Click to read the original article for details When the tide goes out, you see who's swimming naked. The old international retail giant Carrefour was sold to Suning at a rock-bottom price of 4.8 billion, which made many people sigh. Similarly, in 2018, the departure of Huang Mingduan, chairman of RT-Mart, was also a cause for lament. Flowers are similar year after year, but people are different each year. It is said that a conclusion not admitted by Huang Mingduan is: I didn't lose to my opponents, but to the times. This statement is highly contagious, and since then, anxiety has spread throughout the business community. The FMCG distribution business is no exception. In recent years, anxiety and unease have also infected the distributor community. To alleviate anxiety, many distributors have started seeking remedies. Whatever model is novel, they try it; whatever innovation appears, they test it. This has become the norm for distributors. But what is the reality? Often, it ends in chaos, and the truth is always cruel. A Business Model Returning to Fundamentals Many people ask me, besides B2B, unified warehousing and distribution, and partner/amoeba models, what other innovative distribution models exist? Of course, there are. Return to the essence of distribution, reposition this business, look upstream and downstream. As an intermediary, where exactly is the value? I have seen many distributors who have deeply cultivated regional markets for years, and the key to finally seeing the light is returning to the distributor's duty: improving regional market distribution and promotion capabilities. Around this perspective, New Distribution has proposed three directions for distributors to enhance their distribution and promotion capabilities:
1. Brand operation distributors, deeply bundling with upstream manufacturers, becoming their ground service providers. In the current optimization of digital channel structures for first-tier brands, distributors will be a crucial part.
2. Category distributors, deeply connecting with diverse retail scenarios, focusing on category integration and promotion, specializing in category research and operations, and maximizing shelf occupancy as a key means.
3. Supply chain enterprises, where traditional distributors sell products top-down, but becoming a local supply chain enterprise means procuring goods bottom-up, with small store needs at the core.
Below, focusing on the "category distributor" angle, we take Wang Hua (pseudonym), a snack food distributor in Central China with annual sales of nearly 300 million, as a case study to deeply analyze the "alchemy" methods of regional category distributors and summarize the core thinking model for transforming into a category distributor. An Operating System Centered on Promoting Sell-Through Frankly, many distributors' profits are based on consuming manufacturer fees, not on building their own distribution network and improving their distribution fulfillment capabilities through their own distribution and promotion abilities. Wang Hua told me that we have established an operating system centered on "promoting sell-through," which eliminates reliance on manufacturer fees. This system is reflected in four key aspects: 1. Organizational Business Assessment: Use OKR Instead of KPI Salespeople are assessed only on sell-through and profit. For example, for bulk snack foods, one basket can only hold one item. In the replenishment cycle of twice a week or once a week, each replenishment counts as one sell-through. The principle is not to overstock but to promote sell-through, achieving minimal inventory per store. In contrast, a KPI-based commission model tends to become a layer-by-layer overstocking mechanism. The premise of this system is that the product pricing system, manufacturer fee structure, and all operating costs are transparent, allowing every participant to calculate their monthly and annual income, with clear cost-volume-profit analysis. Wang Hua believes that most distributors lack self-hematopoiesis capability and can only rely on gray income like manufacturer fees. The primary elements of a distributor's self-hematopoiesis are sell-through, profit, and distribution points. 2. A Procurement and Distribution System with No Stockouts and High Turnover Establish a 24-hour warehousing and distribution system to achieve minimal safety stock, with the principles of no stockouts and efficient turnover.
• By fixing distribution routes and increasing delivery density, achieve 24-hour delivery within the city and 48-hour delivery to surrounding cities.
• Cut over 500 long-tail SKUs, retaining only 500 SKUs that are profitable, have sales volume, and have smooth cooperation with manufacturers. Focus solely on the bakery category, rejecting the temptation of other categories. Classify these 500 SKUs into ABC categories. The fulfillment rate for A-category items is 99%; for B-category, 98%. A-category manufacturers are defined as those with monthly sales of no less than 800,000, and B-category as no less than 500,000. The warehouse has dedicated inventory staff for ordering management.
