---
title: "Dark Under the Light: A Common Ailment of Mid-Tier FMCG Brands"
description: "The article discusses the 'dark under the light' phenomenon in mid-tier FMCG brands, where companies neglect their base markets near production bases. It provides indicators to identify this issue, strategies for distribution network layout, supply chain optimization, and replication of successful base market models."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2022-03-31"
language: "en"
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# Dark Under the Light: A Common Ailment of Mid-Tier FMCG Brands

> The article discusses the 'dark under the light' phenomenon in mid-tier FMCG brands, where companies neglect their base markets near production bases. It provides indicators to identify this issue, strategies for distribution network layout, supply chain optimization, and replication of successful base market models.

**Introduction:** Dark under light, originally referring to the dark area created by a lamp blocking its own light, now metaphorically describes people's failure to notice things close to them. In the FMCG industry, what is the 'dark under light' for brands? Recently, I visited three mid-tier FMCG companies and chatted with their executives. They were eloquent about product concepts and production base scale, but noticeably less confident when discussing sales in the areas surrounding their production bases.

Some companies have multiple production bases across China, yet why is sales weak within 300 kilometers of these bases? Base markets have inherent advantages: proximity reduces transportation costs, allowing more budget for marketing; brand visibility enables consumers to visit factories and experience products firsthand; recruitment advantages provide security for industry professionals; and channel advantages facilitate wider distribution. If these advantages are not leveraged, and senior management turns a blind eye, it creates the 'dark under light' phenomenon. Let's discuss this issue in mid-tier brands.

**Indicators to Judge if a Base Market is 'Dark Under Light'**

Generally, we can assess whether a mid-tier brand's base market suffers from this issue using six criteria:

Data-related indicators (three):
- **Per capita annual consumption in the service area of the base market office is lower than the national average; ideally, it should be 2-5 times the national average.**
- **Annual per capita output of sales staff in the base market is lower than the company's national average; ideally, it should be 1.5-3 times the national average.**
- **The average size of distributors in the base market is below the company's national average (calculated as annual sales divided by number of distributors).**

Market research indicators (three, based on random street surveys):
- **Outlet coverage rate is lower than the company's national average (e.g., for beverages, outlets can be estimated as population/400).**
- **Average SKU per outlet is lower than the company's national average.**
- **Comprehensive assessment of store owner relationships, product reputation, sell-through, and in-store merchandising scores lower than non-base model markets (requires a standardized scoring system).**

**Summary:** If three or more of the above six indicators are met, your base market is 'dark under light.' The base is the company's stronghold and foundation. If decision-makers do not prioritize base market development, they are unqualified.

**How to Layout Distribution Network in Base Markets?**

As Luo Zhixian, Chairman of Uni-President, pointed out at the annual meeting: 'China's market is vast; no company can directly connect to every corner with organizational capability. 'Big package distribution' is an inevitable trend, but there is still a long way to go, depending not only on the company's willingness but also on society's maturity to accept and execute effectively.'

Indeed, to achieve high-density outlet coverage and high-frequency service in base markets, relying solely on brand and distributor sales teams is insufficient. It requires leveraging social forces in the FMCG ecosystem, such as sub-distributors, wholesalers, special suppliers, and fortress outlets.

Only by planning reasonable channel profit margins (detailed later) can these social forces be motivated to help achieve goals. Therefore, building a three-tier distribution network is the best choice for mid-tier brands.

Before building the three-tier network, conduct a thorough survey of market channels, grid-manage the base market, assign responsibilities, and use a survey form as shown below:

[Diagram: Three-tier distribution network layout]

Three key reminders:
1. **Sub-distributors are developed by distributors but must be managed by the brand.** Ideally, sign tripartite contracts with quarterly and annual rebates (distributor annual rebates can be split) to increase their sense of belonging and serve as backup for distributors.
2. **Design reasonable channel profits.** Sub-distributor profits can reference distributor terms, but the company must issue unified guidelines (profit range limits) to avoid unfair allocation.
3. **Distributors are responsible for direct-operated terminals and key accounts within a certain distance (e.g., core urban areas or within 30 km). Sub-distributors and wholesale-retail stores serve as supplementary external visit forces.**

**Summary:** Why do mid-tier brands build three-tier distribution networks in base markets? The reason is simple: their products' natural penetration rate is far from that of top brands. Moreover, a strong base market means strength across all channels, outlets, customer relationships, consumer word-of-mouth, and market atmosphere. Achieving this requires 'full mobilization of social forces.' Only then can it become the brand's most solid foundation.

