Since 2023, manufacturers, brands, and retailers across China's FMCG value chain have all felt increasing pressure.
The underlying reason is a deep restructuring of commercial distribution led by changes at the retail end of the market.
The industry has discussed removing distributors for years. But can a retailer build a real supply-chain advantage without them?
In August 2024, operators from discount retail, software, distribution, and supply-chain businesses discussed that question at the third China FMCG Hard Discount Conference.
Their answers suggest that direct purchasing does not eliminate the distributor. It changes what a valuable distributor must do.
How Much Comes from Distributors?
The sourcing mix differs substantially among discount retailers.
Jinbaibai described its model as treating distributors as service providers. Since launching hard discount in Tianjin in 2020, it had worked with strong local distributors.
According to founder Shi Jianwei, distributors shaped roughly 90 percent of the assortment, including price bands and combinations of popular products.
Wangge Discount Supermarket used a different model.
It organized products directly in categories it understood well and relied on distributors in categories where it lacked expertise.
Snacks came directly from factories, while household products and personal care used competitive sourcing based on price and service. Distributors supplied roughly 30 percent of the assortment.
The important point was that distributors helped the retailer understand a category, not merely one item.
That broader category capability is difficult to replace with direct factory purchasing alone.
Hard Discount Requires Different Products and Economics
Jiushi Youpin, a company focused on Chinese baijiu, described three principles for selecting products for hard-discount channels.
First, major brands mattered because unbranded products were difficult to sell in the category.
Second, consumer demand concentrated in specific price bands. The company saw strong demand in the RMB 50 to RMB 70 range.
Third, store format determined SKU depth. Warehouses could carry more items, while smaller outlets needed a more concentrated model.
The company also had to manage conflict with its traditional channel customers.
Its answer was to separate the products supplied to hard discount from those sold through conventional channels. Product differentiation helped protect price structures while allowing the company to participate in the new format.
Retail Scale Changes the Sourcing Model
Retail software provider Lemeng had observed chains grow from one hundred to thousands of stores.
Co-founder Zhang Haibo summarized a pattern: local distributors could usually support a chain from zero to one hundred stores. Beyond one hundred, more products began moving by full truckload from factory to warehouse.
The transition was not immediate.
Wife of the Boss, a snack chain cited in the discussion, initially worked with one or two strong local suppliers. It did not demand the lowest possible price. It prioritized supply stability.
That support helped the retailer build its first one hundred stores and continue toward two hundred.
For distributors, early-stage chains may therefore represent an important opportunity. The retailer needs flexible local supply, category knowledge, and operational support before it has enough scale for direct factory purchasing.
Most Retailers Never Reach Full Direct-Purchase Scale
Snack retail has several special characteristics.
Consumers browse rather than purchase from a fixed list, so the assortment does not need the same completeness as a grocery store. Brand concentration is also relatively low.
China has many snack suppliers capable of assembling enough brands and SKUs to take a store from zero to a complete opening assortment.
Other categories are more difficult. In many markets, no single supplier can assemble a complete portfolio across alcoholic beverages, household cleaning, and personal care.
Retailers can depend on local suppliers only when those suppliers have suitable resources and a compatible operating philosophy. Otherwise, they must seek suppliers in other regions.
Most Chinese retail companies do not grow beyond one hundred stores. They continue to depend on suppliers for service.
The distributor's question is therefore not whether business will disappear. It is whether the company can assemble and operate a complete category solution.
From Distributor to Super Buyer
Jinbaibai's development in Tianjin illustrated the service-provider model.
The region's history as a distribution hub for imported wine and spirits supported the emergence of large distributors with broad product resources.
Jinbaibai partnered with distributors willing to adapt. Those partners became “super buyer” teams.
They selected products nationally and internationally, screened the assortment jointly with the retailer, and then tested products in stores.
The process reduced selection cost for headquarters and purchasing risk for franchisees.
If a product performed poorly, stores could return or exchange full cases within one month. That gave outlets the confidence to test new products without carrying all the downside.
Retail needs a continuous sense of freshness. The supply chain must therefore support frequent trials while controlling the desire of every participant to add excessive margin.
Suppliers Can Grow with the Retailer
The discussion used the development of Wife of the Boss as another example.
Its founder had experience operating restaurant chains and understood store cost and franchising, but did not initially understand snack assortment structure.
The retailer partnered with a non-leading supplier in the Ningbo wholesale market. As the chain grew, the supplier learned which products sold through the format and eventually became one of Zhejiang's largest wholesalers.
The supplier also invested in factories at different stages.
The example shows that a distributor that joins an emerging format early can gain product data, scale, and upstream influence that strengthen both the existing business and future transformation.
Resistance Does Not Protect the Old Model
Distributor Jia Yongshun argued that suppliers cannot demand that retailers preserve the old channel structure. They must adjust to changes in the market.
His company responded to a contracting market by removing unprofitable brands, channels, and positions.
It then joined a leading retail system to build a second growth curve.
For a traditional distributor, resisting hard discount does not stop the format. Cooperation offers a more realistic path to participation.
Jiushi Youpin described three principles for that cooperation.
1. Give Up Margin through Efficiency
The supplier should not reduce price blindly. It should improve front-end and back-end efficiency, release margin from the supply chain, and share the benefit with the retail partner.
2. Work with Emerging Customers Early
Hard-discount business customers often need rapid capital turnover and cannot place large initial orders.
Suppliers need flexible order thresholds and the patience to grow with accounts whose present volume is small but whose format is expanding.
3. Stay for the Development Process
An emerging channel needs suppliers willing to learn, adjust, and operate alongside the retailer rather than seeking only immediate volume.
The Distributor Is Not Removed; It Is Redefined
Hard-discount retail increases direct factory purchasing as chains grow. It also puts pressure on every unnecessary markup and handoff.
That does not mean every distributor disappears.
The distributor that only moves a familiar product at an opaque margin is vulnerable. The distributor that provides category architecture, a complete assortment, flexible inventory, product testing, returns, local relationships, data, and reliable fulfillment remains valuable.
Retailers and distributors need a stronger two-way relationship. The retailer brings consumer access and operating feedback. The distributor brings category expertise, supply flexibility, and local service.
Supply-chain advantage does not come from bypassing every intermediary. It comes from retaining only the roles that create measurable value—and redesigning the distributor as a professional service provider rather than a passive layer in the route to market.