Introduction: Core thoughts from three brands of different sizes on building a moat through offline distributors.
A couple of days ago, I had a phone chat with a distributor friend. He mentioned that he had been constantly receiving senior executives from top-tier manufacturers, all discussing the topic of how to penetrate lower-tier markets. I asked, "Haven't we always been talking about lower-tier markets? Why the emphasis now?" The distributor explained that although lower-tier markets were discussed before, it was more about slogans without concrete actions. This year, there has been a noticeable increase in specific implementation actions in lower-tier markets, matched with corresponding resources. The distributor further said, "Previously, manufacturers focused their growth attention on online e-commerce, from Tmall and Taobao to JD.com and Pinduoduo, from community e-commerce to short-video and livestream e-commerce. Although there was volume, it came at a huge cost—volume was there, but no profit." After all the twists and turns, they discovered that offline distributors are the real channel moat for manufacturers. The vast network of offline distributor partners can bring sustained sales to brands, and crucially, they can make money. They are stable, loyal, and responsive—come when called, leave when dismissed. Indeed, in the past year or two, as an industry channel observer, New Distribution has clearly felt that whether it's top-tier brands or new consumer brands with two to three years of history, they are all increasingly investing in building and emphasizing their offline distributor systems. At this juncture, it's no exaggeration to say that offline distributor channels are the fundamental base for FMCG brands. The exhaustion of online traffic, rising resource costs, intense category competition, and imbalanced input-output ratios have forced brand manufacturers to pick up the most traditional offline distributor group again. This article, based on New Distribution's past consulting and training experiences and cases, discusses how brands of different scales and levels should build this true moat of offline distributor channels in the current market environment.
1. Top-tier brands—Empower distributors 2. Second-tier brands—Operate distributors 3. New consumer brands—Select distributors
Top-tier brands—Empower distributors
Top-tier brands' offline distributors, after decades of accumulation and sedimentation, have already built a large number of high-quality and stable distributor partners across the country. These distributor partners have also achieved business growth by representing top-tier brands. It's no exaggeration to say that top-tier brands have witnessed and led distributor partners from individual entrepreneurship to corporate growth. In the past, relying on brand dividends, demographic dividends, and store dividends, distributors and top-tier brands each took what they needed and achieved win-win cooperation. But as cooperation has evolved to today, we increasingly feel the 'pain' of distributors. This pain is not just about target pressure; the most important pain is—not making money. Taking a leading daily chemical brand as an example, distributors only have a 10-point gross margin, which can no longer support daily operating costs, let alone the increasing levies and fees from local system stores.
More and more distributors are considering giving up top-tier brands, not because there's no sales volume, but because there's volume without profit. How to break the deadlock? Although increasing gross margin is the solution, it's not easy for scientifically managed top-tier manufacturers to simply and crudely raise margins. If gross margin cannot be changed, what else can be offered to distributors to make them willing to continue following you? I think only 'empowering distributors' is the right path. By improving their operational capabilities and management levels, reducing costs and increasing efficiency, and thereby increasing profitability.
Based on New Distribution's past cases of empowering distributors for brands, we believe there are two dimensions to empowering distributors to reduce costs and increase efficiency: first, internal organizational management efficiency; second, external business management efficiency. For internal organizational management efficiency, consider the following dimensions:
√ Recruitment, training, management, and retention of employees √ Employee compensation and performance √ Company finance, taxation, and legal compliance √ Organizational systems and processes ...
For external business management efficiency, consider the following dimensions:
√ Digital business methodology √ New product sell-through methodology √ Accounts receivable management √ Business data analysis ...
Regarding top-tier brands empowering distributors, there are two core points: First, change the management perspective—not managing distributors, but empowering and supporting them. Even proactively analyze from the distributor's own business perspective whether to add a brand agency or expand a category, how to scientifically design frontline personnel compensation and performance, etc., to improve overall business profit. Second, build an empowerment system for frontline distributor partners—in plain language, establish a distributor empowerment business school. Based on your own professional, talent, and resource accumulation, from industry trends and vision at the top, to business model transformation in the middle, to operational strategy improvement at the bottom, provide distributor partners with a one-stop package of professional business management content. Regarding top-tier brands empowering distributors, I want to say that limited by your own corporate operating rules, when you cannot provide more gross margin to your distributor partners and still want them to continue following you, there is only one path: Be of one mind with your distributor partners, stand from their business perspective, help them, support them, rather than only caring about whether your own brand's business is growing. Your brand's growth is indeed your core KPI, but don't forget the survival needs of each independent commercial entity behind you.
