---
title: "Are Distributors Doomed?"
description: "The purpose of e-commerce is to optimize existing channels, not to completely eliminate traditional ones. As long as distributors actively transform and adapt to the trend of e-commerce, they will continue to play an irreplaceable role. The so-called 'what exists is reasonable' applies to distributors as well, as they possess unique commercial value that is hard to replace in the short term. However, in recent years, distributors who once thrived are now facing a Hamlet-like question of survival or death, partly due to the economic downturn and partly due to the impact of the Internet+ era and e-commerce's 'disintermediation' concept."
author: "赵晓萌"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-07-05"
language: "en"
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---

# Are Distributors Doomed?

> The purpose of e-commerce is to optimize existing channels, not to completely eliminate traditional ones. As long as distributors actively transform and adapt to the trend of e-commerce, they will continue to play an irreplaceable role. The so-called 'what exists is reasonable' applies to distributors as well, as they possess unique commercial value that is hard to replace in the short term. However, in recent years, distributors who once thrived are now facing a Hamlet-like question of survival or death, partly due to the economic downturn and partly due to the impact of the Internet+ era and e-commerce's 'disintermediation' concept.

The purpose of e-commerce is to optimize existing channels, not to completely eliminate traditional ones. As long as distributors actively transform and adapt to the trend of e-commerce, they will continue to play an irreplaceable role.
The so-called "what exists is reasonable" applies to distributors as well, because they possess unique commercial value that is hard to replace in the short term. However, in recent years, distributors who once thrived are now facing a Hamlet-like question of survival or death. This is partly due to **the impact of the economic downturn**, but on the other hand, **in the Internet+ era, e-commerce, adhering to the concept of "disintermediation," has posed an unprecedented challenge to traditional distributors.** Essentially, this is a normal phenomenon, because e-commerce is inherently about "disintermediation."
Under the backdrop of "disintermediation," if distributors do not reform, their value will be weakened, and even their significance will be challenged. **So, what challenges have distributors faced and will continue to face?**
Since their inception, distributors have had value, which can be summarized as follows:
**1. Financing function.** In China, the vast majority of distributors need to purchase goods, and under this model, a key role of distributors is to provide financing. Many manufacturers also view distributors as an important financing channel.
**2. Unique customer resources.** Distributors typically have geographical advantages and unique social networks. In a sense, the Chinese market is not a unified market but a series of segmented markets. Under such circumstances, distributors have commercial value derived from their unique customer resources, especially in markets like government procurement. Thus, the social networks and customer resources of distributors become, to some extent, irreplaceable.
**3. Customer development and maintenance.** One important function of distributors is terminal development and maintenance. In a sense, the number of terminals a distributor serves and their control over them determine the distributor's strength.
**4. After-sales service.** In many cases, manufacturers' after-sales service is undertaken by distributors. For example, in the electric vehicle market, the distributor "Che Bianli" (based in Hangzhou) has an O2O platform composed of distributors for after-sales service.
**5. Distribution function.** Distribution is one of the most important functions of distributors. Distributors, and even second-tier wholesalers, distribute products to different terminals through the distribution system. Later, to address the issue of insufficient terminal coverage by distributors, manufacturers implemented a deep distribution model. Deep distribution, also known as regional rolling sales, is an effective market strategy that aims to achieve comprehensive competitive advantage and become the regional market leader by organizing efforts to enhance customer relationship value, control terminals, and cultivate and develop the market in a rolling manner. The manufacturer forms a distribution team to cover areas or terminals that distributors cannot or are unwilling to cover, thereby achieving higher market penetration. As a marketing model, it is a requirement of social division of labor, involving the division of target market areas and the assignment of fixed personnel to conduct detailed visits to terminals for market development, maintenance, service, and management, with the goal of intensively cultivating sales channels, increasing product market penetration, boosting sales, and understanding competitors and the market.
**Distributors' "Presence" Under Challenge**
Compared to the nearly unified market and highly mature distribution channels and retail terminals in Western countries, the Chinese market has completely different characteristics. Distributors were once an indispensable bridge between manufacturers and retail terminals, especially given the many levels in the Chinese market and the significant differences between regions and urban-rural areas. Facing such a vast and diverse market, it is almost impossible for enterprises to rely solely on themselves to complete all sales functions such as distribution, stocking, and logistics. **Thus, a unique co-opetition relationship has formed between manufacturers and distributors, characterized by mutual dependence but not fully aligned interests.**
In terms of profit sources, distributors mainly profit from the price difference of "buying low and selling high." **In the era of information asymmetry, many distributors once earned substantial profits,** especially regional general agents of well-known brands, where obtaining agency rights meant guaranteed profits. However, **with the rapid development of Internet+ and increasing information transparency,** especially the emergence of e-commerce platforms with price comparison functions, many e-commerce platforms have joined the competition for C-end consumers. As a result, **many distributors have entered a "micro-profit era,"** meaning their days are not as good as before. This is reflected in **the narrowing profit margins** and, more critically, **the emergence of e-commerce giants has initiated a massive "disintermediation" process,** where many e-commerce platforms or manufacturers bypass distributors and establish direct connections with consumers through fan communities, undoubtedly diminishing the "presence" of distributors.
