Click 'Read Original' for details. Lao Wang is a dedicated distributor for a leading domestic daily chemical manufacturer (referred to as Manufacturer A). He took over the agency rights for a fifth-tier city about five or six years ago. The manufacturer designated the sales area as the urban district plus one subordinate county. When he first took over, the sales target was around 4 million yuan. Lao Wang, who came from a sales background, was hands-on after taking over the market. He strictly followed the manufacturer's policy guidance, added vehicles and staff, strengthened township distribution, focused on major retail outlets, and implemented displays and promotions. Sales did grow year by year, but by 2017, the manufacturer's sales task had approached 10 million yuan. Although the market area had been expanded by one more county, the task of over 9 million yuan was too much for Lao Wang to bear, with average monthly inventory reaching over 4.5 million yuan. Even so, the manufacturer still believed the target was achievable with effort, citing that the population in Lao Wang's market area exceeded 1 million. When Lao Wang calmly calculated his business accounts over the years, he found that he had indeed made some money in the first two or three years, but in the last two years, sales had increased significantly while profit margins had plummeted, and in the past year or so, he had actually been losing money! Moreover, if this continued, he might even lose some of the profits from previous years. Lao Wang made a tough decision and submitted a withdrawal application to the manufacturer, completely quitting. Now, he has taken on several brands that do not require exclusive distribution, including strong first-tier products and second- or third-tier brands from other categories. Although sales are not as high as when he worked with Manufacturer A, profits are decent, and the key relief is that his average monthly inventory is only one-fifth of what it was. Even now, when talking about these matters, Lao Wang still complains like Xianglin's wife, pouring out his grievances about working with Manufacturer A in the past two years. Especially since 2015, Lao Wang has been "held hostage": to get the promotional discounts promised by the manufacturer and the market expense support, he had to complete quarterly and annual tasks. This year, it seems even worse, as the manufacturer is driving him with a whip, shifting from quarterly tasks to monthly tasks. Otherwise, the manufacturer would not reimburse the promotional discounts and market expenses, which are basic costs. For example, the discounted products Lao Wang received were sold at the same promotional prices. Market expenses were also incurred monthly, including wages and subsidies for in-store promoters and supermarket display fees. Lao Wang said that if these expenses were not reimbursed, he would definitely lose money. So he had no choice but to be "held hostage" by the manufacturer. Lao Wang noted that in previous years, the manufacturer had some assessment for these expense reimbursements, but not as "extreme" as in the past two years, where they were completely tied to task completion, ignoring the practical issues of market investment. Lao Wang said that over the past two years, "a constant patient becomes a doctor," and he has basically identified several reasons for his declining profits and losses: 1. Sales were completely driven by the manufacturer's pressure. Every month, it was all about shipping goods through various promotions and activities—shipping, shipping, shipping, regardless of profit—just to recover funds and raise money for the next shipment. To get the expenses, he had to keep pushing volume, creating a vicious cycle. There was no energy left for market development. 2. The manufacturer bundled assessments across categories, forcing him to take goods whether he could sell them or not. If they didn't sell, he was told to cut prices, give gifts, or hire promoters to push them, with no room to consider profits. Lao Wang said that to dispose of slow-moving toothpaste and shampoo, he even sold some near-expiry items at 1% of the original price! The manufacturer had promoted these as high-profit products, but they became the biggest money-losers. Dealing with these products took a big bite out of his overall profit margins. But he had to deal with them because market sell-through was poor, and there were constant returns from scattered supermarkets. 