Long press the QR code or click "Read Original" to register. 30+ industry experts, 100+ B2B platform founders, 800+ manufacturer and distributor friends, gather in Fuzhou to jointly explore the path of Internet transformation for the FMCG industry. This article is excerpted from: "Sales and Marketing" Magazine Channel Edition, Issue 06, 2016. In 2015, Lao Gao's first task every day was to check the reports. As the data got worse, Lao Gao became increasingly anxious. Lao Gao was a distributor for a well-known FMCG company (referred to as Company A). In the eyes of others, he had a prime location in the provincial capital, a self-owned compound of several thousand 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. His business was big and flashy. But in reality, the profits he earned from this brand were declining year by year. In the second half of 2015, after calculating labor and market costs, his monthly sales of seven to eight million yuan yielded less than 100,000 yuan in profit! This did not even include fixed asset depreciation or bank financing costs! Working from dawn to dusk, feeling frustrated and stifled, earning such little money—what was he but a loader for the manufacturer? Like Lao Gao, most of Company A's customers faced a common problem: sales increased significantly, yet they occasionally incurred losses. But even so, in 2016, the immense pressure for growth from the manufacturer showed no signs of easing. Finally, after seeing the "friendship boat" between Lao Liu, a distributor in the neighboring provincial capital, and Company A "capsize," Lao Gao became determined to exit. Lao Liu had always been a benchmark customer at the regional level, cooperative and strong in execution, but because he failed to meet his stocking targets for several consecutive months, the manufacturer split his territory. This sent a chill down Lao Gao's spine. The "Bloodbath" Caused by Excessive Pressure In 2015, Lao Gao was held hostage: because he had to advance promotional expenses himself, he had to stock up to earn back the costs and overhead. Not only Lao Gao, but most of Company A's distributors were forced to stock up. The problem was that after stocking up, the troubles had just begun:

  1. Because of stocking up, Lao Gao's sales rhythm was disrupted. For the first 20 days of the month, he was dealing with the previous month's inventory, and at the end of the month, to get the expenses, he had to continue pushing volume, creating a vicious cycle. This distorted stocking practice led to a distorted sales rhythm, which in turn required further distorted purchasing to sustain it.
  2. Excessive stocking naturally led to poor product freshness. To handle old stock, the manufacturer's approach was to only handle high-end products, and they had to be centrally collected and counted. The costs were split 50-50 based on the landed price! As for the cost of returns and handling low-end products, the manufacturer did not care at all. As a result, Lao Gao's gross margin was severely eroded.
  3. Frequent handling of old stock not only left consumers with the impression that the manufacturer was always clearing old inventory, but also occupied the shelf space and opportunities for fresh products.
  4. Looking at the "product upgrade" strategy, to push new products, the regional office led the way, setting high planned volumes for distributors from top to bottom, assessing distributors on their purchase activity and month-over-month growth rate, meaning they limited the number of purchases per month and the minimum quantity per order. If the plan was not met, forced allocation was imposed. Thus, before the new products were accepted by the market and formed a healthy circulation, Lao Gao was again burdened with a pile of inventory. Conversely, the headquarters derived false information from artificially inflated sales reports, so they continued to increase tasks month by month, and sales personnel at all levels, to get incentives for new products, continued to push more.
