---
title: "Big Brands Bully and Force Stock on Distributors: What Should Major Distributors Do?"
description: "Many manufacturers' so-called 'transformation' is just a rebranding of the old coercive approach. 'Product upgrades' have reverted to stock-pushing dependency through product activity and order fulfillment rates; 'expense coercion' may squeeze out sales in the short term, but in the larger picture, it only deepens the contradiction between sell-through and inventory until collapse. Looking at increasingly worse data, Lao Zhang grows more alarmed. Lao Gao, a distributor of a famous FMCG brand, is seen by others as having a large business in the provincial capital's central area, with a self-owned compound of thousands of square meters, a four-story office building in front, large warehouses in the back, nearly a hundred vehicles, and a team of over 200 people—big and wealthy enough. But in reality, Lao Zhang's profits from this brand have been declining year after year."
author: "段文智"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-11-11"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/DRQ9wJC4_JIHhKqKfcrNoA"
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# Big Brands Bully and Force Stock on Distributors: What Should Major Distributors Do?

> Many manufacturers' so-called 'transformation' is just a rebranding of the old coercive approach. 'Product upgrades' have reverted to stock-pushing dependency through product activity and order fulfillment rates; 'expense coercion' may squeeze out sales in the short term, but in the larger picture, it only deepens the contradiction between sell-through and inventory until collapse. Looking at increasingly worse data, Lao Zhang grows more alarmed. Lao Gao, a distributor of a famous FMCG brand, is seen by others as having a large business in the provincial capital's central area, with a self-owned compound of thousands of square meters, a four-story office building in front, large warehouses in the back, nearly a hundred vehicles, and a team of over 200 people—big and wealthy enough. But in reality, Lao Zhang's profits from this brand have been declining year after year.

Many manufacturers' so-called 'transformation' is nothing more than a rebranding, essentially following the same old coercive path. The so-called 'product upgrades' have reverted to a path dependency of stock-pushing, manifested through product activity and order fulfillment rates; 'expense coercion' may squeeze out sales in the short term, but from a larger perspective, it only deepens the contradiction between product sell-through and inventory until it collapses.

**Watching the increasingly worse data**
**Lao Zhang grows more and more alarmed**

Lao Gao is a distributor of a well-known FMCG brand. In the eyes of others, he owns a large compound in the central area of the provincial capital, with a four-story office building in the front, large warehouses in the back, nearly a hundred vehicles, and a team of over 200 people—his business is big and wealthy enough. But in reality, Lao Zhang's profits from this brand have been declining year after year. In the second half of 2017, after calculating labor and market costs, with monthly sales of seven to eight million yuan, profits were less than 100,000 yuan! This does not even include fixed asset depreciation or bank financing costs! Working from dawn to dusk, feeling frustrated and aggrieved, earning such little money—what else is he but a loader for the manufacturer?

Like Lao Zhang, most clients of this company are facing a common problem: sales have increased significantly, but they occasionally incur losses. Yet even so, in 2018, the huge growth pressure from the manufacturer showed no signs of easing.

Finally, after seeing the 'friendship boat capsize' between Lao Liu, a distributor in the neighboring provincial capital, and the company, Lao Zhang became determined to exit. It is worth noting that Lao Liu had always been a benchmark client at the regional level for this manufacturer, with good cooperation and strong execution, but because he failed to meet his stock-pushing targets for several consecutive months, the manufacturer split his territory. This sent a chill down Lao Zhang's spine.

**Using coercion to maintain growth**
**The premise is not to excessively damage distributors' profit margins**

Against the backdrop of economic downturn, reduced demographic dividends, and shrinking channel dividends, many brands, including big ones, have chosen the simpler and more convenient path of transferring pressure to the channel rather than cultivating new growth models, which is more difficult. Most marketing managers also support this choice; they prefer 'short, flat, fast' tactics to quickly squeeze out the channel's limits, with distributors being the most important nodes for bearing and releasing their pressure.

**As for the 'transformation' many manufacturers emphasize, it is just a rebranding, essentially the same old coercive approach.** Take Lao Zhang's experience: the so-called 'product upgrades' have reverted to a stock-pushing dependency through product activity and order fulfillment rates; then look at 'expense coercion'—it may squeeze out sales in the short term, but from a larger perspective, it only deepens the contradiction between product sell-through and inventory until collapse.

