---
title: "Deep Distribution No Longer Works in the Era of Shrinking Volume"
description: "Deep distribution has become muscle memory for a generation of Chinese FMCG marketers, but as the market shifts from growth to contraction, this once-essential tactic is now counterproductive. The article argues that companies must pivot to scenario-based marketing to tap into niche markets and create new demand."
author: "公方刚"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-12-26"
language: "en"
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---

# Deep Distribution No Longer Works in the Era of Shrinking Volume

> Deep distribution has become muscle memory for a generation of Chinese FMCG marketers, but as the market shifts from growth to contraction, this once-essential tactic is now counterproductive. The article argues that companies must pivot to scenario-based marketing to tap into niche markets and create new demand.

Deep distribution has become muscle memory. In the history of Chinese marketing, no concept has had a greater or more profound influence on marketers than deep distribution. Many frontline marketers have been educated in deep distribution since they entered the industry, and now it is their only skill.

For over 20 years, it has influenced an entire generation! **Deep distribution has even become a gene engraved in the bones of this generation of marketers, turning into muscle memory.** The problem lies precisely in this deep-rootedness. Since 2013, China's consumer goods industry has been in decline; sales revenue may grow, but overall volume and per capita consumption have fallen, signaling a shift from an era of incremental growth to one of shrinking volume. China's marketing growth era lasted about 30 years, characterized by **demand driven by quantity, with companies competing for market share and gradually establishing their industry rankings.**

**Deep distribution: an essential skill in the growth era**

During this period, companies were like plants in Africa's rainy season, spreading branches and leaves in a favorable environment to quickly occupy more territory and positions. Whoever grabbed more and faster gained higher status and more competitive leverage. In the early stages, the market was covered roughly through wholesale models, handing goods to wholesale distributors with simple terms, leaving the rest to the distributors.

Over time, as production capacity increased and market targets became more ambitious, manufacturers needed more capable distributors to shoulder sales tasks, leading to channel flattening and sinking, commonly known as "cutting the big players." The basic logic was to cut the army commander (provincial distributor) and promote the division commander (city distributor). A couple of years later, cut the division commander and promote a batch of regiment commanders (county distributors)... **As manufacturers' management reach extended, deep distribution led to multiple brand representatives—sometimes a dozen or more—entering a single terminal at the same time.** Fortunately, in the growth era, the pie was expanding, and market capacity was increasing, so squeezing into the market's stomach still left room, reducing the chance of indigestion. Terminal store owners, once they stocked goods, would find ways to help manufacturers sell them, because the weather was good (consumer demand existed), the land was good (channels and terminals cooperated), and people were diligent (salespeople were obedient and easy to hire). Deep distribution became the essential skill for giants to ascend or solidify their industry positions, training generation after generation of sales staff with channel and terminal stocking and promotion tactics ingrained in their bones.

**In the shrinking era, deep distribution no longer works**

After 30 years of rapid growth, demand no longer infinitely accepts stocking and expansion. The market finally began to decline about ten years ago. Initially, most thought it was a temporary phenomenon and that growth would resume. But as declines continued, companies began seeking growth paths within shrinking volume: profit improvement! They raised prices, adjusted product structures, optimized costs, and took other actions to achieve profit growth, alleviating the pain of shrinkage and securing their positions. However, few deeply considered the essence of shrinkage: **consumer demand has changed! Consumers no longer seek to eat and drink their fill, but to eat and drink well! They no longer chase material goods and face, but value spirit and value for money! They no longer pay premiums for brand names, but only buy products they like...**

Simultaneously, the land (channel distributors) has changed! Distributors are no longer submissive; they push hard when stocked, but after prolonged pressure, they rebel: "If it's too much, I'll quit; I won't serve anymore!" Some even rise up, forcing manufacturers to comply, or even take their channels to new manufacturers to produce white-label products for extra profit! **Manufacturers relying on deep distribution to force stocking and sales are suffering from aftereffects: price collapses, expired or near-expiry products, and distributor non-cooperation!** But salespeople, to complete tasks and protect their income, deceive superiors and subordinates alike, continuing to coax distributors into swallowing the poison of deep distribution. Taking the medicine day after day, poisoning is only a matter of time!