Second-tier brands—Operate distributors
From a market perspective, second-tier brands have not yet truly achieved national coverage, or they have achieved national coverage but have not established a true distributor network moat. Here, second-tier brands refer not only to those with second-tier brand awareness, but also those with first-tier brand awareness but overall market share ranking below fourth or fifth, especially with lower share in lower-tier markets where regional brands dominate. Facing such a market foundation, second-tier brands need to quickly build their own complete frontline market operation system. Second-tier brands have decent share in some regional markets, but urgently need to expand in lower-tier markets to drive overall business growth. When promoting market penetration, they need to have a frontline market operation and capture system in hand. How to get this system? From benchmark markets—that is, extract the operational strategies and methods of excellent benchmark markets and give them to frontline commanders. This frontline market operation and capture system can include the following dimensions:
√ Distributor selection profile for lower-tier markets √ Regional market launch rhythm and progression √ Leveraging distributor personnel incentive plans √ Regional market store sell-through logic ...
When a brand cannot account for more than 20% of a distributor's business system, don't think about managing distributors. At this point, market penetration actually relies more on your own efforts. Only by establishing a scientific and complete frontline market operation and capture system, coupled with effective cooperation from distributors, can you truly achieve market penetration. When second-tier brands are advancing market coverage and increasing share, distributors care more about whether the manufacturer has a clear, scientific, and effective market playbook and capture strategy. Sales volume can be a bit less, but it must be growing; stores can be fewer, but good stores must stand out. During market expansion and penetration, brands should nurture distributors rather than manage them. The core here is whether you have a complete frontline market operation and capture system.
New consumer brands—Select distributors
In the past two years, new consumer brands were hot with capital backing. As external capital cooled and e-commerce dividends faded, new consumer brands faced a harsh winter. The ones that remain have a certain market foundation and have survived the test of consumer demand. Now, new consumer brands increasingly recognize the importance of the offline market. Although offline is hard to crack and has barriers, once you secure a piece, it can provide stable and sustained output. How to build your own distributor moat offline? I believe the most important thing is to select distributors—that is, finding the right distributors is crucial. Because for new consumer brands, offline is a blank slate, and their own organizations are not yet robust, with few people to operate the market. In the early stages, they rely more on distributor strength to cover the market. How to find the right distributors? There are two core steps: First, clearly define the sell-through logic of your category offline. In simple terms, how the product reaches consumers—from consumption scenarios to communication scenarios to transaction scenarios—must be clearly and specifically defined. Second, based on the offline sell-through logic, determine the distributor profile. This distributor profile includes the following dimensions:
√ Distributor's brand portfolio profile √ Distributor's store types √ Distributor's personnel and organizational configuration √ Distributor's business scale range ...
Without sell-through logic, you don't know what type of distributor to look for. Without a specific profile, you can't evaluate which distributors will succeed and have the highest survival rate. When new consumer brands go offline, in the early stage, they can grab everything, explore first, and based on real market feedback, continuously seek the offline sell-through logic. After one or two years of exploration, they should start to tighten up, clarify the distributor profile, and then expand market coverage on a larger scale.
Summary:
The above are the core thoughts from three brands of different sizes on building a moat through offline distributors. In general, top-tier brands offline should help distributor partners grow gross margin, thereby enabling distributor partners to implement more brand-set market projects, maintaining stability and sustainability without chaos. Second-tier brands offline should build a frontline market operation and capture system, replicate and expand, nurture distributors during market capture, and cultivate a group of distributors with high cooperation and willingness. New consumer brands offline should find the sell-through logic, thereby improving success rates, finding the right distributors, and gradually building the offline market moat.
Author Bio:
Yuan Lai, Head of Consulting and Training Business at New Distribution, and a distributor business management consultant. He has conducted in-depth research on frontline distributor topics, interviewed over 200 outstanding distributors nationwide, and authored over 250,000 words of practical distributor business management articles. His core course is "Panorama of Distributor Business Growth." He currently provides consulting and training services on offline channel and distributor management to clients including Kimberly-Clark, PepsiCo Foods, Dencare Oral, and Lee Kum Kee.
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