Behind Lao Gan Ma's Declining Performance: Has the 'Big Distributor System' Reached Its End?

According to the "Top 100 Private Enterprises in Guizhou" list, from 2016 to 2021, the revenue of Guiyang Nanming Lao Gan Ma Flavor Food Co., Ltd. (hereafter "Lao Gan Ma") was approximately 4.549 billion yuan, 4.447 billion yuan, 4.389 billion yuan, 5.022 billion yuan, 5.403 billion yuan, and 4.201 billion yuan respectively. In particular, in 2021, Lao Gan Ma's revenue hit a six-year low, down about 22.25% year-on-year from 2020. Given the current market conditions, Lao Gan Ma is facing unprecedented challenges. Especially its long-held "big distributor system" channel model seems no longer suitable for the current era.

Lao Gan Ma, Despite Controversy, Remains Formidable In the sauce category, Lao Gan Ma remains the leader in its segment, and perhaps for a long time to come, its market position will remain stable, which is why Lao Gan Ma is still "formidable." However, from the perspectives of brand, channel, and consumer, the controversial Lao Gan Ma has been living off its past glory for a long time. Initially, Lao Gan Ma became famous as the "National Goddess," and then it tried some new tricks. Just when everyone thought it would seize the opportunity to stand out and leave competitors behind, Lao Gan Ma went quiet. Subsequently, negative rumors about Lao Gan Ma, such as "changing chili suppliers," "succession by the next generation," "Tao Huabi's comeback," "withdrawing from the internet," "declining performance," and "being squeezed out of displays," followed one after another... It is no exaggeration to say that Lao Gan Ma is currently in its most "sluggish" moment since its establishment. But from a product perspective, even after last year's price increase, Lao Gan Ma still firmly holds the discourse power in the chili sauce category—"Those more expensive can't outsell it, and those cheaper can't make money." More importantly, apart from Lao Gan Ma's products priced around 8-15 yuan, even some products priced around 20 yuan may not be as "formidable" as Lao Gan Ma in terms of flavor. Many consumers still think Lao Gan Ma tastes better. However, with changes in consumption trends and demographic structure, Lao Gan Ma, returning to its condiment attributes, naturally needs to seek change. According to Mao Shi's understanding, Lao Gan Ma's rise to "National Goddess" is closely linked to the population mobility under the past "migrant worker wave." Back then, Yunnan, Guizhou, and Sichuan were major provinces for migrant workers. When they came to the non-spicy Yangtze River Delta and Pearl River Delta regions, Lao Gan Ma naturally became their first choice for accompanying meals. It is worth noting that in those days, consumers had weak purchasing power, and some hardworking people might have made do with Lao Gan Ma for any meal, whether rice or noodles. But now that consumption levels have risen, coupled with diversified consumption scenarios like food delivery, it is inevitable that Lao Gan Ma returns to its condiment attributes. Although Lao Gan Ma remains the overlord in the chili sauce field, condiments have their own way of doing things. Lao Gan Ma's reliance solely on controlling the "price" throat is hardly enough to sustain its dominance in the fiercely competitive sauce market. Especially in the current oversupply situation, the threshold for the sauce market is not high, and Lao Gan Ma is not the cheapest. Therefore, in the catering market, Lao Gan Ma has a certain volume, but it is definitely not the first choice for catering terminals to reduce costs and increase efficiency. On the household consumption side, Lao Gan Ma's "meal accompaniment" function is being eroded by the tide of the times. Moreover, at the terminal level, it can be observed that more and more hypermarkets are relegating Lao Gan Ma to the worst display positions. Therefore, in Mao Shi's view, although the current sauce market is already full of competition, Lao Gan Ma's sales decline is much less affected by product factors.

Has the "Big Distributor System" Reached Its End? Apart from products, another significant difference between Lao Gan Ma and conventional condiments lies in the channel aspect. Compared to the industry's pursuit of channel下沉 and blank market development, Lao Gan Ma mainly adopts the "big distributor system," which means finding only a few or even one distributor in several prefecture-level cities or even a province, and then distributing downward through this distributor. With such a layout, controlling the profit margins between various channel levels becomes particularly important. Relying on the brand foundation and consumer trust in its products built over the years, Lao Gan Ma has always been "hard currency" in the channel. However, with sluggish sell-through, this approach is starting to show strain. In contrast, other condiment companies represented by Haitian Flavoring are pursuing channel下沉 and market segmentation. Most begin recruiting distributors at the county level, and even in a single county, they recruit different distributors according to channels, greatly enhancing their expansion into lower-tier and blank markets. This is also one of the key factors in their steady growth. Compared to other brands, Lao Gan Ma lacks frontline sales personnel and can only rely on big distributors in the channel. Therefore, the latter's role is more "pure." On the one hand, for a long time, Lao Gan Ma's products were not hard to sell, so naturally it did not emphasize display positions and distribution rates. On the other hand, as secondary distributors under the big distributors, their initiative is weaker than that of primary distributors. Coupled with limited profit margins, expecting them to increase investment at the terminal level is undoubtedly another point of conflict. Take Zhejiang as an example. According to Mao Shi's understanding, Lao Gan Ma initially had only 2 distributors in the entire province, which later increased to 4 due to replacements. The rest who sell Lao Gan Ma are secondary distributors of these distributors, numbering around a hundred. Zhejiang Province has 11 prefecture-level cities, 37 municipal districts, 20 county-level cities, and 33 counties... For such a vast market, relying solely on a few distributors to deeply tap market potential is likely to be somewhat insufficient. A condiment industry distributor gave Mao Shi an example: Given Lao Gan Ma's brand and product strength, it would be "easy" to add 500 more distributors nationwide. If each distributor's first order averages 2 million yuan, the first orders alone could drive 1 billion yuan in sales. Subsequently, they only need to establish a management system to prevent cross-regional sales. But in the short term, Lao Gan Ma would find it difficult to achieve this. After all, Lao Gan Ma's big distributors are vested interests, so they will instinctively oppose channel flattening, which is the biggest contradiction between Lao Gan Ma and its channel partners. Therefore, for the "National Goddess" Lao Gan Ma, facing the rapid rise of compound seasoning categories and the diversified market competition, it may indeed be at a critical juncture for reform where "without breaking, there can be no establishing."