---
title: "An 80 Million Yuan Business, Half from Wholesale, Losing Direction"
description: "Recently, the author visited several distributors in a third-tier city and was particularly impressed by one who sells snack foods with annual sales of 80 million yuan, ranking among the top in the region. However, during the conversation, it was evident that the distributor lacked confidence in his business and was uncertain about future direction. Having expected a post-pandemic consumption boom, he instead faced a more pronounced trend of consumption downgrading, with consumers tightening their wallets. With annual sales of 80 million yuan, wholesale accounts for half of the business."
author: "何雯"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-10-19"
language: "en"
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# An 80 Million Yuan Business, Half from Wholesale, Losing Direction

> Recently, the author visited several distributors in a third-tier city and was particularly impressed by one who sells snack foods with annual sales of 80 million yuan, ranking among the top in the region. However, during the conversation, it was evident that the distributor lacked confidence in his business and was uncertain about future direction. Having expected a post-pandemic consumption boom, he instead faced a more pronounced trend of consumption downgrading, with consumers tightening their wallets. With annual sales of 80 million yuan, wholesale accounts for half of the business.

Recently, the author visited several distributors in a third-tier city and was particularly impressed by one who sells snack foods with annual sales of 80 million yuan, ranking among the top in the region. However, during the conversation, it was evident that the distributor lacked confidence in his business and was uncertain about future direction. Having expected a post-pandemic consumption boom, he instead faced a more pronounced trend of consumption downgrading, with consumers tightening their wallets.

**Annual sales of 80 million yuan, wholesale accounts for half**

"Although 80 million yuan in annual sales looks decent, when we calculate profits at the end of the year, the margins are too low..." According to Distributor Wang (pseudonym), his region is a nationally renowned distribution wholesale market, where cross-regional selling and price chaos are rampant, making normal operations for distributors very difficult. Of his 80 million yuan in sales, wholesale channels account for half. Although he knows that a high proportion of wholesale is unhealthy, the reality forces him to do so, dumping goods into the wholesale market. On one hand, this approach has low operating costs. The wholesale market doesn't require maintaining staff or vehicles, so quotes are low; regardless of the product, profits are calculated per box, typically adding only 2 percentage points, earning just 0.5 to 1 yuan per box. Although the profit is small, there are no additional downstream costs. "With over 2,000 SKUs in the warehouse, just picking and packing is troublesome, plus delivery costs, employee wages, after-sales service, etc., which together add at least 20 percentage points, making our prices uncompetitive," Wang told New Distribution. On the other hand, the first-tier brands he represents have been increasing sales targets year after year, putting increasing pressure on him. If he fails to meet sales performance, he cannot obtain the brand's final rebate. The difference between completing 60% of the task and 90% is significant, often calculated in units of 100,000 yuan. The current problem is that the existing stores he covers are seeing declining purchase volumes, but brand owners have not correspondingly reduced sales targets. To meet targets and secure rebates, he is forced to sell to the wholesale market. Additionally, Wang revealed that some brands, to promote new products and quickly open the market, also prefer to prioritize distribution through wholesale markets. This is because wholesale markets sell faster, whereas distribution through dealers takes time, and product sell-through rises slowly. Therefore, sometimes distributors are forced by the market to adopt a short, fast, and direct wholesale model, because if you don't do it, others will, and ultimately you lose out.

**Supermarkets are difficult, risky, and unprofitable**

According to data compiled by Professional Retail Network, in 2023, among 13 listed supermarket companies including Yonghui, Lianhua, Jiajiayue, and Bubugao, 60% saw revenue decline, and 50% saw net profit losses. Nearly 70% had negative net store growth. Bubugao closed 113 stores that year, while Yonghui opened 12 new stores but also closed 45. In the first quarter of 2024, the operating conditions of supermarket companies remained grim. According to statistics, among the top 11 listed supermarket companies, nearly 70% saw both revenue and net profit decline.

