---
title: "Deep Distribution Enters a Monopoly Mode of Overstocking, a Death Spiral in a Shrinking Market"
description: "Deep distribution was highly effective as a distribution tool until Q3 2024, but its very effectiveness has become harmful in an era of shrinking demand. It has led to overstocking at the terminal despite poor sell-through, causing massive near-expiry inventory and channel price collapse, transforming from a positive cycle into a death spiral."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2025-01-18"
language: "en"
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# Deep Distribution Enters a Monopoly Mode of Overstocking, a Death Spiral in a Shrinking Market

> Deep distribution was highly effective as a distribution tool until Q3 2024, but its very effectiveness has become harmful in an era of shrinking demand. It has led to overstocking at the terminal despite poor sell-through, causing massive near-expiry inventory and channel price collapse, transforming from a positive cycle into a death spiral.

Deep distribution was highly effective as a distribution tool until Q3 2024. But precisely because it was so effective, it has become extremely harmful in an era of shrinking demand. The manifestation of its effectiveness and harm is that, even when terminal sell-through is extremely difficult, it still successfully forces excessive stock onto terminals, resulting in large amounts of near-expiry products and channel price collapse. Deep distribution has now become a channel monopoly, mutating from a positive cycle into a death spiral. What is a channel monopoly? It is when normal deep distribution turns into aggressive stock-pushing leveraging brand advantages, far exceeding the channel's normal demand, causing channel blockage. What is a death spiral? It is: sales decline → distribution pressure → near-expiry and price collapse → even greater pressure. That is the death spiral. How did deep distribution move from a positive cycle to a death spiral? This article analyzes the four stages and four models of deep distribution's evolution. The four stages are:
> Light model, high cycle;
>
> Heavy management, large cycle;
>
> Heavy assets, positive cycle;
>
> Monopoly model, death spiral.
**The four models are:** relationship model, distribution rate model, terminal resource purchase model, and stock-pushing model. Deep distribution started with the "eight-step method" and has formed four pillars, which have been sources of growth at different times. **These four pillars are:** sales from relationships, sales from distribution rate, sales from purchasing terminal resources, and sales from stock-pushing. The relationship among these pillars is both an evolutionary progression and a stacking effect, creating stronger barriers that block out low-intensity deep distribution. However, **starting from Q3 2024, no matter how powerful deep distribution is, it is powerless. Even industry giants can only watch sales decline.** The peak of deep distribution was Jinmailang's "Four-in-One" model; can we still hear about the "Four-in-One" model now? An era has ended, and no matter how hard one tries, one is just a tragic hero! So, what model can replace deep distribution in the future?

**Light Model, High Cycle**
**The so-called light model means low investment; high cycle means not only high distribution efficiency but also a positive cycle of gradual upward growth for the channel.** Corresponding model: relationship model, eight-step method. The earliest deep distribution was the "eight-step method," mainly focusing on building relationships. Therefore, relationships can be seen as the basic skill of deep distribution. This reflects the agricultural civilization traces of China's channels, where relationships are also productivity. Because there are acquaintance relationships between B-end and C-end, outside the store they are acquaintances, and inside they are regular customers. Manufacturers building relationships with B-end is about transferring the strong B-C relationship to the manufacturer. Thus, in the process of deep distribution, manufacturers formed a set of standardized actions: how many terminals to visit per day? How long to stay? How many sentences to say? What actions to take? **These actions were very effective initially.** Whoever had better relationships could get larger orders, and even better displays and shelf space. Even now, they still have some effect. However, extremes lead to reversal. When relationships can be KPI-assessed, and when all frontline salespeople are doing the same actions, the effect of standardized relationship-building greatly diminishes. What made me reflect on the effectiveness of relationship-building was a visit to a terminal. Around noon, I asked a terminal owner, "How many people visited this morning?" The owner counted and said, "28." I then asked, "What do you think when salespeople visit?" The owner replied, "Just get rid of them." Massive standardized relationship actions lead to standardized responses from terminal owners. Now some owners say, **"The number of salespeople visiting every day is more than the number of customers."** Many store owners have realized that the relationship-building done by salespeople benefits the manufacturer but not the store. So, you do your relationship-building, and I respond with empty formalities. Anyway, everyone is just putting on a show. **Doing relationship-building is useless, but not doing it makes you fear competitors are doing it. Knowing it doesn't help growth, but you never dare to stop.**