  5. Later, Company A required that orders in the first seven days of the month should not be less than 70% of the last seven days of the previous month; otherwise, it would be considered stocking up and the region would be heavily penalized. But where there is a policy, there is a countermeasure. The common tactic used by frontline staff was to either push a large order on the 23rd of the current month or on the 7th of the next month. Because concentrating purchases in a shorter time span undoubtedly amplified the sales, capital, and profit risks for Lao Gao and others. Given that a significant portion of Brand A's products had a shelf life of only a few dozen days, to avoid getting stuck with them, Lao Gao had to sell at cost or even at a loss. If that is not a loss, what is? Lao Gao soon felt overwhelmed. In November 2015, despite great effort, Lao Gao still had three months of tasks unfulfilled. Zhou Xin (pseudonym), the regional manager of Company A, was displeased. He summoned Lao Gao and the responsible business supervisor to the regional office for a work report and emphasized that the three months of arrears must be made up by the end of the year! In addition to demanding that Lao Gao pledge "must complete," it had to be put in writing and signed as a responsibility statement! Otherwise, market division would be considered! Lao Gao was angry. After all, it was just forced stocking! Making up the arrears by year-end was clearly about their year-end bonuses! As for the stocked goods and high inventory, wasn't it up to him to figure it out? What followed made Lao Gao even more unhappy. Because he had not completed his tasks, Zhou Xin immediately increased inspections of Lao Gao's market. Various inspection conclusions emerged, such as insufficient distribution rate, weak terminal performance, etc. The intention was clear: Lao Gao's market infrastructure was weak, which seriously affected task completion and dragged down the region! Moreover, Zhou Xin would occasionally visit Lao Gao, making veiled threats about market division! Lao Gao thought, with tasks increasing year after year, rather than investing huge costs, enduring increasingly high profit erosion, and facing an uncertain distribution future, it was better to exit early. So in March 2016, just after the Spring Festival, Lao Gao quit. Using Pressure to Maintain Growth, Provided It Does Not Overly Damage Distributor Profit Margins Against the backdrop of economic downturn, reduced demographic dividends, and shrinking channel dividends, many brands, including major ones, chose the simpler and more convenient path of transferring pressure to the channel rather than the more difficult task of cultivating new growth models. Most marketing managers also supported this choice, preferring "short, flat, fast" tactics to quickly squeeze the channel to its limits, with distributors being the most important nodes bearing and releasing their pressure. As for the "transformation" that many manufacturers emphasize, it is just a change of clothes; in essence, it is still the old path of pressure. Take Lao Gao's experience: the so-called "product upgrade" reverted to the path dependence of stocking up in the form of product activity and order fulfillment rates; and "expense pressure" may squeeze out sales in the short term, but on a larger scale, it only deepens the contradiction between product sell-through and inventory until it collapses. When Lao Gao gave up his agency, Zhou Xin even said: "Our company led the industry in growth rate in 2015. Where else can you find such a business? Such a brand? Hold on a little longer, build the market foundation, and you'll be counting money until your hands are sore?" But Brand A completely misunderstood. The problem is not how strong its brand power is, nor that the growth rate is still high, but that this growth model comes at the cost of excessively sacrificing distributor profit margins, driven by stocking up, and this is doomed not to last. Reflection: How Can Distributors Save Their Profits in the Face of High-Pressure Stocking by Major Brands? 1. Diversify Operations; Don't Put All Your Eggs in One Basket Choosing to exit voluntarily like Lao Gao is one option, but the prerequisite is that you have a way out. 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 your operational risks and end up being 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, they should also consider the product portfolio positioning within brands: which are volume-driving products? Which are high-margin products? Which are defensive products? Distributors should have a sound business structure mindset. They should sort out the brand and product portfolios they represent, clarify product positioning, product mix, and product hierarchy, determine the appropriate combination of brands and products, 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; Avoid "Greed for More" For FMCG companies, distribution rate is a very useful tool 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 a lot of market space! If the distribution rate meets the standard, then is the per-store inventory sufficient? Can it match the industry leader? Or even, 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 the digestion capacity of these stores and "greedily seeking more" or "over-distributing" will only result in having distribution and displays, but ultimately many returns, requiring additional expenses to handle. 