management and operational excellence must outweigh growth from external opportunities and dividends.
Trade Businesses Require Deep Thinking The trade business seems simple—just moving goods, distribution, and agency—no need for deep thought, just bold action. On the contrary, the simpler the business, the more you need to continuously refine and iterate to achieve growth and capture sales. If others spend one hour thinking about how to improve and grow their business, and you spend five hours, your methods will surely be better. In the current environment, business growth and improvement for distributors must start with optimizing every SKU and increasing share in every store!
Difficulty Can Be a Blessing When business gets tough, it can sometimes be a good thing. The pain forces some distributors to proactively seek change; they have no choice but to change. In the past, they were in their comfort zone, making money with natural growth, so there was no motivation to change. The process of seeking change is the process of seeking growth, and once you grow, you're taking sales from others. When local competitors lose sales, can't continue, and give up, your business will become smoother. Survive these two years, and after a wave of distributors exits, the remaining ones will have much better days. Endure these two years; the survivor wins. When facing operational difficulties, distributor owners should also learn to be optimistic, grit their teeth and work hard for two years, and welcome the big dividend of trade circulation!
What Is Core Competitiveness? What is the true foundation for a distributor's survival and operation? Brands were the core competitiveness in the past, but not now, and certainly not in the future. Brands are now just resources and vehicles for distributors to achieve business. The real root is the downstream stores.
High Efficiency Is Not About Fewer People and Vehicles Many distributor owners talk about operational "efficiency." But many misunderstand "efficiency" as having fewer people and vehicles to produce more output. That's the result of efficiency, not the process of pursuing higher efficiency. The process of pursuing higher efficiency is: when distributing one brand, achieve higher coverage, higher penetration, and higher sales (compared to competitors of similar brands). When distributing 10 brands, can you form category combinations, lower-cost display resources, and lower-cost shelf space (compared to competitors in the same category)? When distributing 100 brands, if competitors can't do it but you can, that's your efficiency advantage.
Challenges at Different Stages for Distributors For distributors with 10-20 million in revenue, the challenge is not doing well with one or two brands. For 30-40 million, it's poor internal management—people, money, and goods aren't managed well. For 50-60 million, it's not forming category combinations, with scattered brands and unfocused business resources. For 70-80 million, it's too many opportunities and wrong direction choices. Once distributors reach 70-80 million, they feel there's no room left in their business and start looking at external trends, trying more things. But in fact, the supply chain business is the most stable and certain business. It's slow and tiring, but it has long-term potential. If you go deep enough in the supply chain and become the local leader, the business's imagination space is still huge. However, distributor owners habitually look for opportunities, just like they did when they first sought brands.
Team Recruitment, Management, and Retention The most direct and effective way to manage a team is to always maintain absolute salary competitiveness for frontline salespeople in the local trade circle. What's the standard for competitiveness? 30% higher than peers. Only then can excellent people keep coming in, and you can dare to manage those inside. If you can't afford to pay 30% more than peers, you need to reflect on your product structure and gross margin structure. If you only sell bestsellers and only serve 200-300 outlets, you definitely can't afford it. Other rewards like honor, belonging, travel, and cultural activities are just icing on the cake. They're not useless, but they only work if salaries are competitive.
Direction for Distributor Business Based on local supply chain business, there are only two development directions: horizontal category expansion and vertical channel deepening. Build a local supply chain platform by category and channel. To make money in local FMCG business, you must either be the only one or be the first.
What Distributors Rely On to Make Money In different eras, what do distributors rely on to make money? In the 1990s, it was capital and connections. In the 2000s, it was visits and delivery. In the 2010s, it was distribution and after-sales. In the 2020s, it's pushing new products and grabbing share.
Internal Organization and Management Never test human nature; use processes and systems to set bottom lines and principles. You can trust the team's combat capability, but you cannot let team management run loose.
Threshold for Small and Medium Circulation Stores Why do many distributors not want to serve small and medium circulation stores? It's not that they can't serve them, but they can't manage them, and the accounts are unclear. Frontline salespeople might embezzle funds or expenses. Without a complete management, inspection, and system framework, it's easy to be exploited, and the cost is too high. Although small and medium circulation stores have low output per store, they accumulate like sand into a tower and are the core of future distributor business.
Should Distributors Aim to Grow Big? Many distributor owners tell me, "Don't aim to grow big; aim to be strong (profitable)." But usually, those who say this are already big. There's nothing wrong with growing big. The correct development path is: from small to big, and after becoming big, focus on stability (operational efficiency and organizational management). Without bigness, there's no stability.
Daily Self-Reflection for Distributors Distributor owners should ask themselves three questions daily: Why don't stores stock up? Why don't stores continue to stock up? Why don't stores stock up more?