3. The manufacturer forced new products on him without discussion. Lao Wang had to take in new products according to the manufacturer's required quantities, and then figure out how to dispose of them. Many new products became a problem as soon as they arrived, because they sold slowly and tied up capital. After all, he still had to raise funds to complete the next month's task. 4. Profitable products sold poorly, while best-sellers had no profit. The so-called high-profit products that the manufacturer touted came with high mandatory tasks. When the goods arrived, if he sold them slowly, payment collection was slow and capital was tied up, and with near-expiry items in the warehouse, he had to sell them at low prices. Other best-selling products were impacted by low-price promotions from other distributors, making prices extremely transparent. These goods sold quickly but earned no money. Lao Wang said that over the years, tasks increased annually, and market investment costs rose steadily. He could no longer tolerate the erosion of profits and high inventory pressure, so he chose to exit. Lao Wang also said that being a distributor for these big manufacturers looks glamorous on the surface, but in reality, the "substance" is getting worse, with razor-thin profits. It's like being trapped in a bottomless quagmire, with your hands tied, unable to extricate yourself. So, how can distributors stuck in this "quagmire" save themselves? 1. Don't put all your eggs in one basket. First and foremost, this is the most critical and simplest principle: don't put all your eggs in one basket. Big manufacturers grow by eroding distributor and channel profits, and if you fail to meet targets, they kick you out. Distributors should choose manufacturers and brands with different levels of recognition and profitability to complement each other, determine a suitable brand and product mix, improve overall profitability, and enhance risk resistance. Only through diversification can you counter the risk of being replaced by big manufacturers at any time and take control of your own destiny. 2. Control the category structure of your warehouse. As a distributor for a big manufacturer, you really have no choice. The products you receive are not entirely up to you; the manufacturer decides. The distributor's warehouse is essentially the manufacturer's own warehouse. It's common for them to place orders on your behalf or force allocations. And for those products that just won't sell, can the manufacturer take them back? No, the distributor has to bear the cost. Sometimes, you really need to do the math. Don't take in products that won't sell just for the sake of promised expense reimbursements, because the cost of disposal may completely offset those expenses, and then some. 3. More categories in stores is not necessarily better. Distribution rate is an effective tool for manufacturers to assess distributors. If you say the task is too high, they check your distribution rate. If it's low, they say your market has room for improvement. If the distribution rate is okay, they ask if store inventory is sufficient... Many supermarkets are newly opened, or the local population is outflowing with weak consumption, but supermarkets are willing to stock up to get fees, even including products that won't sell at all. Anyway, as a local distributor, if you want to continue cooperating with stores, you must accept returns. In the end, the distributor has to absorb the losses. This is an invisible loss that cannot be ignored. 4. Grasp industry trends, adopt internet marketing thinking, and explore new channels. E-commerce channels, new retail channels, CS channels that traditional big-manufacturer distributors rarely touch—whether you've heard of them or not, whether you can think of them, you need to explore and dig deep. If you stick to traditional models, clinging to wholesale circulation and ordinary supermarkets, you may soon find it unsustainable. 5. Seek transformation in your own business operations. Traditional distributors now face impacts from multiple directions. The wolf is here, and the lion has come too. The pressure of manufacturer task targets, market price impacts, and the fact that the trading industry is a low-barrier industry—anyone can grab some goods, get a truck, and start "wholesale trading." So how can traditional distributors develop, or even survive? Besides the points above, transformation is the most talked-about topic in the industry. But don't just listen to some "experts" and their fancy terms like "O2O platform" or "unified warehousing and distribution." As a traditional distributor, you need to stay calm. As a small city or county distributor, can you do O2O? If you're a distributor for Diao Pai, can you do unified warehousing and distribution with a Liby distributor? How to find a transformation path that is feasible for you? In my opinion, either develop downstream by opening small and medium-sized supermarkets or cosmetics stores that adapt to new retail models, or develop upstream by uniting with other distributors to pursue original brand routes. Of course, this is just my personal opinion for reference. Source: DIAO Shu You Ju Hua New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 15 to March 18. This conference will focus on the theme "Breakthrough" and engage in in-depth discussions with numerous brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics such as channel innovation, city distribution logistics, and distributor transformation, it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail. Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert insights, and practical methods, finding new tools and approaches for their own breakthrough in 2019 and returning to a path of rapid growth. Review of Previous Conferences -END-