**Heavy Management, Large Cycle**
Corresponding model: distribution model, assessing distribution rate. **Distribution rate assessment is a mandatory KPI for deep distribution.** Distribution rate is proportional to sales, which was almost unquestioned. I once saw a company inspect distribution rate in a county, found several stores not covered, and fined over 100,000 yuan on the spot, with the distributor having to pay the fine with a smile. The distribution model tests management capability. With millions of terminals nationwide, covering the whole country requires a six-level internal and external management system, a great test of management capability. Because of this, companies that survived in the deep distribution system are those with outstanding management capabilities. Many well-known brands, including multinational brands, were eliminated in this round. **High distribution rate brings a nationwide large cycle, a virtuous cycle between brand and channel, and between B-end and b-end.** I was one of the earliest promoters of deep distribution and also one of the earliest to question distribution rate, starting around 2014. Because I found that **for well-known old products, distribution rate is indeed proportional to sales. However, when companies launch new products, the higher the distribution rate, the bigger the problem.** I discovered a **three-three-four rule**. **30% of stores have the ability to promote new products, another 30% can follow after other stores succeed, and the last 40% can only follow with price cuts.** If new products are distributed to the last 40% of stores, they lack the ability to promote, so they will cut prices to sell. For new products, cutting prices without successful promotion is a big taboo. Therefore, I proposed promoting new product distribution in a three-three-four rhythm, first making a list, then assessing the "accurate distribution rate." Accurate distribution rate is precise distribution; distribution rate is flooding. In the past, it was thought that distribution rate equals visibility rate, and having products everywhere was the best advertising. Now, it is thought that distribution rate equals mortality rate, and products covered in dust everywhere are the best negative publicity. Currently, regardless of whether stores can sell, they dare to accept distribution, with no psychological burden. If they can't sell, the store is not responsible. Moreover, the better the relationship and the easier the distribution, the bigger the problem.

**Heavy Assets, Positive Cycle**
Heavy assets mean heavy asset investment, not only more personnel but also larger policy investment; positive cycle means positive value for channel construction. Corresponding model: resource model. Purchasing terminal resources. **From building relationships to grabbing shelf space, it developed into buying shelf space. Thus, deep distribution entered the heavy-asset terminal squeeze stage.** Initially, purchasing terminal resources was about setting up displays, for example, a pile of empty boxes at the storefront for a monthly fee. This was the advertising communication stage of buying terminal resources. Later, it developed into the stage of monopolizing high-quality terminal resources. In supermarkets, it was buying displays and end caps. In slightly better street-side stores, they were also buying high-quality end caps, even exclusive agreements. The liquor and beer industries even saw buyouts of stores. The "plate-in-plate" model in liquor is an example, eventually leading to the "trunk" project—bringing your own liquor. All thanks to purchasing terminal resources. The recent sales decline of beer giants is also related to the decline in sales from buying out catering terminals. **The result of purchasing high-quality terminal resources is that terminal resources become increasingly expensive, and some stores even rely on selling terminal resources as a major income source.** In the growth stage, manufacturers could afford it regardless of cost. After all, only large enterprises could afford the increasingly expensive resource fees. In the shrinking era, manufacturers can no longer bear the hefty costs.