• For any cooperating manufacturer, establish a consensus agreement for mutual benefit in the regional market, strictly stipulating promotional materials, fees, procurement cycles, and minimum delivery quantities. Have the ability and willingness to manage manufacturer supply chains upward. Any manufacturer that unreasonably forces stock or fails to coordinate production and sales will not be cooperated with. Through these three measures, Wang Hua achieves an inventory turnover rate of 5-6 times per month. Previously, I visited Wang Hua's warehouse and was deeply impressed by the dynamic shelf-life management. The warehouse management level far exceeds that of companies using WMS systems. Of course, this is not to deny the value of WMS, but to emphasize the importance of scientific business thinking for distributor owners. Sometimes, the level of business thinking is more important than the level of IT systems! 3. The Focus of Operations is Always on the "Sales Scene" Distribution Network: Establish a distribution network of 12,000 points, with KA, wholesale, and traditional channels accounting for 30%, 45%, and 30% respectively. Channel Survey: Through insight into regional market distribution structure and surveys of channel distribution points, achieve 100% coverage of key distribution points. Route Management: Manage the distribution coverage frequency of 12,000 points through four visit frequencies: twice a week, once a week, once every half month, and once a month. Focus the entire company's marketing attention on the "sales scene" rather than on juggling manufacturer fees, and solidly execute promotion, free tasting, display, replenishment, and product selection. Wang Hua has a viewpoint: he generally does not participate in entertainment with manufacturers, but focuses on the front line, paying attention to what consumers like and which new products truly sell through. Wang Hua says that if sales have problems, it is either due to insufficient insight into front-end effective demand or insufficient back-end effective supply, indicating supply chain issues. 4. Reject the Temptation of Other Business Opportunities Do not buy cars, houses, open factories, or engage in small loans. Reject all temptations of business opportunities outside core advantages. Occam's Razor Principle: Cut everything not in use, do not add unnecessary features, keep functions sufficient, and focus on deep cultivation of the regional market. For example, the system only has some custom development on the original financial system, adding an order system for salespeople, without adding non-core value functions. The Underlying Thinking Logic Behind the Operating System Wang Hua told New Distribution, Behind the operation of any business, there is a system. Any system can be imagined as a series of interconnected rings, and the strength of the system depends on the weakest link, not the strongest. To increase the output of a system and improve the distribution business, one must first find the weakest link, i.e., the system's bottleneck. Starting from the bottleneck allows for significant improvement in a short time. [Known in business as TOC theory, or Theory of Constraints] Distributors are most troubled by increasingly difficult business, but they often only focus on whether their salespeople are inadequate, or the products are not good, or upstream manufacturer support is insufficient, and they fail to identify the key link, key bottleneck, and key breakthrough point. At the same time, even if they find and break through the key bottleneck at a certain stage, after improving operational efficiency, they must seek the next weak link. Business is not achieved overnight but is a process of continuous improvement. In short, to grow the business, distributors must first have the ability to identify key bottlenecks and possess the means or methods to break through them. TOC theory, invented by Israeli management scientist Dr. Goldratt, is one of the three major management thoughts alongside Six Sigma and Lean Production. A simple explanation is that if you have a headache, you don't necessarily treat the head; you might find the lesion in the foot. By improving the main contradiction, secondary contradictions are also improved. Distributors themselves often lack management thinking, and it is difficult to achieve unified understanding, thought, and behavior. Combining TOC with deep distribution thinking can effectively integrate the distributor's organizational capability, business analysis capability, and distribution and supply chain coordination capability, elevating them to a certain level. The entire organization's thinking is driven from the consumer—retail point—sales team—distribution team—manufacturer in a positive cycle, effectively improving the distributor's regional market cultivation and self-hematopoiesis capability. Thus, I propose a list of key bottlenecks for "new distributors": 1. Tax Bottleneck: Compliance, reasonable tax avoidance, transaction structure adjustment, etc. 2. Business Bottleneck: Channel structure, ABC classification of products, sell-through methods, community, IP, e-commerce, new retail, warehousing and distribution. 3. IT Bottleneck: OMS, WMS, TMS, finance, HR digitalization. 4. Organizational Bottleneck: Partner model, amoeba model, starfish group PK model. 5. Team Bottleneck: Equity design, fission entrepreneurship. 6. Business Thinking: TOC thinking, deep distribution, deep fan distribution, traffic thinking/value thinking, capital thinking.