As we greet each other through this article, I'm Yuan Lai from New Distribution. Before the new year, I gave a one-hour internal sharing session on the moat of distributor businesses at the Tower Alliance annual meeting (an alliance of 553 distributor supply chain organizations, abbreviated as 'Tower Alliance'). The following combines the content of that sharing with my latest thoughts. As the saying goes, the whole year's work depends on a good start in spring. I hope this article can bring some inspiration and thinking to more distributors in their business layout at the beginning of 2026. Let me start with the conclusion: Today's competition among distributors is shifting from 'who can supply better' to 'who can manage products better'. I can say with certainty: the moat for the next generation of distributors is only one thing—category management capability. In the past, what did many distributors take pride in? Capital strength, warehouse area, vehicles and personnel, and agency brands. But these former 'core competencies' are becoming ineffective. The current reality of business operations is: business is getting harder, profits are as thin as a blade, and many are on the edge of breakeven. Why is this happening? On the surface, it's due to changes in supermarket adjustments, the encroachment of snack discount stores, and the explosion of instant retail flash warehouses. But if we look through these phenomena, there is only one underlying logic: The shelf rules at the retail end are being completely rewritten. In an era of oversupply and extreme channel fragmentation, the logic of profiting from 'information gaps, resource gaps, and time gaps' has ended. Today's distributors must transition from a 'brand resource-based' business to a 'category capability-based' business. Why should distributors do category management? When it comes to category management, many distributors might think: category management is the retailer's business, what does it have to do with me? Sorry, but if you still think this way, your business will soon hit a dead end. Let me not explain the concept of category management first. Instead, I'll explain the current changes from three dimensions:

  1. The needs of the retail end have changed.
  2. The standards of brand owners have changed.
  3. The source of business profits has changed. Let me explain one by one. Retail end needs: from 'lack of product policies' to 'lack of better product assortments'. In the past, the distributor's role was a 'porter'—as long as you delivered goods to the store, negotiated prices, provided enough policies, and secured display positions, you didn't have to worry about selling. But today, the biggest headache for stores is not having no goods to stock, but that goods don't sell; consumers have no desire to buy and no freshness. Why are supermarkets adjusting? Because if they don't adjust, don't change the product structure, and don't do well in bakery, cooked food, and fresh produce, consumers won't enter the store. The store will have to close. If distributors lack category thinking and continue to simply focus on price and policies, going against the retailer's current key operational tasks, they will eventually be replaced and eliminated. Now retailers care more about: Can you supply a whole assortment of goods, not just a few brands? Can you do a good job of the category's product assortment, so that consumers spend more time in the category section, buy more, and there is sell-through and repurchase? This is the change at the retail end. Now look at the standards of brand owners: from 'channel distribution' to 'category operation'. I've noticed that more and more brand owners, when recruiting or replacing distributors, no longer only look at the distributor's warehousing and distribution capabilities and capital pool. They start asking: Can you execute standard displays at the terminal? Do you understand how to plan themed promotional activities? Can your brand portfolio in this category attract retailers? Do you have a leading role and voice with retailers? Distributors who only 'deliver goods' can be replaced at any time by third-party city distribution companies or B2b platforms. Finally, the source of distributor profits has changed. From 'price difference dividends' to 'structure and efficiency dividends'. In the current extreme price war, relying on getting more manufacturer fees and opening more outlets can no longer cover the rising operating costs. What truly supports distributor profits are two things: First, structural dividends: through product assortment, using reasonable price bands, specification gradients, and sub-category ratios to create overall gross profit; Second, efficiency dividends: using higher turnover, lower loss, and lower capital occupation to protect net profit. These two things are not solved by blindly opening more outlets; they directly point to—category management capability. What is category management for distributors? When it comes to category management, I think many distributors' first reaction is: 'I know, it's about taking on more brand agencies, getting more new products. Also, poach a buyer from a supermarket!' Absolutely not. Category management is definitely not as simple as selecting a few new brands. Category management for distributors, in my opinion, is a leap from a 'supply mindset' to an 'operational mindset'. A supply mindset is self-centered: What big brands have I taken on? What's my purchase price and selling price? How many stores can I distribute to? An operational mindset is consumer- and retailer-centered: What are the purchase scenarios for consumers in supermarket channels and small store channels? What role does this category play in the store? What product assortment should I use to meet that? How should these products be effectively placed on shelves and displayed? Distributors with true category management capability must grasp these three fundamentals:
  4. Understand consumers (find needs): The starting point is not the brand or product, but the real needs of consumers. For example, in instant retail flash warehouses, consumers want emergency supplies; in community supermarkets, they want daily necessities.
