As the saying goes, 'the whole year's work depends on a good start in spring.' I'm Yuan Lai from New Distribution. A few days ago, I organized a sharing and discussion in the 'TOP500 China Distributor Supply Chain Alliance' (abbreviated as 'Tower Alliance') community about my latest thoughts and summaries on distributors' business layout for the beginning of 2025. The core of this article is two parts: Part 1: The latest strategic layout for distributors; Part 2: Profit-oriented operating principles. I hope this can bring inspiration and reference to more distributors in their 2025 business layout.
The Latest Strategic Layout for Distributors
Strategic layout sounds somewhat abstract, especially when associated with the role of distributors. I used to think that distributors are just doing brand agency business, so why need strategic layout? But after exchanges with distributor bosses and sales heads from manufacturers before the New Year, my own thinking is: Distributors with business above 30-50 million RMB, precisely trading companies, must have operational strategic thinking.
For businesses below 30 million, I think they still need to be completely dependent on upstream brand manufacturers as operating entities. For businesses above 30 million, especially those above 50 million, distributors are beginning to participate in free competition for market share of a certain category/brand in the frontline market, and they operate as companies. Distributors have completed the transformation from individualization to corporatization. At this point, distributors cannot just focus on doing their own business well; they must also look up to see where the industry trend is heading. Follow the trend direction and steadily move forward.
Regarding the latest strategic layout for distributors, taking cities of different administrative levels as the division dimension, let me first state my conclusions.
- Provincial capitals and first-tier cities: Channel X Major category (snacks, condiments, daily chemicals, etc.)
- Second, third, fourth, and fifth-tier cities: Secondary sub-category (snacks, condiments, daily chemicals, etc.) X All channels
- County-level cities: Major category (snacks, condiments, daily chemicals, etc.) X All channels
Let me explain separately. In provincial capitals and first-tier cities, retail formats are rich, with multi-format chains, cross-regional chains, and local wholesale markets covering surrounding cities. Because of large populations, many retail channels, and strong consumer purchasing power, it is recommended that distributors anchor on one or several channels (for example, focusing on a certain NKA system covering the whole province, or a certain LKA, or a certain CVS convenience store system), and then overlay a major category to become a category operator based on that channel. Distributors in provincial capitals should not think about full-channel coverage; instead, they should go deep and thorough in a single channel or two or three channels to form professional barriers. After conquering one channel, then conquer another.
In second, third, fourth, and fifth-tier cities, compared to provincial capitals, there may also be various retail formats, but the market capacity share is limited. If you only focus on one channel, it may not be enough to meet your own business scale demands. Therefore, it is recommended that distributors anchor on a secondary sub-category under a major category or several secondary sub-categories (for example, secondary sub-categories under snacks, condiments, daily chemicals, etc.), and then overlay channels to become a local city all-channel supply chain platform. I propose a strategic goal for mainstream city category distributors: Build a category circulation supply chain platform with the city as the unit and retail and scenarios as the core. Regarding the operating strategies for mainstream city distributors, I will elaborate further below.
In county-level cities, with small populations, small economies, few channels, and facing cross-regional coverage and competition from distributors in the higher-level governing cities, to build a moat in a county market, I think the best way is 'monopoly'. Hold the first-tier leading brands in major categories (snacks, beverages, condiments, daily chemicals, etc.), and use first-tier brand resources to occupy local channels. The purpose of monopoly is not for monopoly itself, but to establish price discourse power in that county-level city. Only with price discourse power can there be profit.
After explaining the strategic layout directions for different city levels, next, I will focus on sharing my views on the layout of mainstream city distributors. As mentioned earlier, the strategic goal for mainstream city category distributors is: Build a category circulation supply chain platform with the city as the unit and retail and scenarios as the core.
