---
title: "Deep Dive | The Great Test of the Times: Chinese Distributors Face Structural Elimination!"
description: "Over the past three decades, Chinese distributors have continuously progressed and evolved, facing many trials and tests. Looking back from 2016, if we view the coming five years from a five-year perspective, we will find that the entire Chinese distributor community and the channel industry are facing a 'great test of the times': change or die."
author: "史贤龙"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-11-29"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/deep-dive-the-great-test-of-the-times-chinese-distributors-face-structur-d7ba6e10/"
markdown: "https://xinjignxiao.com/en/articles/deep-dive-the-great-test-of-the-times-chinese-distributors-face-structur-d7ba6e10.md"
original_source: "https://mp.weixin.qq.com/s/gKrfmBc9NvZhKxLOYfvVOA"
translation: "https://xinjignxiao.com/zh/articles/%E6%B7%B1%E5%BA%A6-%E6%97%B6%E4%BB%A3%E5%A4%A7%E8%80%83-%E4%B8%AD%E5%9B%BD%E7%BB%8F%E9%94%80%E5%95%86%E6%AD%A3%E9%9D%A2%E4%B8%B4%E7%BB%93%E6%9E%84%E6%80%A7%E6%B7%98%E6%B1%B0-d7ba6e10.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/deep-dive-the-great-test-of-the-times-chinese-distributors-face-structur-d7ba6e10/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Deep Dive | The Great Test of the Times: Chinese Distributors Face Structural Elimination!

> Over the past three decades, Chinese distributors have continuously progressed and evolved, facing many trials and tests. Looking back from 2016, if we view the coming five years from a five-year perspective, we will find that the entire Chinese distributor community and the channel industry are facing a 'great test of the times': change or die.

> Over the past three decades, distributors have continuously progressed and evolved, facing many trials and tests. Looking back from 2016, if we view the coming five years from a five-year perspective, we will find that the entire Chinese distributor community and the channel industry are facing a 'great test of the times': change or die.

**The Past Thirty Years: The Golden Age of Distributors**

This golden age can be roughly divided into several stages. **The first stage was that of general agents and sub-distributors.** In this stage, obtaining the general agency rights was equivalent to obtaining a money tree. **The second stage was that of direct terminal operators.** Due to the segmentation of terminal types in the Chinese market and intensified competition among brands, the model of general agents to sub-distributors and second-tier distributors was no longer suitable for the operational requirements of the Chinese market, leading to the emergence of direct terminal operations by distributors. **The third stage is direct selling.** When distributors or manufacturers sell products to terminals, it is called direct operation, while selling directly to consumers is called direct selling. E-commerce is essentially a form of direct selling, and the popular community e-commerce is also a form of direct selling. The trend of distributors moving toward direct selling involves bypassing all B-end channels to sell directly to C-end consumers. Thus, the third stage is the trend of distributors entering direct selling.

The above stages also have several characteristics from the perspective of distributor operations: **The first stage moved from sitting merchants to traveling merchants.** General agents were sitting merchants, maintaining relationships with only a few sub-distributors and second-tier distributors; for a general distributor, a few dozen might suffice. **The second stage moved from traveling merchants to direct terminal operators.** This required not only proactive outreach but also direct control over key terminals. The purpose of this direct control was twofold: to reduce costs and to ensure the distributor's own safety. In terms of channel operation technology, deep distribution and deep cooperative marketing emerged. Deep cooperative marketing means manufacturers directly engage with wholesalers to provide in-depth assistance in direct terminal operations. **The third stage moved from large merchants to platform e-commerce and community e-commerce.**

Throughout these examinations, many distributors have already differentiated: before 2005, distributors who did not engage in terminal operations were largely eliminated; before 2012, distributors who only served hypermarkets became mere delivery distributors and began to struggle; from 2016 onward, barbarians at the gate have been seizing existing market share.

**After BAT completed its comprehensive control over the C-end, it moved upstream to supply chains, which the industry calls B-end e-commerce. Once the C-end is done, BAT and others will inevitably move to the B-end to control the market, achieve growth, or satisfy their desire for control. This is a natural and logical progression.**

What is different about the barbarians at the gate? Distributors that have grown from the soil over thirty years, including those that survived elimination, are the indigenous people of the market. BAT, including those who have entered B-end e-commerce from last year to this year, are mostly capital-driven. They did not grow naturally from the soil but were rapidly nurtured by capital. They come to pick peaches, not to plant trees, hence they are called barbarians at the gate. This is why distributors face a great test of the times unlike previous stages. If distributors fail to deeply understand the ins and outs, fail to grasp future trends, and fail to make timely adjustments, they will be eliminated.