The foundation of deep distribution is management. Giant companies typically have tens of thousands of salespeople across the country, inevitably forming a massive management system! Over time, the management spring begins to stiffen, and problems like loafing, going through the motions, fraud, false promises, and expense padding emerge, leaving manufacturers vulnerable! In the shrinking era, assessment pressure on sales systems remains high, but terminal sell-through decreases, making distributors the pressure valve. When pressure hits a critical point, it inevitably explodes!

Deep distribution, yet sales decline—what to do? Adopt even stronger deep distribution. The current involution in marketing is actually the involution of deep distribution. The result is inevitable: **the better deep distribution is executed, the greater the stocking volume, the more near-expiry products, the more severe market problems, and the stronger the market backlash.** Why? Because the only skill in FMCG channels now is deep distribution. **It's like being poisoned and then using a stronger poison as an antidote, leading to incurability.** The shrinking era is not deep distribution's fault, but using deep distribution to solve shrinkage is prescribing the wrong medicine.

**Scenario-based marketing is the antidote to shrinkage**

In the second half of this year, the FMCG industry begins rebuilding order! The past dividend of using sales revenue and profit to offset volume decline is passing. Manufacturers must face real non-growth, where no effort yields results, promotions fail, and even in their strongest base markets, the decline becomes increasingly unstoppable. Facing this decline, manufacturers must clearly recognize: **Shrinkage is a collective contraction of mass demand and a collective ebb of mass products! Opportunities for growth in niche markets are visible!**

How to capture niche markets?

**1. Manufacturers should establish a scenario research department focused on consumer research and insights!** Where are consumers? The answer lies in scenarios! Manufacturers must build scenario connections with consumers, whether individuals or groups, using internet tools or channel organizations to link into consumer scenarios. Study consumer changes and trends deeply from a consumption scenario perspective. In 1984, Japanese author Kazuo Fujioka first proposed the concept of "**niche**" in his book "Goodbye to the Masses," arguing that the old "mass" classifications by gender, age, education, income, etc., no longer apply, and Japan had entered a "sensibility market" niche era. After wealth accumulation reaches a certain level, people begin seeking a sense of existence and personal style—**what everyone buys, I don't; what's trendy, I dislike.** The mass market satisfies basic needs, while niche markets satisfy emotional or psychological needs. The growth of mass products, based on basic needs, has hit a ceiling; only niche products that meet individual needs can break through!

**2. Rebuild the marketing system starting from scenarios!** No longer drive the sales team with distribution rate management and sales volume assessment, but accurately identify consumer sub-circles—the energy scenarios—and organize scenario departments to enter these consumer energy scenarios! China's beer industry began popularizing deep distribution in 2003 and started declining in 2013. In the last two years,金星啤酒 (Jinxing Beer) began transforming into craft beer, jumping out of the traditional beer competition quagmire. They established an organizational system oriented toward consumption scenario research and launched Jinxing Chinese-style craft beer—tea beer—popular with young people. Starting from interest-based e-commerce, they completed a nationwide niche layout in two months, fully replacing existing stock with incremental growth! For example, China's most expensive bottled liquor, 李渡 (Lidu), proposed five years ago that deep distribution for high-end liquor is a dead end. They have three "don'ts": no group buying, no banquets, no restaurant channels! They use their factory and 知味轩 (Zhiweixuan) to create immersive experience systems. 名仁苏打水 (Mingren Soda Water) no longer focuses on distribution rate assessment; they established a scenario department, using "drink Mingren before and after alcohol" as the scenario entry point, building a promotion-focused marketing team, leveraging small circles of liquor tasting as a lever, and using the communication leverage of these small circles for scenario penetration!

Deep distribution has become poison in the shrinking era because it doesn't solve the C-end incremental problem; it only divides the existing pie at the B-end. The pie is shrinking, but the force of division is growing. The result is counterproductive. Scenario marketing shifts focus to C-end users. Where are users? **Users are in scenarios; users in scenarios are the real, visible users.** Creating increments within scenarios is called **scenario-based demand creation**. In the shrinking era, what companies need is precisely to create new increments.

**【New Order · Symbiosis】**

**The 10th China FMCG Innovation Conference**

**Date: March 17-19, 2025**

**Location: Chengdu, China**


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