When Lao Zhang gave up his agency, the company said: 'Our company led the industry in growth rate in 2017. Where else can you find such a business? Such a brand? Hold on a little longer, build a solid market foundation, and you'll be counting money until your hands are sore?' But the company completely misunderstood. **The problem is not how strong its brand is, nor that the growth rate is still high, but that this growth model comes at the cost of excessively sacrificing distributors' profit margins, driven by stock-pushing, which is destined not to last.**

**Facing sustained, high-intensity stock-pushing from big brands**
**How can distributors save their profits?**

**1. Diversify operations; don't put all your eggs in one basket**

Voluntarily exiting like Lao Zhang is one option, but the premise is that you have a fallback. If, like Lao Liu, you cripple yourself to cater to the manufacturer, kicking out other similar brands to focus on 'exclusive' agency or terminal brand 'exclusive' stores, you only multiply operational risks, and in the end, you are forced to accept the manufacturer's design.

**Distributors should have a brand portfolio concept.** Which brands look good on the outside but are rotten inside, with thin profits, or even grow by excessively eroding their own and channel profits? Which brands have both good reputation and profits? Under this, consider the positioning of product groups within brands: which are volume-driving products? Which are high-margin products? Which are defensive products?

**Distributors should have a sound operational structure mindset.** They should sort out their agency brand and product portfolios, clarify product positioning, product mix, and product hierarchy, determine a suitable combination of brand and product groups, improve the profitability of the product mix, and enhance risk resistance.

Only through diversification can they effectively hedge against the potential risk of manufacturers eroding profits.

**2. Focus on channel classification management; don't 'seek quantity over quality'**

For FMCG companies, distribution rate is a very useful means to assess distributors. If you say the task is high, they check the distribution rate; if the distribution rate is low, it means there is still much market space! If the distribution rate meets the standard, then is the single-store inventory sufficient? Can it match the industry leader? Or even say, can you distribute to channels that have only a slight connection to the product?

But the problem is that some outlets are either newly opened, have insufficient foot traffic, overstock to obtain sales expenses, or are not suitable for selling such products. Ignoring these stores' digestion capacity, **'seeking quantity over quality' and 'over-distribution' will only result in having distribution and displays, but in the end, many goods are returned, and you have to spend more money to handle them.** Unknowingly, distributors suffer hidden losses.

Therefore, distributors should work with manufacturers to define an 'effective distribution rate' that suits the regional economic environment. They should not blindly distribute to any terminal that can sell; they must be wary of over-distribution to ineffective and low-efficiency outlets.

Terminal outlet records should not just be filed and forgotten, nor simply classified by hardware like business area. **Instead, gradually establish a model for classifying terminal types based on sales volume, then clarify the basic distribution items for different terminal types, the approximate turnover days for each product category, the baseline quantity for each delivery, and the inventory quantity that should be retained per store per unit time.** Ultimately, focus on high-quality outlets to improve the quality of terminal outlets.

**3. Distributors should manage their own warehouses, paying attention to both value and quantity changes**

Many big-brand salespeople, and even managers, like to treat distributors' warehouses as their own. Often, without the distributor's consent, they directly place orders on behalf of the distributor or force allocation. This behavior, which only cares about completing tasks without considering regional consumption differences, is most despicable. **To complete tasks, they turn the company's inventory into the distributor's inventory, and forcibly turn regionally unsuitable products into the distributor's inventory.**

Distributors should manage their own warehouses, have a clear judgment on the trends, sell-through, and inventory of different products, and not hand over the ordering rights to others. They should pay attention to the monthly inventory turnover rate and monthly product sell-through rate of products in the warehouse, using value and quantity changes to judge and reduce their inventory risk. This way, when manufacturers allocate unreasonably, they can counter with evidence and reason.

**4. Optimize internal management, avoid unreasonable management replication, and reduce hidden management costs**

Distributors should sort out their management systems, quantitatively break down each position, and introduce input-output analysis in management links and channel construction to reduce hidden management costs.

In particular, **be sure to avoid replicating management models that are not suitable for you.** Take the delivery staff salary reform required by Manufacturer A: the plan sets basic salary, item salary, market infrastructure salary, and sales commission salary, and limits personnel to full-time delivery staff. In Lao Zhang's provincial capital, the basic salary is 3,000 yuan per person, with two people per vehicle, and this brand's average gross margin is less than 15%. So 'one vehicle per month would need to increase sales revenue by nearly 50,000 yuan to offset the basic salary cost,' plus the 'dedicated vehicle and dedicated delivery' where operating costs cannot be shared by other brands, and other detailed assessments and product commissions, making operating costs enormous.

Therefore, in the context of increasingly saturated channels, when manufacturers attempt to embed 'high-end' management systems, distributors must be vigilant, as this is likely to swallow up the profits you have worked hard to earn.

Source: Zhongtong Observation (ID: chinabaobbei)
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