**Optimizing Supply Chain in Base Markets: Goods Not Touching Ground**

As mentioned, base markets need a three-tier network and reasonable profit margins for all channel levels. Where does the money come from? Does the company need to bear it? The answer is no, or only partially at startup.

**The source of funds is the transportation cost saved by proximity to the base market and the distribution cost saved by optimizing the supply chain (goods not touching ground).**

1. **Transportation cost savings from proximity:** This is self-evident; being close to the factory saves logistics costs. However, many brands adopt 'freight-through' pricing, where the company supports CIF prices within a certain distance and averages the freight into all CIF products. This is essentially 'lazy governance' and fails to accurately evaluate the performance of each sales organization, as profitability differs between 100 km and 1000 km distances. The best approach is Amoeba-style independent unit accounting.

2. **Distribution cost savings from supply chain optimization (goods not touching ground):** How much can be saved? Supply chain cost calculation: When products go from factory to distributor warehouse, then to sub-distributors, wholesalers, and quality outlets (hypermarkets, CVS, schools), what costs are incurred when products 'land' in the distributor warehouse? See the figure below:

[Figure: Cost breakdown]

Based on normal calculations, once products enter the distributor warehouse and are redistributed, costs increase by at least 1.4 yuan per case. Can we implement a 'goods not touching ground' policy for regional sub-distributors or wholesalers to optimize supply chain costs and enhance channel competitiveness? Of course, this is the channel profit margin mentioned earlier.

How to implement? It depends on the product structure, weight, volume, and logistics vehicles. For example, within 100 km of the factory, use 4.2-meter trucks. Based on product sell-through and SKU mix, load several tons and deliver directly from factory to wholesalers. The saved 1.4 yuan per case can be distributed between distributors and wholesalers. Note that some top brands' distributors may have total gross profit of less than 1.4 yuan per case for direct-to-outlet delivery.

There is also a demand forecast that relies on digital terminal systems. Therefore, building a three-tier distribution network requires all levels of market personnel to use terminal systems (how to make grassroots staff love terminal systems? We'll discuss next time).

**Summary:** I have always said: 'Low price is not a company's core competitiveness, but total cost leadership always is.' This includes supply chain optimization. Breaking through in base markets depends on this; otherwise, investing in promotions and heavy building will result in a 'chicken rib'—tasteless but a pity to discard. If successful, it doesn't make money; if unsuccessful, it wastes money.

**Replication and Promotion of Base Market Model**

This point needs emphasis: start with one model market, explore successful experiences, then replicate nationwide. The principle is simple: 'seek stability.' Replication requires the office team to follow three steps:

1. **On-site visits:** The office team should visit the base market to understand not only marketing but also production and logistics. Many grassroots managers believe because they see; conviction comes from seeing with their own eyes.
2. **Simulation drills:** Actually visit sub-distributors, wholesalers, and quality outlets in the model market, take orders, calculate product tonnage or volume, select vehicles, then make payments, schedule orders, ship, and unload at the point. Experience the entire process.
3. **Implementation checks:** After learning, apply in practice, continuously check and track, use the PDCA model to ensure nothing goes wrong.

**Final Thoughts:** As the saying goes, 'If you don't sweep a room, how can you sweep the world?' If you can't do well around the factory, how can you do well nationwide? The ideal base market is the company's basic plate and stronghold, bearing the brand image, sales pressure, and serving as a key source of profit. Therefore, the 'dark under light' phenomenon in base markets must quickly enter the sight of marketing executives and be eliminated promptly.


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