  5. Understand retailers (match scenarios): Match corresponding products, as well as their price bands, specifications, and functions, according to channel or store type (convenience stores, community small stores, system supermarkets, etc.). For example, providing large-pack bulk items to a small grocery store is not understanding retail.
  6. Understand accounting (define roles): Here, accounting is not about gross profit or net profit. It's about clearly knowing the division of labor among SKUs in your product pool. Which single items are responsible for driving traffic and turnover? Which are responsible for making money and profit? Which are used to create excitement, etc. In summary, category management for distributors is not blindly doing 'addition' (taking on more brands), but doing 'subtraction' and 'structure' with data. Based on retail scenarios and consumer needs, plan product assortments under the categories you operate. When you establish this standard, what you deliver to stores is no longer individual products, but 'category solutions' that help stores expand category capacity. Category management method using the daily chemical category as an example A thousand theories are not as good as one case study. Take the daily chemical category as an example. The daily chemical category is highly representative due to its strong trendiness and rapid iteration. How should distributors do good category management for daily chemicals? From the product dimension, there are three levels:
  7. Product selection
  8. Product structure
  9. Product optimization Product selection, in one sentence: look upward for momentum, look downward to match scenarios. Upward: Don't only focus on traditional big brands. Research the daily chemical SKU matrix of high-momentum retail representatives, such as Sam's Club, Hema, and Pangdonglai. Also, look online at Douyin, Xiaohongshu, and Tmall for trending, emerging, and trend SKUs. Downward: Combine the consumption level, age structure, and past or surrounding category sales data of specific supermarket stores to filter out a daily chemical assortment that truly matches the store's scenario. Product structure, in one sentence: clear division of labor, reconstruct the shelf. After selecting products, how to place products with different positioning roles in appropriate positions is the key to operations. I made a table for easy understanding. For example, in the vertical division of the category shelf, the bottom area is for products that attract traffic, mainly traffic-driving single items. The middle area (from eyes to waist), commonly known as the golden area, holds trend and profit single items as key recommendations. The upper area (visible area) holds trend single items or special product combinations to create excitement or enhance image. In the limited category shelf space, reconstruct the logic of daily chemical products; never pile them up randomly. Product optimization, in one sentence: dynamic iteration, themed marketing. Category management doesn't end when products are placed on the shelf; it's just the beginning. Establish a data-based elimination mechanism. Which products should be listed or delisted is no longer decided by the boss's gut feeling, but by terminal sell-through data, implementing bottom-end elimination. At the same time, in daily operations, output display standards (how to display to attract attention), and plan themed marketing activities according to time nodes, such as spring hydration, summer sun protection, and winter nourishment. I believe the next generation of distributors must be responsible for 'selling products to consumers', not just for 'delivering products to store shelves and warehouses'. Conclusion In the future, distributors without category management capability will always be 'pipelines' that can be replaced at any time. Only distributors who master category management capability can transform into 'partners' that retailers cannot do without and 'operators' for brand owners. In the past year, the 'New Distribution' team has intensively visited over a hundred regional leading distributors across the country. We have witnessed firsthand that those distributors who first awakened to 'category management operations' are still growing against the trend. Therefore, I would like to invite you to the CFC 11th China FMCG Conference from March 16-18, during which the '6th China FMCG Distribution and Retail Conference' will be held. At that time, we will release the 'Next Generation Distributor White Paper - China FMCG Distribution Insights 2026' at the conference. This is not just a report; it is the first 'survival and growth guide' for Chinese FMCG distributors to cross the cycle. If you don't want to be washed out in this round of brutal retail transformation; If you want to thoroughly understand how to upgrade your organization from 'selling brands' to 'managing categories'; If you want to meet the most top-tier and transformative peers in the country... Countdown 20 days, March 16-18, come to Chengdu!