Recently, I chatted with a regional manager from a major FMCG company, who lamented: "The FMCG threshold is too low; the sales of leading brands are being eroded by some third- and fourth-tier brands, leading to sluggish sales growth. Dairy, beer, and beverages all face this situation."
In recent years, more and more regional small brands have risen, adding insult to injury for big brands that were already struggling to grow.
Some say consumer demand has changed, especially younger consumers preferring personalized, differentiated products. But the differentiated products sold by small brands are also available from big brands; it's just that big brands find it hard to reclaim market share in niche segments as they once did.
Others say that online channels are increasingly developed, and many small brands enter the market through online channels. But now, offline, many small brands have established a foothold in regional markets and continue to grow.
In terms of overall volume, big brands still dominate both online and offline. However, in regional markets, when facing competition from small brands, big brands often feel powerless, watching helplessly as small brands nibble away at their market share.
What exactly has led to the current awkward position of big brands?
How did big brands once harvest the market?
To understand why big brands are now powerless, we must first understand how they successfully attacked small brands in the past.
To avoid head-on competition with big brands' mainstream products, small brands often play the role of innovators, developing differentiated niche products. After a period of cultivation, they gradually gain consumer recognition and start to improve.
During this period, big brands notice the change in the market, quickly develop similar products (FMCG technology barriers are low, and imitating a product has a short cycle), rely on their strong distribution system to quickly stock shelves, and even invest heavily in channel resources to block small brands (or squeeze them into inconspicuous corners). Finally, they invest overwhelmingly in online advertising resources, drowning out small brands in brand visibility, making consumers actively choose their products.
In 2017, the battle for lactic acid bacteria drinks in the Hengyang market. Small and medium brands like Weidongli, Xiaoyangren, and Qiangren had long been selling in Hengyang. X Li lactic acid bacteria came from behind, buying terminal display spaces, conducting regular promotions, sponsoring the hottest variety shows online, and simultaneously placing a series of endorsements and show-related promotional materials at terminals, quickly seizing market share from small brands. Small brands had almost no power to fight back; they either exited the market or struggled to survive in the cracks.
In the past, big brands harvested small brands' share mainly by suppressing them through distribution and communication channels. Now, it is precisely these two key links that no longer have overwhelming advantages.
Problems in the distribution system
The FMCG industry was once "channel is king." Now, in an era of shrinking volume, although channels cannot solve sell-through, they remain a crucial part of the sales chain. Without channels, the sales chain cannot form a closed loop.
In recent years, complaints from distributors and terminals have been increasingly heard, especially about big brands.
Facing complaints from distributors and terminals, big brands have not fundamentally solved them; they either ignore channel complaints or simply replace distributors.
Over time, the problems have become increasingly prominent, creating space for small brands to survive and develop.
- Big brands can't find distributors
To achieve sales targets, big brands continuously pressure distributors, thinning their profits and increasing turnover. Big brands simply replace distributors, and brands that frequently change distributors find it increasingly difficult to find new ones.
In recent years, many major FMCG companies have been actively advertising to recruit distributors, but with little success.
At the beginning of the year, while visiting the market, a business manager told me, "In the XX market, after the previous distributor voluntarily withdrew, the position has been vacant for 2 years. We've approached many distributors, but none are willing to take it."
In distributor circles, information spreads quickly. If a brand changes distributors often, its reputation in the local market suffers: "XX brand doesn't sell well, doesn't make money," "Prices are chaotic, can't make money, specifically cheats distributors." As a result, no distributor in that market is willing to represent the brand.
- Terminals refuse to cooperate
"More and more terminals are not cooperating with us," a distributor from a major manufacturer sighed.
Distributors change frequently, and unresolved issues at terminals (such as near-expiry products) are left unattended, so terminals simply stop cooperating.
Especially when manufacturers blindly push inventory, and the handling fees for near-expiry products are repeatedly reduced, or even eliminated, it's equivalent to shifting the risk of near-expiry to distributors, who then shift it to terminals. Such practices are bound to be unsustainable.
Additionally, online price impacts sometimes make online prices lower than what distributors offer to terminals. Terminal owners think distributors are making too much profit, so they naturally refuse to source from distributors.
"Local mom-and-pop stores almost never source from me now; if they do, it's from online platforms, which are cheaper and have no minimum order quantity—they deliver even 1 or 2 boxes," a distributor shared his frustration.
- Terminals prefer to sell small brands
Big brands develop multiple channels, and price wars intensify.
"The snack system next door is much cheaper than us; we have to match prices, so selling XX brand doesn't make money," a terminal owner complained.
Big brands have large sales volumes, so terminals must sell them because consumers will ask for specific brands. If they don't have them, terminals worry about losing foot traffic. So, terminals' attitude toward big brands is that they will still sell them, but they will also sell smaller brands with higher gross margins.