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 or low-efficiency outlets. Terminal outlet records should not just be filed away, nor should they simply classify types based on hardware like business area. Instead, they should gradually establish a model that classifies terminal types based on sales volume, then clarify the basic distribution items for each terminal type, the approximate turnover days for each product category, the baseline quantity per distribution, and the number of inventory cases to be retained per store per unit time. Ultimately, focus on high-quality outlets and improve the quality of terminal outlets. 3. Distributors Should Manage Their Own Warehouses, Paying Attention to Both Value and Quantity Changes Many major brand sales personnel, and even managers, like to treat distributors' warehouses as their own. Often, without the distributor's consent, they directly place orders for 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 force products that are not suitable for the region into the distributor's warehouse. 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. They should pay attention to the monthly inventory turnover rate and monthly product sell-through rate, using value and quantity changes to reduce their inventory risk. In this way, when manufacturers allocate unreasonably, they can counter with reason and evidence. 4. Optimize Internal Management, Avoid Unreasonable Management Copying, and Reduce Hidden Management Costs Distributors should sort out their management systems, quantitatively break down each position, and introduce input-output analysis into management links and channel construction to reduce hidden management costs. In particular, they must avoid management systems that are not suitable for them. Take the delivery staff salary reform required by Company A: the plan set basic salary, item salary, market infrastructure salary, and sales commission salary, and limited personnel to full-time delivery staff. In Lao Gao's provincial capital, the basic salary was 2,000 yuan per person, with two people per vehicle. Since this brand's average gross margin was less than 15%, "one vehicle per month would need to increase sales revenue by nearly 30,000 yuan to offset the basic salary cost," plus the "dedicated vehicle and dedicated delivery" that could not share operating costs with other brands, and other detailed assessments and product commissions, the operating costs were enormous. Therefore, in an increasingly saturated channel environment, when manufacturers attempt to embed "high-end" management systems, distributors must be vigilant, as they are likely to devour the profits you have worked so hard to earn. This article is excerpted from: "Sales and Marketing" Magazine Channel Edition, Issue 06, 2016. New Food Era · New Distribution —— 2016 China "FMCG + Internet" Summit Forum —— This is a grand event focused on how the FMCG industry channels will transform under the trend of Internet + transformation Agenda 09:00-09:30 Registration 09:30-09:35 Host opening 09:35-10:05 2016 China FMCG Industry Trend Analysis Report - Zhao Bo 10:05-10:25 FMCG Enterprise Transformation Strategy and Path - Liu Chunxiong 10:25-10:45 Opportunities and Challenges Brought by FMCG Channel Transformation - Liu Zhao, CEO of Waiqin 365 10:45-11:25 Alibaba Retail Link All-Around Empowerment - Guo Kunkun, Alibaba Retail Link 11:25-12:00 Roundtable Forum - Brand Transformation: Improvement or Reconstruction? (Guests TBD) 12:00-13:30 Lunch 13:30-14:00 Distributor Transformation: City Distribution Trends - Wang Qi, CEO of Weijie City Distribution 14:00-14:30 Roundtable Forum - Why Should Distributors Do Logistics in Transformation? 14:30-15:00 Detailed Explanation of Zhongshang Huimin's "One Machine, Two Wings" Strategy - Su Xiaoxin, Vice President of Zhongshang Huimin 15:00-15:30 Detailed Explanation of Zhanghe Cloud Factory Strategy - Yang Lixiang, Zhanghe Tianxia (Content TBD) 15:30-16:00 Supply Chain Finance: The Lubricant for B2B to Drive Traditional Business - Chen Xian, CEO of 51 Order 16:00-16:30 Principles and Approaches for 2B Investment - Xu Xiaoping, Founder of ZhenFund (Guest TBD) 16:30-17:00 Small Retail, Big Opportunity: China's Retail Transformation and Upgrade - Wang Jianfeng, General Manager of E-commerce Department, Yurun Group 17:00-17:30 Roundtable Forum - Who Will Be the King in FMCG B2B Models? (Guests TBD) 18:00-20:00 Dinner For manufacturers and distributors who want to transform, this grand event is not to be missed. Interested friends can long press the QR code below or click "Read Original" to register. Registration: Long press the QR code below or click "Read Original" ↓↓↓ Click "Read Original" [Register]