What does 'with retail and scenarios as the core' mean? Excluding the catering channel and special channels for special categories such as vending machines, I divide the retail scenarios of a mainstream city into ten major formats, as shown in the figure. Mainstream city distributors should make differentiated layouts based on the above ten major formats. Each retail format has different consumer demands and consumption scenarios, corresponding to different product combinations and product promotion logic. At the same time, upstream manufacturers have different layout strategies for each type of retail, and the core functions of distributors also differ accordingly.
Specifically:
1. NKA/RKA (international/national hypermarkets), CVS chain convenience stores (national). When landing in local cities, the core functions of distributors are advance payment distribution and terminal execution, and even execution is not needed; it's just expense advance. At this time, trading companies should position themselves in this type of channel as: pallet providers, advance payment distributors.
2. LKA (local chain hypermarkets/supermarkets), B-type medium supermarkets (individual/single supermarkets), mother and baby stores/cosmetics stores. Because these channels are in the local area, upstream manufacturers cannot directly operate; it is inevitable that they fully authorize distributors. The core function of distributors is to do category operation management. At this time, trading companies should position themselves in this type of channel as: category operators.
3. CD community supermarkets, TT grocery stores, CVS chain convenience stores (local), snack discount stores (local), instant retail O2O to-home front warehouses. Because these channels are numerous, scattered, small, and mixed, in the future, large-scale one-stop supply chain integration services are inevitable, that is, B2b supply chain platform providers. Moreover, these channels do not have the value of promoting new products, and shoppers have a high rate of brand-specified purchases. The core function of distributors is efficient supply of standard products. There are two directions here: Some distributors (mainly snack food distributors) become full-category B2b supply chain platform providers, while other distributors can become category suppliers, for example, supplying categories to B2b platform providers.
4. Others (such as campus, labor insurance, enterprise and public institution group purchases). These channels exist everywhere, but they rely more on local personal relationships, which is a resource-based business. The core function of distributors is special scenario operation management. Group purchase package design, even product combination customization. At this time, trading companies should be scenario operators.
After reading the above content, I think everyone can understand why I talk about the strategic layout of distributors. You can no longer position yourself as a pure brand agent, but as a city trading company, with different distributor positioning for different channels in this city. I think this is the real topic that distributors need to think about. In the past, I have always emphasized the core difference between shifting from the manufacturer's business to the store's business. Of course, this does not mean that brands are not important; they are still very important, but you should cooperate with upstream brands in reverse based on downstream channel types and store types. Instead of doing whatever brand is well-known, as in the past.
Profit-Oriented Operating Principles
After talking about the latest strategic layout for distributors, let's talk about the operating principles for distributors in 2025. The environment is not good, consumption is insufficient, store traffic is declining, and your own sales are falling. I think every distributor has truly felt this. So how should we operate scientifically in 2025? Based on my recent reading of the Japanese business management book 'Survival Wisdom in Depression', I have excerpted and organized 8 operating principles for your reference and learning.
Note: Due to regional differences, industry differences, and operational differences, these are only reference principles. Distributors can adjust and optimize according to their own actual operations to suit their own management methods.
Divide customers' payment ability into 5 levels. For payments exceeding one month, require cash payment; otherwise, do not ship. Pay close attention to customers' payment ability and take corresponding measures accordingly. This is very important. It is most difficult to collect payment from a customer without money. Please never forget: 'Sales are only called sales when they truly become cash.'
The intensification of market competition makes cost control a competition. Of course, cost control to ensure profit is indispensable. However, do not let cost control lead to a decline in profit. For example, cutting labor costs by laying off employees, and then hiring short-term workers when needed, but these short-term workers are too low-skilled, causing chaos in work, putting the cart before the horse. To truly pursue cost control, it should be 'to maximize profit, make the necessary investments to the greatest extent.' The priority for enterprises should not be cost control for the sake of cost control, but first consider 'profit first'.