Distributors face even greater pressure in the supermarket channel. Wang told New Distribution that supermarket sales are declining, growth is encountering resistance, and local chain supermarkets are trying to save themselves, but this self-rescue shifts pressure and risk onto distributors. "Costs for store renovations and miscellaneous expenses are actually borne by distributors. Why? Supermarkets charge entry fees and barcode fees upfront, but when a new store is renovated later, it's like re-entering. For example, a barcode in the entire system costs 5,000 yuan, and a second entry might only cost 300 yuan, but you still have to pay; in reality, these so-called entry fees are covering their renovation costs." Supermarkets constantly seek profits through contract deductions and other means, often at the expense of suppliers. With high supermarket fees and declining overall sales, there are few growth points left; no matter how much effort is put into displays and end caps, maintaining existing volume is already good. Worse, more and more supermarket stores are closing, increasing the operational risk for distributors. Wang encountered this when a county town supermarket suddenly closed, leaving unpaid accounts. He tried legal proceedings, which were time-consuming and ultimately futile, costing him hundreds of thousands of yuan.

**Expanding outlets is easy, but maintaining them is hard**

Wang admitted that in the development of his trading company, he has both proactively changed and passively adapted. To improve profitability, the company adjusts its business direction annually. Initially, the main channels covered were KA and AB stores, with small stores not considered. First, small stores have low order volumes—each store generates only 200-300 yuan per day, and after delivery costs, wages, and after-sales, there's almost no profit. Second, small stores have high return rates, increasing service costs. Additionally, controlling prices in small and medium stores is difficult, as many downstream C-class stores are tempted by low prices and choose to purchase from wholesale markets. However, first-tier brands, focused on sales performance, continuously pressure the company to expand into small store markets. After some negotiation, the company accepted the challenge and at its peak covered over 3,000 small store outlets. When truly delving into small stores, they discovered that expanding outlets is easy, but maintaining them is hard. For example, in the initial order-taking process, because the team lacked experience in terminal small stores, they focused only on front-end development and delivery, neglecting intermediate processes like product transfers and box returns. By the time return rates rose, it was too late to standardize, and they paid a heavy "tuition." Furthermore, in the snack food category, there are multiple peak sales seasons each year, such as holidays and promotions, when the company focuses on gift box sales. But small stores are not active outlets for these activities, sometimes not even needing restocking for a month, and salespeople cannot cover everything, naturally neglecting some. The result is that outlets are developed quickly but lost just as fast. Within less than a year, the number of outlets dropped to below 2,000.

**Shifting from manufacturer business to store business**

Wang's predicament is not unique; similar frontline feedback is heard almost daily. In fact, many distributors with sales ranging from 30 million to 80 million, or even over 100 million, who previously did well in their regions, are now facing various problems. They actively expand channels, add brands, and adjust performance metrics, but results are unsatisfactory. What does this indicate? The old methods no longer work; the market needs new operational thinking. What thinking? Completely shift from a manufacturer-driven business to a store-centric business. Whether in wholesale, KA, or small stores, in the past, most distributors' growth came from top-down manufacturer push. In the era of incremental growth, opening a new outlet brought visible growth, but today, even if you can capture competitors' markets, the sales of these outlets themselves are declining. Many distributors have never considered what products, SKUs, and subcategories their downstream stores actually need. Now, manufacturer-led channel expansion is no longer effective; what distributors truly need to do is return to terminal stores and consumer demand. If traditional wholesale business is unprofitable, it may be wise to abandon it. Although overall supermarket performance is declining, some distributors have achieved growth through refined management and product portfolio planning. For example, for snack foods, they plan high, medium, and low price bands and select appropriate SKUs. For inactive small stores, many distributors previously focused only on a few brands, making it hard to open sales channels. Perhaps they could try becoming a one-stop supplier for beverages and snacks, further balancing costs and achieving incremental growth. In the long term, distributors must transition from relying on manufacturers to a business centered on serving stores. This challenge is not only for Wang but for distributors at every stage of development.

**Regarding the current situation and transformation direction of distributors, New Distribution's "2024 China FMCG Distributor Operating Conditions Survey Report," released in August this year, provides detailed analysis and summary. To obtain the full 56-page PDF report, please scan the QR code below.**


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