**Monopoly Model, Death Spiral**
Corresponding model: stock-pushing model, using brand power and policies to forcefully push stock, causing channels to over-order. What is a monopoly? It doesn't matter whether terminals can sell; it only cares about pushing stock. The monopoly model is definitely for industry giants; if you don't order, there are threats. What is a death spiral? It is that the more stock pushed, the bigger the channel problems, eventually killing the channel. In the first half of 2024, many FMCG industries entered a death spiral. Since the beginning of deep distribution, there has been the ghost of stock-pushing. However, early stock-pushing was just ordering a bit more at a time to occupy warehouse space and capital. It wasn't over-ordering, or during certain KPI assessment periods, to meet certain assessment indicators, there was a short-term need to "create performance" for salespeople, such as December orders. **The emergence of over-ordering has two reasons:**
> One is more aggressive ordering policies; there is no stock that cannot be pushed, only policies that cannot push stock; the other is that there is truly no room for growth, but the brand power is strong enough that distributors are forced to accept.
**Stock-pushing cannot increase sales; it only changes the rhythm of ordering.** The consequence of over-stocking is a surge in near-expiry products and cross-regional selling. In fact, everyone in the sales department knows this, but no one dares to make a decision. If it weren't for the potential channel collapse in Q3 2024 due to over-stocking, over-stocking would have continued.

**Deep Distribution: From Useful to Harmful**
Deep distribution, as a manufacturer-led distribution model, is very effective from a distribution perspective. **Its greatest value is successfully squeezing out competitors without deep distribution capabilities from the channel, increasing industry concentration. This is the positive cycle mentioned earlier. A positive cycle is useful.** Even after FMCG entered a shrinking phase in 2013, deep distribution remained useful and effective. Because after 2013, although the industry was shrinking, giants were growing. Where did the giants' growth come from? It came from the squeezing effect of the heavy deep distribution model. After the pandemic, deep distribution entered a monopoly model, with several giants monopolizing channels and desperately pushing stock. At this stage, being able to push stock down indicates that deep distribution is still effective. However, it is harmful to channel construction. Because in a shrinking era, channel sales are limited; pushing more stock only leads to near-expiry. Distributors and terminals, to solve excess inventory, can only sell at low prices, causing channel price inversion and collapse. At this point, the more efficient deep distribution is, the greater the harm. The danger of the monopoly model can be illustrated by the "plate-in-plate" model in liquor and the "store-buying" model in beer. The "plate-in-plate" model in liquor left consumers with no choice, forcing the emergence of the liquor trunk project—bringing your own liquor. The "store-buying" model in beer forced the emergence of the "platform delivery" model. **Monopoly is the Last Struggle**
Recently, I have made a judgment that in Q3 2024, deep distribution entered its darkest moment. The 20-year history of deep distribution can be divided into two stages. **Stage 1: Before 2013.** This was the growth stage of the FMCG industry. Everyone was growing; the difference was the speed of growth. Deep distribution tested management issues. For example, terminal relationships and distribution rate are management issues. Why management issues? Because deep distribution flattens channels, but the consequence is an increase in internal management layers within the sales department. I have a conclusion: for nationwide deep distribution, the external layers of deep distribution plus internal management layers equal 6. In the growth stage, deep distribution eliminated companies with poor management. **Stage 2: 2014 to 2024.** This is the shrinking stage of the FMCG industry. Although the industry is shrinking, giants are growing. This is a strange phenomenon. The reason is: during the industry's shrinking phase, giants increased their investment in terminal resources and ordering policies, making smaller companies retreat. The exit of the waist and long tail brought growth to giants. Now deep distribution has entered the monopoly stage, characterized by:
> 1. Continuous industry shrinkage; 2. The industry has been "cleared out" (those that should die are dead); 3. There is a "terrible balance" among giants—no one can eliminate the other, and policy escalation only leads to "mutual loss."
Now let's summarize the historical value of deep distribution. Deep distribution to the terminal, based on the high fragmentation of China's retail and the high regionalization and weakness of channel merchants, is a typical brand manufacturer's **"interventionist" channel model** (a term by Mr. Shi Wei, one of the proposers of the deep distribution concept), which I call the **channel squeeze model.** In the past, sales were like water in a sponge; as long as you squeezed hard, there would always be some. Now there is truly none. It's not that deep distribution is no longer viable; it's that the industry truly has no growth. The monopoly model is like squeezing a sponge with no water left.