Difference Between Distributors and Platform Operators The biggest difference between doing a local B2B supply chain platform and being a distributor is: distributors want to make money on every truck, every order, and every piece, but local B2B supply chain platform operators don't. They may not make money in the first three years, but after three years, once they reach a certain supply chain scale, they make a lot of money. It's a cash flow business with no credit terms. With a 300 million yuan business scale and a 2% net profit, you can calculate it yourself.
Evaluating Distributor Management Level How to evaluate a distributor's operational management capability? The key is to look at the salary structure of frontline salespeople. There are three types of salary structures:
- Base salary + sales commission
- Base salary + gross/net profit commission
- Base salary + sales/gross/net profit commission + market development rewards
The first type is "brand thinking." The market belongs to the manufacturer; my value is in payment, warehousing, customer relations, and shelf placement—essentially playing a supporting role. Such distributors rely heavily on brands, and their business will get harder. Except for warehousing and capital, nothing else is theirs.
The second type is "business thinking." It aims to align salespeople with the owner's interests. While it makes salespeople consider maximizing gross profit and push second- and third-tier products, there's a risk they don't know how to sell or sell blindly without professional market promotion methods.
The third type is "market thinking." Through various market development rewards, they do phased market building projects like display rewards, new product distribution rewards, and poster rewards, believing that if market building is done well, sales will naturally follow.
Which salary structure do you use for your frontline salespeople?
City Determines Business Direction Only big regions have big markets, and only big markets have big distributors. The market capacity corresponding to the city's population is the fundamental factor for business. With geographical advantages, if you capture good KA modern trade channels or good categories (seasoning, daily chemicals, snacks), your business won't be too small. In first-tier cities like Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou, focusing on one type of channel with sufficient professionalism can yield good business. In second-tier cities, focusing on one or two categories with professionalism is enough. In third- and fourth-tier cities, you need to focus on all local channels (local supermarkets, single large stores, and mom-and-pop stores).
Shift in Brand Distribution Thinking If you source 1 brand externally, you're a goods reseller. If you source 2 brands, you're still a goods reseller. If you source 10 brands, you're still a goods reseller... But if you source 100 brands, you become a platform operator. Don't limit your distribution vision. Step out; you serve not only upstream manufacturers but also more downstream stores. When you cover the maximum number of stores, 3,000 to 5,000 or more, you become the principal, not the intermediary.
A Trade Model for Fourth- and Fifth-Tier Cities What will the trade distribution model look like in a fourth- or fifth-tier city in the next five to ten years?
- 1-2 full-category supply chain platform operators (mainly snacks and non-staple foods, supplemented by beverages and seasonings)
- About 10 category-focused distributors (seasoning, snacks, daily chemicals)
- About 30 brand-focused distributors with warehousing and distribution (alcohol, beverages, grain and oil, milk, etc.)
In the future, a city really doesn't need that many distributors. 50 is enough.
Ceiling for Trade Business in Fourth- and Fifth-Tier Cities What is the revenue ceiling for FMCG trade in an ordinary prefecture-level city (1.5-3 million population)? 500 million yuan (estimated from horizontal regional market comparisons). 500 million = 200 million from multi-category distribution agency business (mainly snacks, seasonings, alcohol, daily chemicals) + 200 million from full-category supply chain business for small and medium stores (penetrating 5,000 local small and medium stores) + 100 million from catering food supply chain business (restaurants, campus institutions, canteens, etc.). In fact, many large distributors, once they reach 100-200 million locally, stop digging deeper into the supply chain and start considering community fresh food chains, snack discount stores, warehouse discount supermarkets, etc.
The Harder It Gets, the More You Need to Go to the Market When market profits are thin and the environment is poor, it's even more important to "relearn and redo." Many distributors have forgotten why they succeeded in the past—they built up their business by working with outlets one by one. But now that they're big, they sit in the office looking at reports and think the market is tough, without going to the market to see the real reasons!
Final Thoughts For the second half of 2023 and the long term, the focus for distributors should be: survive, outlast competitors, go out, and expand your survival radius. As for how to do it in the second half, I suggest distributors get out more, see how peers are judging and viewing market changes, which will help guide your business for the second half. When facing business confusion, looking inward will never find answers; it only leads to involution. Look outward, learn from the thinking logic of excellent large distributors, and you'll truly find the answers you seek.
From October 9-11, 2023, during the 5th China FMCG Conference in Shenzhen, we will also hold the first China FMCG Distributor Conference. We will invite 16 benchmark distributor owners and industry executives to share their business insights. Additionally, New Distribution, together with Zhoupu Data, will release the industry's first "2022-2023 China FMCG Distributor Operating Conditions Survey Report" to help distributors see the present and the future. We look forward to witnessing the first China FMCG Distributor Conference with you!