Hello friends. I'm Yuan Lai from New Distribution. Recently, while preparing for the first China FMCG Hard Discount Conference organized by New Distribution in Zhengzhou, I spoke with over a dozen major food and beverage distributors to discuss the development of snack discount stores and the impact of hard discount on distributors. Their answers were unanimous: the impact and decline are very significant. I conducted a small survey asking, "What is the range of year-on-year business decline?" The answers were almost identical. Standard snack products in supermarkets declined 10%-20%, while bulk snack products in supermarkets declined around 30%. One distributor told me, "No store is without decline. Besides declining sales, supermarket return rates have risen by an average of 1 percentage point, and small store return rates by 2 percentage points. To counter the impact of snack discount stores, supermarkets have changed from monthly member events to weekly events, with five promotional points per month, and the intensity of promotions far exceeds the past. We can't sell much normally, and now we have to invest money to sell during promotions, reducing gross margins! " This is the real feedback from distributors. I also asked another distributor, "Are there any peer distributors affected or closed down?" He replied directly: "Many, many, many. Especially single-brand distributors, like [brand] and [brand]. I'm a bit better off because I represent dozens of brands, like a centipede—if two legs break, I can still survive." From the feedback of these two distributors, calling it a "winter" is not an exaggeration. Simply complaining about declining sales and difficult business is meaningless. Facing external shocks, we must actively change, especially distributors in the middle of the supply chain. This article aims to provide some thoughts and inspiration for snack distributors from the following three dimensions:

  • Can distributors open stores?
  • How to maintain local supermarket business?
  • What else can be done besides supermarket business decline? Can distributors open stores? Facing the rapid expansion of snack discount stores, many distributors are tempted: "I've been in the snack food business for one or two decades; I know exactly what sells well. Since it's so hot, why not open one or two snack stores or join a leading snack brand? I might catch a wave of profit during this windfall period." Many distributors have started franchising or opening stores with this mindset. Today, I'm not opposing distributors franchising or opening their own stores. I want to say that investing in a store is fine, but you must not open a store just because you are in the snack food business and understand it. Knowing snacks and distributing snacks is completely different from running a good snack store. In the "China Snack Discount White Paper (FMCG Industry Insights 2023)" released by New Distribution in October this year, it points out that three factors determine the operating performance of franchisees (joining snack discount chain brands).
  • 80% is market environment—regional selection, store location, local competitive landscape.
  • 15% is system support—supply chain efficiency, product selection capability, and operational support.
  • 5% is operational strength—capital strength, resource awareness, and staffing. In simple terms, if you want to join a snack store and run it well, it doesn't depend on your resources or supply chain. The core decisive factor is whether you can find a good location, a good area. If a distributor happens to find a good location, then join one. Not only as an investment, but also as an opportunity to learn category management strategies and actions for snacks, knowing yourself and the enemy. Finally, regarding whether to open a store, distributors must establish an understanding: Distribution business and retail store business are two different things. Just because you supply stores every day doesn't mean you can run a store well. You can open a store, but your past distribution experience, except for financial support, gives you nothing else; you must start from scratch. How to maintain local supermarket business? Standard products down 15%, bulk down 30%. What should distributors do about their local supermarket business, and how to stop the decline? Besides conventional strategies like grabbing more sales from competing brands in existing categories, the most important thing is to see how local supermarket chains respond to the encroachment of nearby snack discount stores. Because local supermarket chains are even more anxious and worried than distributors. The adjustments supermarkets make to counter snack discount stores, especially in backend procurement systems and front-end snack category management, are crucial for distributors. The adjustment strategies and actions of supermarkets are the key factors for distributors to optimize and upgrade. After discussions with retail industry experts, the core adjustment strategies for local supermarket chains are two directions:

1. Adjust in-store snack product structure 2. Adjust snack procurement cooperation model 1. Adjust in-store snack product structure The two most critical actions: First, lower the mainstream price band for bulk snack categories. For example, the past mainstream price band for bulk snacks in supermarkets was 20-30 yuan/500g; adjust the main price band to 10-15 yuan/500g. Our internal research data supports this logic. Taking bulk biscuits as an example, the main price band in mainstream supermarkets is 15-30 yuan/500g, while snack discount stores' main price is 10-20 yuan/500g. Second, create independent snack zones with rich categories: more SKUs, smaller sizes, and lower average transaction value. Here, focus on "low average transaction value." In the past, many supermarkets prioritized category in display, such as biscuits, candies, and meat products. Future adjustments will prioritize price in display, such as 9.9 yuan, 15.9 yuan, and 20.9 yuan. Within the same price band, let consumers choose more. 2. Adjust snack procurement cooperation model The general direction of cooperation model adjustment is to "shorten the supply chain" to gain absolute price advantage, which is unquestionable. What are the specific actions?

  • First, for some key products and categories, direct supply from manufacturers, removing distributors, with cash direct procurement. If direct supply from manufacturers is not possible, shorten the distribution level and must cooperate with first-tier distributors. At the same time, in terms of payment terms, it is no longer the first priority; product and price are the first conditions.
  • Second, set KPI assessment indicators for snack procurement personnel. For example, monthly elimination rate of snack products above 10%, mandatory continuous updating and replacement of snack categories, joint product sourcing and selection with distributors, and proactive introduction of new products. Based on the above four key actions, I believe snack distributors should gain some inspiration and ideas. In the future, the relationship between distributors and supermarket systems is not a simple trade supply relationship. From the perspective of downstream stores, positioning yourself as a snack category procurement, selection, and operation expert for store product selection is key to sustained cooperation with stores. At the same time, distributors should accelerate adjustments to their supermarket business. If supermarkets decline, they may directly cooperate with manufacturers. Distributors who adjust too slowly will not only lose business to snack stores but also be replaced by supermarkets' self-rescue efforts. What else can be done besides supermarket business decline? When supermarket business declines, often distributors cannot change it and can only accept it. Return to the simplest truth: when you can't change anything, improve your abilities, adapt to change, and seek opportunities. At this time, what distributors can do is pick up channel sales they previously overlooked to offset losses. For example, government and enterprise canteens, campus stores, and township wholesale-retail supermarkets. In the past, the team's energy was all on supermarket channels; now, besides the watermelon, we also need to pick up sesame seeds. For small and medium-sized supermarket stores, gradually increase from multi-brand supply and single-category supply to multi-category supply, even full-category supply. Small independent stores cannot directly deal with upstream manufacturers like regional chain retailers. But to gain relative product price advantages, large-scale procurement is a definite direction. At this time, for distributors, becoming a super supplier for small independent stores is one of the core paths to business growth. Summary The market exists. When we feel business is declining or difficult, don't blame the external economic environment or consumption downgrading. Regional retail enterprises' products are daily necessities for consumers; the economic impact is limited, and 95% of business decline is due to peer competition. Don't make excuses or find pretexts. It's your own inability to keep the business. Learning well and improving is the way! This is what a retail operator said to me, and I think it applies equally to distributors. On December 6-7, 2023, New Distribution will hold the first China FMCG Hard Discount Conference in Zhengzhou. At that time, hard discount chain brand entrepreneurs, FMCG leading brand executives, outstanding national distributors, traditional retail enterprises, as well as service providers and research experts, will gather in Zhengzhou to discuss the supply chain revolution brought by hard discount, as well as long-term development trends and opportunities. If you are also interested in hard discount, you can scan the QR code to add customer service WeChat, inquire about the conference details, and join the [Hard Discount] themed community to discuss the development trends and opportunities of hard discount.