Recently, many retailers released their first-quarter earnings reports, and the mood was grim. Yonghui's Q1 operating revenue was 26.334 billion yuan, down 9.99% year-on-year; RT-Mart Retail (Gaoxin Retail) reported revenue of approximately 124.334 billion yuan for the 15 months ending March 31, 2021, a decrease of 2.01% year-on-year; Better Life (Bubugao) saw Q1 revenue of 4.238 billion yuan, down 8.47%; Zhongbai Group achieved revenue of 3.489 billion yuan in Q1, down 11.76%, and so on. Behind the sluggish performance lies the weak growth of big-box stores. Of course, when the nest is overturned, no egg remains unbroken. Many distributors serving big-box stores are also struggling, with significant declines in business and shrinking profits. Some have even fled the big-box channel. Reasons for the Decline in Distributors' Modern Trade Business Recently, I chatted with a major condiment distributor in modern trade about the current state of big-box stores. He told me that business in stores has declined severely this year. Taking his condiment business as an example, in April, sales in stores dropped about 40% year-on-year, making business very difficult. There are two main reasons for the decline in distributors' modern trade business: 1. The impact of the external environment: the emergence of fragmented and diversified channels has taken away some customer traffic. From the rise of community stores and convenience stores, which meant consumers no longer needed to go to large supermarkets for daily household purchases, to the popularity of online shopping in recent years, where consumers can choose from a vast array of products without leaving home, some users have developed a habit of mixed online and offline shopping. Especially in the last two years, with the advent of new retail, O2O delivery within half an hour to an hour, and community group buying with next-day delivery and self-pickup, many consumers have formed the habitual perception of ordering online. The emergence of online consumption scenarios is not a simple one-for-one exchange from offline to online. Fewer people go out, fewer go to supermarkets, and fewer consume, leading to a reduction in potential impulse and spontaneous consumption. A decline in overall business is inevitable, and store closures have been numerous in the past two years. When big-box business is on the decline, distributors relying on it will naturally experience fluctuations. 2. Internal issues within distributors: refined management is not well implemented. Compared with traditional channels, modern channels are more difficult to operate. Traditional channels deal with small shop owners, where the business logic is relatively simple, with fewer professional requirements, and distributors have sufficient say. Modern channels deal with purchasing managers who have professional logic and a high level of market control and awareness, placing extremely high demands on the distributor's own management capabilities. For example, in terms of fees, big-box stores have dozens of fees, including high entry fees, barcode fees, promotional activity fees, end-cap fees, shelf display fees, gross margin compensation fees, DM fees, and more. Some powerful supermarkets even pass on electricity costs to distributors. In addition, stores have payment terms, and many accounts cannot be settled in a timely manner. If there is any discrepancy in the settlement process, such as a missing document or a mismatch in amounts, settlement can be delayed indefinitely. Previously, during market research and route visits, a salesperson was doing account settlement with a chain supermarket. Because one payment request form was missing, the total amount didn't match, and the payment was delayed for three months without settlement. If the distributor lacks sufficient professional knowledge, they may not even be able to figure out where fees were deducted. This is why many distributors feel that modern trade is not profitable. With so many fees invested, if they are not utilized effectively and do not generate corresponding output, losses are inevitable. Distributors cannot change the impact of external environmental changes; the only thing they can change is themselves. In a stagnant market, to keep their basic business stable, they must first make internal changes to maximize cost-effectiveness; second, they must innovate externally around their core business, exploring multiple directions to find new growth. Internal: Deep Dive into Each Link to Maximize Efficiency For distributors, big-box stores are largely capital-driven channels, requiring attention to many links, each with significant costs. To convert these costs into sales and profits, distributors need to deeply analyze each link and identify optimization points. 1. Procurement: Find the Right Key Person and Put Key Matters in the Contract Unlike other offline channels, distributors in modern trade typically deal with buyers, and contracts are negotiated and signed with them. The key to modern trade is to win over the store's buyer, which requires distributors to understand the buyer's psychology. The core performance metrics for buyers are sales and profit, meaning buyers also face sales pressure. Therefore, distributors must be well-prepared when negotiating with buyers. If it's an existing customer, compile sales data from the past few years, including cooperation sales, fee investments, rebates, etc. Data speaks louder than words. For new customers, show them data from past collaborations with other customers, omitting sensitive details, to demonstrate your operational capability. In addition to using data, relationship management is also important. Many distributors have their own methods for handling interpersonal matters, so I won't elaborate here. At the same time, when signing contracts, use your relationships and operational strength to clarify key and favorable terms in the contract. For example, specify the inventory days for your products in the store, as stores have requirements for different products. If it's 45 days, and your product's inventory exceeds 45 days, the store may delay payment. 