**The Essence of the Great Test of the Times: Structural Elimination**

In past development, many distributors were eliminated due to not engaging in terminals, becoming mere delivery distributors, or failing to adopt new marketing models and corporate management. These were eliminations due to operational capability. The great test of the times today is that China's market channels are undergoing profound changes; this is a structural elimination. Structural elimination is entirely different from operational capability elimination. The elimination rate this time will exceed many distributors' expectations.

The essence of this great test for Chinese distributors involves impacts at three levels, which happen to overlap, making the impact relatively strong. The first is the differentiation and new trends of brand owners, meaning the Chinese market is facing a major trend of mainstream shifting and leadership change. The second is that the trends and traps of the retail landscape are also changing. The wave of hypermarket closures affects many brands, and distributors are the first to bear the brunt. The third is that the dual swords of B-end and C-end e-commerce are also deepening changes in the entire operating environment for distributors.

The life and death of any enterprise is normal, whether in a depression or an era of growth. This is normal survival of the fittest, called operational capability elimination, with an elimination rate generally fluctuating between 5% and 10%. Structural elimination is entirely different; it involves at least 30% or more. Recall the rise of traveling merchants: wasn't it an extinction-level elimination for traditional second-tier distributors, especially the nationwide wholesalers and wholesale markets that were popular in the 1990s?

In the face of structural elimination, if timely awareness and transformation are not made, elimination is inevitable. This is why it is said: change or die. This statement is harsh, but good medicine tastes bitter.

**The Melting Iceberg: The Cheese of Past Profits Is Disappearing**

The core issue for distributors is not growth but profitability. Distributors, as a value transmission link in the commercial system, do not have the future earnings of brands like brand owners do. Therefore, a distributor who does not focus on profitability is a foolish distributor. If profitability is not emphasized, sudden death is easy.

This requires distributors to deeply analyze the essential issue of profitability: what was the essence of doing business profitably over the past thirty years? The essence was three dividends. The first is the **brand owner dividend**, which means following manufacturers, especially large ones. This is undeniable: by holding onto the hands of big brands, distributors can quickly scale up, and correspondingly, profit margins increase. The past thirty years were essentially the spring of brand owners, meaning China was in a state of rapid category segmentation and scaling.

The second profit dividend is clearly the **demographic dividend**, similar to China's economic dividend. The demographic dividend brought the spring of categories and also the spring of brand owners. The third is the so-called **income growth dividend**. Chinese consumers have increasingly higher disposable income, making them willing to buy more products and pay higher prices. This is the dividend brought by China's economic growth, and past distributors also enjoyed these three dividends.

So, how did distributors enjoy these three dividends? That is, what were the sources of distributor profits? I call them three visible and three hidden.

The three visible refer to money that can be earned openly and in the sunlight. The first is the gross profit from product sales, i.e., the price difference between purchase and sale. The second is the incremental volume from representing big brands. The third is the manufacturer's market policy. In the past, distributors placed great importance on these three issues: first, whether it was a big brand; second, the product's gross margin space; and most critically, the manufacturer's market support policy. This is why distributors have a habitual mindset: as long as the manufacturer advertises and hires a celebrity spokesperson at a sky-high price, they will represent the brand. They believe this is a relatively low market risk approach.

Additionally, there are three hidden channels. The first is cross-regional dumping (parallel imports), the second is counterfeit goods, sometimes mixed with genuine ones. This is an objective phenomenon, not implying that all distributors earn money this way. The third is exploiting the manufacturer's inventory support, payment terms, and expense reimbursement loopholes.

Why is the iceberg melting? Due to changes in the market environment, advertising returns have declined, and the three visible channels are no longer as profitable. The three hidden sources are also affected: because manufacturers have too many products, there is not much left to dump. Due to improved management methods and the legal environment, making money by selling counterfeit goods is increasingly difficult and risky. The loopholes in inventory support, payment terms, and expense reimbursement have also shrunk to pitiful levels. Clearly, when the six core channels of past profit cheese are blocked one by one, distributors will feel that product sales growth is sluggish, gross margins are declining, and sales expenses are still rising. This shows that the cheese of past profits is disappearing.

**The Old Cheese Is Gone; Where Is the New Cheese?**

In the new era, distributors face both internal and external difficulties. **The external operational difficulties involve two core issues.** The first is the restructuring of the channel landscape by the entry of barbarians, which is crucial. The second is that the brand enterprises that once led distributors forward or helped them profit have themselves fallen into strategic difficulties.