Under Internet+, as it penetrates various industries, almost every industry faces the situation of being "redone." Currently, there is still room for improvement in the overall efficiency of commercial circulation. This is mainly reflected in: **1. Too many channel levels.** Channel levels refer to a channel structure defined by the number of intermediary wholesalers (purchase and sale links) it includes. **2. Under the existing channel model, cost-effectiveness remains low,** especially between distributors and second-tier wholesalers. **3. Logistics and distribution efficiency is low.** In the current model, both distributors and second-tier wholesalers have logistics and distribution functions, and both need to establish their own teams and vehicles. These people and vehicles are not used efficiently, leaving significant room for optimization.
**Under "Internet+": Rethinking the Value of Distributors**
With the deepening development of "Internet+", where will the value of traditional distributors lie in the future? This is an unavoidable question. Under "Internet+", the following aspects of distributor value will be further highlighted and strengthened.
**Becoming a circulation e-commerce platform or joining one.** Although many views are pessimistic about the future of distributors, the transformation of many distributors proves that even in the Internet+ era, distributors can still find their irreplaceable value. A typical case is Yantai's Wanshang Gou, which transformed into a circulation e-commerce platform. Although Wanshang Gou also involves B2C, it mainly focuses on B2b e-commerce, where the first 'B' represents the distributor and the second 'b' represents the retailer.
Essentially, Wanshang Gou's business model is to optimize the commercial efficiency from manufacturers to retail terminals through e-commerce means, effectively achieving "disintermediation" between manufacturers and retail terminals. This is supported by eliminating the original second-tier wholesalers or 1.5-tier wholesalers, thereby reducing intermediate links and improving circulation efficiency. Generally, removing a second-tier wholesaler can save about 10% of gross margin.
In the future, I believe there are two main directions for distributor transformation: one is that **strong distributors can transform into logistics e-commerce platforms like Wanshang Gou**, and **those without the capability to build platforms can choose to cooperate with circulation e-commerce platforms like Wanshang Gou**. For the latter, the benefits of cooperating with platforms like Wanshang Gou are obvious, as the increase in the number of outlets leads to increased sales (as shown in Figures 1 and 2). Even a company like Coca-Cola, with extremely high terminal coverage, added more than 1,000 sales terminals in Yantai after joining the Wanshang Gou platform.
**Logistics function under distributed e-commerce.** I hold the view that logistics and e-commerce are naturally combined. E-commerce without logistics support lacks competitiveness. **Since distributors are familiar with logistics terminals, they can undertake the function of B2B logistics e-commerce.** E-commerce giants like JD.com, under the traditional model, operate as centralized e-commerce. In centralized e-commerce, after a customer places an order, the goods are shipped from a unified e-commerce warehouse and then delivered to the user through third-party logistics. This model is relatively slow and inefficient, with customers typically waiting three days to receive goods. Therefore, **in the future, distributed e-commerce will be a more efficient logistics distribution model**, where goods are stored directly in the channel, such as in the inventory of local distributors. When consumers order online, distributors can deliver from the nearest warehouse, greatly saving logistics time, which also highlights the value of distributors.
Of course, in terms of cost structure, a large portion of a distributor's costs is logistics, which can even reach 60%-70% of total costs. Under such circumstances, B2b e-commerce platforms can also adopt a sharing economy model to achieve unified distribution and optimize delivery routes. If a B2b e-commerce platform adopts unified distribution, it might need only less than 100 vehicles to complete the logistics distribution tasks that originally required 800 vehicles across distributors.
**Warehousing function.** Warehousing typically requires significant investment, and strong distributors can establish warehousing models. For distributors, as e-commerce's share of total retail continues to grow and distributed e-commerce develops rapidly, the demand for warehousing will continue to increase. For distributors who establish warehouses, although the investment is not small, it is a sunk cost that will be amortized over time.
**Terminal maintenance function.** The essence of marketing is to establish long-term transactional relationships with customers. An important function of distributors is terminal maintenance and management, which remains a key function under Internet+. Such work is more suitable for distributors to undertake, both from a cost and division of labor perspective.
**Capital pool or crowdfunding function.** Under Internet+, distributors still have a role as a capital pool. The difference is that in the past, distributors mainly provided financing, with manufacturers focusing on stocking and payment collection, while distributors focused on policies and sales promotion. Under Internet+, the relationship between manufacturers and distributors will become more flexible, and product or equity crowdfunding will bind their interests more closely, greatly improving the situation where interests were not aligned.
**Jointly driving traffic to the platform.** In the era of channel sinking and terminal dominance, an important function of distributors was customer (terminal) development. The same terminal might be developed multiple times by different distributors, which clearly does not align with the sharing economy concept. In the Internet+ era, distributor customer development evolves into jointly driving traffic to customers. Moreover, on B2b e-commerce platforms, once a distributor develops a retail terminal, that terminal is shared by all distributors. For retail terminals, once they download the platform's APP, their purchasing options greatly increase; with just one APP, they can choose all products from all distributors on the platform, greatly increasing product selection flexibility.
**The purpose of e-commerce is to optimize existing channels, not to completely eliminate traditional ones. As long as distributors actively transform and adapt to the trend of e-commerce, they will continue to play an irreplaceable role.**
**At the request of many distributor friends, the third B-end e-commerce study tour of this public platform will visit Wanshang Yizhan, Yunbao Shangmeng, and Weijie Chengpei from July 9-12. Distributor friends interested in transformation can join us for on-site visits:**
**Organization Format**
1. Company visits
2. Actual market case visits
3. On-site explanations
4. One-on-one exchanges
Participating distributors only need to pay a registration fee of 200 yuan. Time: July 9-12, 2016. Location: Changsha, Xiamen.
**Interested distributor friends can register by scanning the QR code below.**
**When adding friends, please reply "Third Registration".**
**Previous Study Tour Enterprise Cases:**
**Yishang Logistics Model Study**
(Second B-end E-commerce Study Tour: Yishang Logistics)
**Caiba Model Study**
**Jinhuobao Model Study**
**Beiquan Model On-site Study**
**Piduoduo Model On-site Study**
-END-
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