50% of Wholesalers Have Already Left the Market; Will Distributors Be Far Behind? According to industry insiders, nearly 50% of wholesalers in cities like Shanghai have disappeared. Due to urban planning and demolition, warehousing and distribution costs for wholesalers have risen sharply, far exceeding their profit levels. Additionally, both national and regional B2B platforms are accelerating their coverage and penetration of small stores, significantly increasing the frequency of online orders from these stores. To make matters worse, convenience store chains like FamilyMart and Lawson have been expanding rapidly in recent years, whether through franchising or self-operation, leading many traditional mom-and-pop stores to close or switch to franchising. Against this backdrop, a large wave of wholesalers is gradually exiting the stage. Shanghai is just a microcosm; other cities are experiencing the same phenomenon.
Wholesalers Are Leaving; Will Distributors Be Far Behind? The Way Out for Ten-Million-Level Distributors Relevant data shows that there are nearly 800,000 distributors nationwide, of which 80% are ten-million-level (in terms of turnover). They capitalized on the market dividends of a certain brand to become local agents, successfully transitioning from individual businesses to trading companies. Typical examples include distributors for Master Kong, Uni-President, Nongfu Spring, and Want Want. In the early days, they relied on market dividends and low-cost operations to make profits, but now they face market saturation, competition for existing market share, rising costs, and other internal and external factors, leading to severely squeezed profits.
Although they hold well-known brands, the profits behind them are squeezed from providing warehousing and distribution functions. Industry experts have pointed out that future FMCG channel reforms will form four systems: first, order systems; second, financial systems; third, warehousing and distribution systems; and fourth, promotion systems. Among these four functions, distributors are best suited to undertake the promotion system, while other functions will be actively or passively stripped away, such as warehousing and distribution, which will be handed over to third-party providers. However, the reality is that providing warehousing and distribution for brands has become one of the core profit sources for distributors. If warehousing and distribution are stripped away, distributors of well-known brands would have nothing to do.
Recently, when discussing distributor transformation with Wang Hua (pseudonym), a regional manager of a certain brand, he told New Distribution: The greatest value of ten-million-level distributors is not distribution but warehousing and distribution. We can see that a considerable number of distributors lack commercial flow capabilities; they rely on the sales teams provided by brand owners. Once the sales team withdraws, orders disappear. If warehousing and distribution are stripped away, distributors would basically have nothing to do.
Wang Hua frankly stated that looking at the overall external environment, although third-party warehousing and distribution is not yet mature and few have competitive pricing advantages, it is undeniable that third-party FMCG urban distribution is highly likely in the future. Since the trend is clear, companies hope distributors can make decisions based on the future and transform in advance. We have proposed the transformation slogan of enhancing "distributors' independent distribution capabilities," pushing distributors to transform into brand marketers.
Strictly speaking, current distributors can be roughly divided into three categories: The first category has distribution capabilities; in the past, besides well-known brand agencies, all other brands were sold by the distributors themselves. The key driver for this type is reasonable channel gross profit, shifting from "trusting local offices" to "trusting distributors." Under the premise of equal responsibilities, rights, and interests, decisively hand over the main body of market operations to distributors;
The second category lacks commercial flow; these distributors are more like logistics movers. Factory salespeople take orders, and distributors deliver, doing the work of logistics providers but earning distributor profits. This type should gradually increase the proportion of distribution, guiding distributors to develop independent distribution capabilities through different dimensions and forms, such as dividing business districts (urban and township), special channels like catering and campus, and high-margin products;
The third category has no willingness to transform, living off past gains, and should be decisively abandoned.
Therefore, from the perspective of companies that emphasize deep distribution, manufacturers hope distributors will transform from a single logistics capability to one that also includes commercial flow capabilities. Looking at recent changes, FMCG giants like Nongfu Spring are all making channel adjustments, integrating regional distributors, supporting distributors to operate across regions, and merging frontline business personnel into distributor teams as dedicated or shared sales representatives, thereby increasing the proportion of distributor self-sales. Another example is Jinmailang, the "growth dark horse" in the FMCG industry, which early on implemented a "four-in-one" market operation model, extending management reach to distributor salespeople, making them regional partners. Distributors act as small platforms providing funds, vehicles, warehousing, and financial support, while salespeople become entrepreneurial individuals, contracting product distribution by route.
The Historical Mission of Distributors "In the next 2-3 years, distributors will face a major reshuffle, and many will not survive," Wang Hua said.
Channel reform will inevitably reform distributors. The 800,000 distributors, 800,000 warehouses, and millions of vehicles nationwide are certainly unreasonable. The trend toward intensive, platform-based, and networked supply chains cannot be stopped by anyone. Some may question that distributors cannot be revolutionized, citing many functions and tasks that cannot be replaced. In terms of numbers, it is true that not all 800,000 distributors will disappear, but perhaps 50% will. Moreover, in this wave of closures, the first to be affected are distributors without distribution and promotion functions.
Looking back to around 2004, we can see the survival risks for current distributors from the emergence of deep distribution.
Mr. Zhao Bo, founder of New Distribution, once said that the logic of deep distribution is for manufacturers and distributors to join forces, extending operational reach into small stores, and achieving product sales through large-scale production and distribution. At that time, the background of deep distribution was market demand dividends and incomplete channel infrastructure. Faced with the deeply complex Chinese retail market, deep distribution was the most efficient means of distribution. During this process, although there was game-playing between manufacturers and distributors, they were essentially a community of interests. Brand owners, for their own benefit and with promising market growth, would split regions, compress distributors' agency scope, and enjoy absolute channel control.
Now, with diversified market demand, gradually improved infrastructure (maturity of B2B), the emergence of various online and offline retail channels, and rising costs behind the human-wave tactic, deep distribution is no longer sustainable. So we can see that in the past two years, Uni-President, Master Kong, Yili, and Mengniu have successively partnered with Alibaba's Retail Link and JD's New Path. Brand owners can no longer support an independent distribution system on their own.
Distributors who grew up with these brands, lying on the "warm bed" of the brand, providing only warehousing, distribution, and funds, and enjoying dividends comfortably, will see those days gone forever. When brand owners face hard times, the first thing they do is lay off staff. If distributors don't have factory salespeople, can they survive?
Strictly speaking, Chinese distributors have completed their phased historical mission and will gradually evolve and transform in future channel distribution, moving toward specialization, verticalization, and scale, becoming promoters, warehousing and distribution providers, marketers, or even platform operators, joining the business community organized by B2B and becoming part of the FMCG supply network.
Distributors that rely entirely on factory salespeople to do market work, have untimely delivery, need reminders for payments, and have high rates of near-expiry products can basically be classified as "retired" distributors. For this type, let's not talk about transformation; if they can still survive, it's a miracle!
Regarding distributor transformation, besides cross-track operations like unified warehousing and distribution or opening convenience stores, the core key point is to enhance independent distribution capabilities. Larger distributors can become regional B2B platforms to meet one-stop ordering for small stores; medium-sized distributors can consider transforming into vertical category operators, becoming regional category distribution kings; smaller distributors can become promoters, integrating brand salespeople to provide dedicated services for a specific brand.
In the past, distributors relied on brands to complete primitive capital accumulation and enjoyed good times for a while. Now, with fierce market competition and the curtain rising on the battle for existing market share, when brand owners can no longer fight alone, they need distributors to join in.
Distributor Transformation: What to Transform? Go Out and Seize the Market! FMCG Industry Analyst Focusing on New Distribution for FMCG Distributors / New Marketing for Brand Owners Related Extended Reading: Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG Manufacturer and Distributor Transformation and Channel Digital Solutions