---
title: "Behind the 2020 Surge in Baijiu Stocks, Frontline Distributors See a Different Picture"
description: "While baijiu stocks soared in 2020, frontline distributors faced declining sales and increasing costs. This article shares insights from a Shanghai distributor, Chen Hua, on the challenges of urbanization, brand dominance, and the difficulty of scaling a relationship-based business, offering four strategies for survival and growth."
author: "陈峰"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-02-28"
language: "en"
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# Behind the 2020 Surge in Baijiu Stocks, Frontline Distributors See a Different Picture

> While baijiu stocks soared in 2020, frontline distributors faced declining sales and increasing costs. This article shares insights from a Shanghai distributor, Chen Hua, on the challenges of urbanization, brand dominance, and the difficulty of scaling a relationship-based business, offering four strategies for survival and growth.

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Is being a baijiu distributor a good business?
In many people's eyes, yes. In 2020, despite the pandemic, baijiu stocks rallied throughout the year. Even with recent pullbacks, countless investors still covet baijiu.
Outsiders see baijiu as a business where you can make money while lying down; in the eyes of FMCG distributors, baijiu has high value, high margins, and no shelf-life concerns—it seems like an easy and lucrative business.
But is that really the case?
Recently, I had the opportunity to have an in-depth conversation in Shanghai with Chen Hua (pseudonym), a distributor who has been in the baijiu business for over a decade. As a baijiu distributor in a first-tier city, Chen Hua's business is now in trouble.
The following is Chen Hua's account of the frontline market. I believe his thoughts and feelings echo the sentiments of many baijiu distributors.

**-01- The "False Prosperity" of Baijiu?**
"To be honest, I don't understand the surge in baijiu stocks. Among my peers, business in 2020 declined by at least 10%, and many saw drops of over 20%."
Chen Hua told me, "Many friends asked me to recommend baijiu stocks, but frankly, I wouldn't buy them myself. Because what I see in the frontline market is declining sales."
Of course, this is the situation in the frontline market. Perhaps the rise in baijiu stocks is due to optimism about the industry's future, or perhaps the stability of the domestic market amid the pandemic attracted significant capital. Overall, it's not bad for the industry. But for those of us in the industry, caution is still needed.
Chen Hua's cautious attitude stems not only from the short-term sales pain caused by the pandemic but also from his direct observations of changes in the external frontline market.

**-02- Urbanization Makes Baijiu Harder to Sell**
Chen Hua's business is mainly in Shanghai's Pudong District. He clearly feels that with the rapid upgrading of the city, his business is undergoing tremendous changes.

**1. Dining Moving to Commercial Complexes Makes Baijiu Harder to Sell**
**2. Urban Standardization Drives Up Costs**

**1. Dining Moving to Commercial Complexes Makes Baijiu Harder to Sell**
"Dining is the core channel for baijiu. After urban upgrading, dining has gradually integrated into commercial complexes. Dining hasn't disappeared, but in such complexes, it's hard to have the same atmosphere as old street-side eateries where a few buddies would gather and drink baijiu. Everyone is refined, and even loud talking is absent."
This is what Chen Hua means by dining moving to commercial complexes, making baijiu harder to sell.
In this consumption context, baijiu is increasingly difficult to sell. In 2020, with the pandemic's impact, many dining establishments shut down, and quite a few closed permanently. Baijiu sales were predictably affected.
This is a change clearly felt in Shanghai. Other cities may be slower to change, but the overall trend is certain: small and medium-sized dining outlets are gradually being centralized and moved into commercial complexes.

**2. Urban Standardization Drives Up Costs**
Urban construction standardization affects not only dining but also infrastructure like warehousing and distribution.
"Old warehouses have been demolished. New warehouses, whether rented or built, are expensive and located far from core areas. In Shanghai's outer ring, distributors are shrinking in scale, and many stores close each year," Chen Hua lamented.
That's the warehousing issue. What about distribution?
Often, distributors' profits come from low labor costs and some tax avoidance. 996 (9am-9pm, 6 days a week) is the norm for frontline sales staff.
In the past, you could skip social insurance, but now, five insurances are basic, plus housing fund. Evening events require overtime pay. Business taxes are also forced to be regularized.
Today, in larger cities, salaries are increasingly standardized, and costs keep rising.
Some may think this is one-sided, that it only happens in mega-cities like Shanghai and isn't representative. But I want to say that Shanghai is the vanguard of urban construction standardization. Shanghai's current situation is the future of many first- and second-tier cities, within 3-5 years.
Facing these changes, even if your business isn't in Shanghai, you should plan ahead and prepare.
Of course, besides the setbacks from the urban environment, there are common problems and pain points faced by mainstream baijiu distributors.