Small brands don't have such heavy sales pressure; coverage brings incremental growth, and they don't need price promotions to meet sales targets, so their prices are more stable, channel margins are higher, and distributors and terminals are more motivated.
Dayao, which has been very popular in recent years, seems hard to develop. Product-wise, it has many additives and doesn't meet health needs; price-wise, it doesn't have an advantage for consumers.
But it has grown rapidly, and one important reason is that it leaves high gross margins for terminals—selling one bottle of Dayao is equivalent to selling three bottles of Coke.
The founder of Dayao said in an interview: "Soda is a must-have product for restaurants; whether big or small, they all sell soda. But I found that the gross margin for soda in restaurants is very low. While chatting with terminal owners, I learned they also hope to sell a soda with high margins."
Additionally, major manufacturers are continuously cutting terminal expenses, which has made many owners realize: they shouldn't sell only one brand; they should sell multiple brands to have bargaining power with brand owners.
Small brands are both a bargaining chip for channels to counter big brands and a means to meet their profit needs. Therefore, more and more distributors and terminals are willing to sell and recommend smaller brands that are more profitable.
In short, the root cause of problems in the distribution system is that capital's extreme pursuit of profit leads to a series of distorted actions (excessive inventory pressure, low-price cross-region dumping, price inversion, etc.), ultimately harming channel interests.
Harming partners' interests naturally leads to abandonment, which provides offline space for small brands to survive.
No competitive advantage in distribution and promotion
The essence of resource investment is to solve competition problems. But big brands' profit targets increase year after year, and with sluggish sales growth, they can only continuously cut expenses or resources.
As is well known—emerging small brands avoid big brands' mainstream segments and compete through differentiated product niches. Although big brands may launch similar products to counter competition, they don't invest many resources in niche products, failing to establish overwhelming competitive advantages.
- Niche products are marginalized in display
Under performance pressure, big brands allocate more resources to main products, often without much support for niche products.
Distributors are not enthusiastic about niche products (even those with potential), only bringing them into terminals as an afterthought, with few display units and poor display positions.
Especially when new products encounter market resistance, distributors will abandon them and retreat to bestsellers (big brands often have long product lines, giving distributors a fallback).
In contrast, small brands invest almost all resources in one product, and they have no fallback, so everyone is united, which is more conducive to capturing niche markets.
- Low communication visibility
Nowadays, when distributors hear that a major manufacturer is launching a new product, they complain a lot: "The company's new products are forced allocations; there's no promotion budget at terminals, and policies are inconsistent. After three months, when the market just starts to improve, the policy ends, and all previous efforts are wasted."
Manufacturers' resources are stretched thin, and they no longer invest heavily in online communication to implant the advantages of new products into consumers' minds as they once did.
This is also evident from the slogans many big brands shout.
"Small investment, big returns," "Be a smart consumer activity," "Spend little, do big things"... Even "lean expenses" has become a strategic move for big brands, but how to be lean? Which expenses should be lean? Unknown. Those promotion expenses that don't show short-term results but are beneficial for long-term competitive advantage are also trimmed.
Now big brands cut expenses and shift the pressure of new product promotion to distributors, requiring them to use their own resources to expand the market and seek growth.
As a result, whether a new product succeeds basically depends on the distributor's resources and capabilities. Most distributors find it hard to maintain a rich product line from big brands, so it's normal for them to lose in competition in certain niche products.
Thus, some markets can rise, while others can't, closely related to local distributors.
Another point is that many small brands, after rising, will raise funds, giving them an advantage in resource investment for niche products.
Jane, Genki Forest, Guozishule, etc.—these emerging brands (which can no longer be called small brands now, but they grew up in recent years)—which one doesn't have capital support? Otherwise, they wouldn't have developed so fast.
Big brands continue to cut expenses in distribution and promotion, failing to establish competitive advantages, relying almost entirely on distributor capabilities, and naturally losing control of the market.
Final Thoughts
For big brands, the profit-seeking nature of capital drives teams to do things that drain the pond to catch fish, focusing too much on short-term interests. In the long run, market share shrinkage is inevitable.
And those abandoned distributors, when representing a new brand, seem to repeat yesterday's story. It should be noted that when small brands reach a certain scale, they will also face issues like inventory pressure and price chaos, eventually leading to stagnation.
Most distributors still bear the functions of inventory transfer, logistics distribution, distribution, and terminal maintenance. Few distributors have the capability to promote and do consumer operations.
For distributors, lacking consumer operation capabilities will eventually lead to being ruthlessly abandoned by manufacturers. But being able to do promotion and consumer operations is also a new way out for themselves.
Many distributors who do consumer operations, when they develop to a certain extent, even find OEMs to produce their own brands, no longer constrained by brand owners.
From the above analysis, it can be seen that big brands' operations leave enough space for small brands to survive and develop. Now, more and more distributors in the market are already doing consumer operations, promoting their own OEM brands, and developing well in local markets.