**From Distribution Bb Closed Loop to Sell-Through bC Closed Loop**
In the growth era, distribution efficiency was key to the channel. Strengthening deep distribution was undisputed. In the shrinking era, the higher the distribution efficiency, the greater the harm to the channel. Sell-through is the key. So, what after deep distribution? The endpoint of distribution is the b-end, and the key to sell-through is the C-end. Deep distribution reached the b-end, just one step away from the C-end. The logic of channel evolution is always to get closer to the C-end, but never to reach all C-ends. Deep distribution has reached the b-end; what is the next direction? Of course, reaching the C-end. Reaching the C-end means user operations. Of course, not all C-ends, because C-ends are massive. Why operate users? Because **only user operations can create growth. There is no existing growth; without creating growth, where does a company's growth come from?** **Creating growth first requires discovering new needs or creating new needs.** So, what marketing method can achieve this? **The answer is: scenario marketing.** My research with Mr. Kong Shou shows that the four major values of scenario marketing are: scenario creates needs (creating new needs), consumption commands (scenario awakens consumption), brand binding (binding brand to specific scenarios), and communication explosion (UGC online explosion). So, which department will undertake scenario-based user operations? The original salespeople who did deep distribution, or new user operation personnel? Deep distribution's four pillars can no longer stand, so new pillars are needed. Behind the pillars are organizational functions. Deep distribution, distributors, and salespeople have formed an ecosystem. Changing any one party will be constrained by the others. New organizations, new positions, new functions, new models, new actions. All to create growth.

**Model Vacuum Period**
Deep distribution has ended, and new models have not yet been widely recognized. This period is a model vacuum. The vacuum period is difficult; doing the old model is ineffective; doing a new model—what is the new model? The vacuum period is a period of exploration for new models. Are there clues for new models? Of course. Based on my 33 years in marketing, there are two clues: **one is the channel evolution clue; the other is the best practice clue.**
**The model evolution clue is to observe the laws of channel historical evolution.** Channel models have gone from sitting wholesalers (big B) to traveling distributors (big B), to deep distribution to b-end. So, what is next? It is not online DTC (for FMCG, online DTC is less than 10%), nor is it offline DTC, but bC integrated user operations. That is, operating C-end around b-end, with one foot in b-end and one foot in C-end. I have been promoting bC integration for many years, waiting for this day to come. **The second is best practices.** Luo Pang said in his New Year's speech: "Once specific, it becomes profound; if there are problems, go out." I agree with this. When confused, executives must go to the market to discover "best practices." And from best practices, find universal and trend-setting methods, and summarize them into new models. Generally, for grassroots personnel, best practices are more persuasive. This approach was summarized by Trout and Ries in "Marketing Warfare" in two sentences: First: The consistency of successful tactics is strategy. Second: Managers at the vice president level and above must go to the front line to discover best practices.

**Final Thoughts**
In the future, there will be less and less talk about deep distribution; the focus is no longer on deep distribution. **25 years ago, there was no concept of deep distribution; as long as you did deep distribution, it was extremely powerful.** Now, purely from a distribution efficiency perspective, deep distribution is still an effective method. In the past two years, there has been so much terminal inventory and so many near-expiry products; that is the pit dug by deep distribution. If sell-through is poor, what use is high distribution efficiency? The core issue now is sell-through; once sell-through is solved, third-party distribution will be more efficient and lower cost.

**【New Order · Symbiosis】**
******The 10th China FMCG Innovation Conference**
**Time: March 17-19, 2025**
**Location: Chengdu, China**


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