**-03- Baijiu Distributors Generally Struggle to Scale Up**
Apart from channels, almost all distributors face a common challenge: upstream and downstream are strong, but distributors have no say. This is especially true in the baijiu industry.
Chen Hua said, "The baijiu industry is very mature and traditional. Brands are highly concentrated, leading liquor companies are getting stronger, and new brands struggle to rise. In this context, brand owners are very powerful, almost the rule-makers of the game."
Frankly, distributors do want to plan their own business—how to approach 2021, what goals to set, how to break them down. But these plans are based on the brand owners' "no change"!
Once changes happen, what goals are there? Wherever the brand points, you go. Follow and execute; any ambition you have will be consumed by the brand owner.
If a new product is launched, you have to take it. If a task is assigned, you have to do it.
Sometimes, brand owners can cut off a batch of distributors with just a so-called "channel reform."
That's the upstream brand side. The downstream operations side is also a mess.
The baijiu (boxed) business is different from other FMCG businesses. Food and beverages, snacks, are relatively standardized: do channel distribution and perfect in-store execution. But baijiu is different; besides those actions, it relies on a key factor:
**Guanxi (personal relationships).**
This is especially evident in group-buying business. "A person in my company might generate 30 million in sales and 3 million in profit, and I pay him a 1 million annual salary. That's not low. But if he goes out on his own, he might only do 20 million in sales, yet pocket 2 million himself."
When business managers in these companies accumulate certain customer resources and some capital, they easily set up their own shops and become group-buying merchants.
The saying "Better to be the head of a chicken than the tail of a phoenix" applies. These capable sales managers often leave after a while, taking related customer resources with them.
This is a common problem when baijiu distributors reach a certain scale, and it's the core reason they can't grow bigger. In short, relationship-based business with people as the key link is hard to standardize and scale.

**-04- Ways to Break the Deadlock in Baijiu Distribution**
Having discussed so many difficulties and pain points, is there a way for distributors to break the deadlock?
Clearly, there is no one-size-fits-all solution for "bigger and stronger." There is no standard answer for a business that aims to grow. Success stories differ.
The ideas we can offer are based on the future and core capabilities. Therefore, combining Chen Hua's insights, New Distribution offers four suggestions and paths for your reference.

**1. Cross the Cycle, Retreat to Advance**
Chen Hua said, "Many distributors have reached their current scale by following brand development. How much of their own capability is actually there? Many know in their hearts that it's built on years of accumulated experience. If they suddenly change to embrace new things, many may not adapt."
Therefore, in this aggressive era, holding on to your business, retreating to advance, and waiting for the next dividend opportunity within your capability circle might not be a bad thing.
Build clear self-awareness: know what you can do, what you lack, and have a clear picture. Don't be aggressive; even appropriately shrink the business to a manageable scale, serve the areas you can penetrate, and run a small but beautiful business.
Not too big, not too small—you can digest the products the manufacturer assigns, and maximize profits.

**2. Set Up Stores, Sustain the Battle**
Of course, retreating to advance is not the goal. The goal is to stabilize the business that's hard to scale within a controllable range. At the same time, extend your thinking to other areas.
This year, Chen Hua also started trying to run two physical stores. Although they are currently losing money, reaching C-end consumers, directly connecting and operating with them, is definitely the right direction.
Looking at the overall FMCG distribution sector, some have extended their business to downstream retail terminals, opening convenience store chains, fresh food supermarkets, or famous tobacco and liquor stores—these are the three current mainstreams.
Mr. Chen Hua talked about "nurturing stores," based on the logic of baijiu social business. Behind nurturing stores is actually nurturing circles and networks, treating it as an investment project. But if you're opening a convenience store or fresh food supermarket, it's recommended to focus on profitability.
I once saw a distributor extend his business to supermarkets and set a core rule: a 6-month cycle; if not profitable in 6 months, close the store and cut losses in time.

**3. Brand Operation, Empower Partners**
Brand operation and empowering partners is another business path. If a distributor has a complete methodology for brand distribution and promotion, while following the brand, they can expand their business territory and empower other regional distributor partners with that methodology.
For example, Jiangxiaobai's platform operators. They have the ability to manage the overall brand, deeply bound to the brand. Combining local consumption characteristics and upstream brand positioning, they root in the local area, refine methodologies, and empower surrounding distributor partners.

**4. Cross into FMCG, Standardized Business**
Through baijiu distribution, many distributors have accumulated capital and outlets. If a distributor's strength lies in frontline execution, such as in-store execution, store visits, and personnel performance assessment,
In general, if distributors believe their capability is in frontline business management, it's recommended to consider adding categories like beverages, beer, and snacks to their business to improve overall risk resistance.
Low-temperature short-shelf-life fresh milk, beer, and bread are good directions and definite future trends. But the core test is the distributor's comprehensive business management capability. High turnover, high coverage, many personnel—how to coordinate and plan tests attention to detail.

**Conclusion:**
If you ask distributors how business is this year or last year, I guess the answer will be the same: business is getting harder and harder! In a mature industry, to gain profits and continue to strengthen, you either seize new opportunities and cross the cycle, or you pay attention to details and operate with precision.
One is opportunism, the other is capability. In the past, it was about seizing demographic opportunities and brand opportunities, riding the wave to grow. Now that those opportunities are gone, while waiting for the next round, distributors are advised to enhance their capabilities.
**Brand operation capability or business management capability—choose one.**


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Contact: zhaobo258@gmail.com · +86 158 5481 7671