2. Fees: Clarify Fee Investments and Analyze Input-Output Stores have dozens of fees, each corresponding to different sales activities. Distributors must have a clear understanding of all fees and sales activities, and utilize them effectively to drive conversions. Fee planning should be systematic: at the beginning of each month, summarize the input-output ratio of the previous month's fees and plan the next month's fee budget and marketing plan in advance. For example, should the number of promoters be increased or decreased? How should shelf displays be arranged? Should special displays be considered? Are off-site activities planned? How many staff are needed for off-site activities? etc. Behind every fee plan, distributors need deep thinking, not simple "shoot-from-the-hip" decisions. Take display as an example: stores have a vast number of products and thousands of square meters of space, but consumer attention is limited. How to make consumers choose your product in a limited time? Display is crucial. Large supermarket shelves typically have five to six levels. Normally, the fourth level is at eye level, and the third level is easy to reach. Distributors should aim to secure the third and fourth levels as core display positions. In this case, distributors must have product portfolio capabilities to maximize the best display positions. The best arrangement is to place main products and high-margin products on the third and fourth levels: main products drive volume, and high-margin products drive profit. Also, the top shelf is usually for image purposes, serving a promotional role. In some large chains, the top shelf is unreachable for most people, and the probability of consumer purchase is even lower. Similarly, other fees like floor stacks, special displays, promotions, and DM also have corresponding logic. Only by understanding all these can distributors achieve a higher output than input in the fee aspect. 3. Promotion: Seize Key Moments and "Grab" Resources For large stores, promotional periods often account for more than 50% of annual sales. Common promotional periods include store anniversaries, new store openings, and traditional holidays like Mid-Autumn Festival, National Day, and Spring Festival. Now there are also promotional periods synchronized with online events, such as 618 and Double 11. For distributors, these promotional periods are opportunities to tap into incremental growth. It is crucial to execute promotional activities well during these periods. One thing distributors need to know: although supermarkets have large areas, the vast number of products means the available space is limited, and promotional resources are limited. To seize promotional nodes, the core is to "grab" resources. How to do it? Here are some methods mentioned by Li Feng, General Manager of Hongye Hengda, for reference:

  1. Traffic-driving hero products. Set a hero product as the main product, usually in 1-2 specifications, and run continuous low-price promotions during the promotional period. The core role is to ignite sales and, by leveraging its traffic-attracting nature, drive sales of other products. At the same time, use the low-price sales during that period as a condition to require the store to not allow competitors to be featured on DM during that time.
  2. Off-site activity integration. During big-box promotions, stores themselves will attract traffic through various means, so distributors need not worry too much about foot traffic. However, precisely because of this, foot traffic often surges during promotional periods, and there are many people at manual checkout counters. Some consumers are unwilling to queue and either go to self-checkout machines or leave without buying. For these two situations, distributors can communicate with the store, for example, placing their products near self-checkout machines to encourage impulse purchases, or setting up tents outside the store to synchronize with in-store promotions.
  3. Product combination + display combination. During store promotions, consumers often engage in bulk purchasing with a strong desire for bargains. In this case, products can be sold in combination. Similarly, for displays, try to negotiate with the store to have 3-4 floor stacks connected together to facilitate convenient purchasing. 4. Sales: The Indispensable Role of Sales Associates Many distributors do not recognize the role of sales associates, and some do not even have full-time associates. A store has 100,000 to 120,000 SKUs. Have distributors ever considered why consumers would buy their products among such a vast array? The sale of a product requires a medium, which can be advertising, word-of-mouth, endorsements, friends and family, etc. Essentially, there must be a process to build consumer awareness. In the specific environment of a store, the fastest way to build awareness is through sales associates. These knowledgeable associates are extremely familiar with product selling points, usage, and scenarios. Through sales associates, conveying product features and selling points to consumers leaves a deeper impression and leads to higher conversion rates. A good promoter can often bring in tens of thousands of additional sales. External: Innovate Models and Explore New Growth 1. Go Online: Build a Community and Go Digital In the exchange, many distributors are already doing this. While maintaining their existing business, they are setting up "small teams" within the company to test online retail, such as e-commerce and community group buying. For example, a condiment distributor built community sales. Through sales associates, they guide consumers to join exclusive benefit groups established by the company, regularly run promotional activities in the groups, and have a dedicated team operate and manage these communities. They turn sales associates into self-pickup points for community sales, allowing consumers to order via WeChat groups and pick up the next day. 2. Move Upstream: Build Private Labels Many distributors serving big-box stores have over a decade of operational experience, with a complete logic in both relationship management and store operations. On this basis, distributors actually have the capability for brand operation. New Distribution previously predicted that one of the future directions for distributors is to become brand operators. In a stagnant market, product homogenization is severe. Taking condiments as an example, well-known brands like Haitian, Chubang, and Lee Kum Kee have excess capacity, leading to vicious price wars and low profits. Private labels give distributors pricing power, ensuring product profits and no inventory pressure. Moreover, distributors in modern trade have strong operational capabilities and can quickly push their own products into the market based on existing channels. Of course, one important point in building private labels is finding the right entry point, i.e., the target consumer group and core selling points are crucial. Because existing mainstream products have already covered the mass market, if your positioning does not enter from a niche, it will be difficult to compete with category giants. The above is a summary of exchanges with distributors, outlining the paths and methods for internal and external changes for distributors in modern trade. Under the impact of e-commerce and new retail, the significant decline in store traffic has become an objective fact. In this context, distributors must make changes from two dimensions: "internal change" and "external change." The core of internal change is to increase revenue and reduce costs, optimizing every operational link to find growth within the declining market; the core of external change lies in innovation, whether it's channel expansion or building private labels, essentially exploring new growth. Are you "watching" me?