I heard a very interesting saying from a bar manager: 'Compared to customer lists, bars value peer lists more.' Generally, companies, even if they can pay attention to competitors' movements, are rarely willing to actively communicate with peer companies. But bars will widely exchange information with peers about store business, supply channels, developing dishes, operating skills, expanding staff, etc., maintaining an open operating state. Through extensive communication with peers, operators can personally feel what needs improvement in their own stores in daily life.
From multinational companies to innovative enterprises, I have saved about 2000 companies, and the truth I have learned from these practical experiences is: The biggest cause of losses is the laziness of operators. Here, laziness refers to having the ability but being lazy and not doing it. For example, knowing the enterprise is facing a crisis, but not analyzing or grasping the survival environment of the enterprise; afraid to face problems, only avoiding them. If operators hold such an attitude, then employee alienation is inevitable.
Most employees do not care about corporate profits; only a few care about the survival of the enterprise. Unfair phenomena are everywhere inside enterprises. The reason is that the leader has not played a role and has not set clear concepts and roles for the company. In the future, enterprises should consider not how to expand, but how to survive. Business models that brought rich profits in the past may not always be profitable now and in the future. Consumer needs will change, and competitors will adopt new business strategies. If the market environment changes, even the best business model will become outdated. Operators who succeed with one business model cannot succeed forever. Operators must constantly confirm whether their business model keeps pace with the times, and when necessary, proactively change to adapt. Adjusting structures and actively changing are the courage that operators must have.
The accumulated sales performance and customer information within the company can become the basis for corporate planning and conception, and can also become important data to prove the economy of corporate planning. It can be said that 90% of the information supporting corporate planning lies in the company's folders. However, one point to note is that this information and data, after all, are only accumulations of the past. Analyzing past data, reading useful parts from it, and predicting the general development blueprint for the future is entirely possible. But the market is alive and changing, sometimes subtly different from the past, with unexpected changes. No one can make accurate predictions. At this time, the remaining 10% of information, that is, on-site investigation, plays a role. After fully analyzing the data accumulated by the enterprise, determine the general strategy for the enterprise, and fine-tune the corporate plan based on the latest market research.
We have all received various questions or proposals from employees. At this time, I always ask employees the following question: 'If we follow your proposal, can our company win?' I have repeated this question so many times that I feel my ears have calluses, but as a result, the way employees make proposals has gradually changed. Slowly, I began to get answers like: 'According to this proposal, this business can be improved, and our company can win.' Every employee has the phrase 'our company can win' on their lips, which forms an awareness and forms a corporate culture where everyone works for the company.
In Toyota's long history, the first person who was not from the Toyota family to become president was called Ishida Taizo. Ishida Taizo had two sentences for his successor Toyota Eiji: 'Your own castle needs your own defense' and 'Firmly strengthen financial management so that even in a management crisis, the enterprise can hold on for 4 years.' Now, Toyota has an internal department called 'Toyota Bank', whose excellent financial analysis system helped Toyota overcome several subsequent crises.
The above 8 items are from 'Survival Wisdom in Depression' by Hasegawa Kazuhiro (Japan), a star president who helped more than 2000 companies turn losses into profits. He served as chairman or executive at companies such as Jujo Kimberly-Clark, General Foods, Johnson & Johnson, Kellogg's Japan, and Bayer. In 2000, he became chairman of Nikon-Essilor. In just one year, he repaid the company's 5 billion yen debt, achieved profitability and dividends in the second year, and led the company to debt-free management in the third year. (I strongly recommend that distributors buy this book and read it.)
Regarding the strategic layout of distributors, at the 10th China FMCG Innovation Conference and the 4th China FMCG Hard Discount Conference & the 4th China FMCG Distributor Conference to be held in Chengdu from March 17-19, I have invited more than a hundred outstanding distributors, manufacturer executives, and retailers from across the country to jointly discuss channel changes and distributor business opportunities in the new environment. If you are interested, don't miss it!
【New Order · Symbiosis】
The 10th China FMCG Innovation Conference
Time: March 17-19, 2025
Location: Chengdu, China