From last year to this year, a series of very negative market news, such as the decline in Wahaha's sales, has hit distributors hard. The second is the wave of hypermarket closures. Just recently, Suning's New Yijia supermarket faced liquidation, a retail chain giant with annual sales of 17 billion yuan, and some are wondering if Renrenle will be the next to fall. Behind the collapse of these billion-yuan retail terminals are thousands or even tens of thousands of suppliers and distributors whose businesses will fall into great difficulty. This naturally leads distributors to feel greater insecurity about cooperating with and investing in hypermarkets. That is, distributors will shrink their sales to hypermarkets, which will inevitably exacerbate the contraction of traditional distributors' businesses. In summary, in the new era, the external environment is very unfavorable for distributors' future business growth.

Secondly, there is the **internal factor**, which is the **long-standing habitual dependence on manufacturers** that our distributors have developed over the past thirty years. In the past thirty years, distributors have played only three roles for manufacturers. First, distributors are the manufacturer's chamber pot: used when needed and discarded afterward. Second, distributors are the mistress of the regional manager or general manager: occasionally visited. Third, distributors are the booty call of the regional manager: they hang out often but never commit, and if you don't pay as required, you may be replaced or have your business taken over (converting sub-distributors into distributors).

Why have distributors become the chamber pot, mistress, or booty call of manufacturers, never truly becoming partners? There are environmental reasons, but essentially it is related to distributors' dependent mentality. Some distributors have begun to try to break out, including some large distributors with strong private brands, but the overall environment, especially for small and medium distributors, still faces the dilemma of these three roles, essentially due to insufficient thinking.

**For distributors, the old path is no longer viable. The challenge of the great test of the times is that even if you haven't done anything wrong, in the new era, there is no cheese reserved for your old methods. That is, if you continue your past actions unchanged, no matter how well you do them, the outcome and ending are likely very pessimistic.**

**Views on Several Popular Fallacies**

**1) The Fallacy of the Demise of Intermediaries**

This topic is not worth a lengthy rebuttal. First, to date, 85% of goods still complete value delivery through channels. This is a basic fact in many industries. So how can one say intermediaries are disappearing? This judgment is contrary to common sense. Second, even if only 50% of goods complete value delivery through channels in the future, for a market like China, that 50% share is still a huge market. That is, assuming that in five years only 50% of goods are completed through intermediaries, it can be clearly said that this 50% will be double the current 85% total. That is, the entire channel distribution market scale will double. If distributors can't make money and are eliminated, can they blame the market? So, the fallacy of the demise of intermediaries is a myth.

**2) The Fallacy of B-end E-commerce Transformation**

Regarding B-end e-commerce, I have always held the following basic views. B-end e-commerce is an optimization of existing stock efficiency; it does not have any incremental function, especially not for new product promotion. Many people believe that B-end e-commerce will be a great way to promote new products in the future, but they forget that if new product promotion is merely seen as distribution, then B-end e-commerce might be somewhat more efficient, but only possibly, including so-called supply chain solutions. However, today, creating a successful new product is not just about distribution. If you distribute the goods but they don't sell at the terminal, these goods are just pushed by the manufacturer. Doesn't that become the book company's sales model (consignment with return rights)? The book sales model is only suitable for books, not for other products. If you sell on consignment and allow returns, the manufacturer has only one path: die an ugly death. So using B-end e-commerce to promote new products is an idealistic idea.

Another important judgment about B-end e-commerce: although many manufacturers have not yet deeply cooperated with B-end e-commerce, and its current share is small, even after BAT entered, it hasn't created much momentum. But crucially, if B-end e-commerce can achieve an efficiency revolution, then large brand manufacturers will be the first to adopt B-end e-commerce channels. That is, if distributors represent big brands, especially well-known brands, the bigger the brand, the more dangerous the distributor. The reason is simple: if manufacturers can move volume through B-end e-commerce, the significance of distributors disappears. My prediction is that big brands will first adopt mature B-end e-commerce channels, meaning all distributors of big brands will be on the front lines. If they don't prepare in advance, once B-end e-commerce takes shape, the first to die will be these big-brand distributors.

**3) The Fallacy of Distributor Alliances**

There are many distributor alliances now, saying they are huddling together for warmth, or joining platforms, and if they can't build a platform, they become plugins. If they neither want to join a platform nor become a plugin, they huddle together to build their own platform. This is the basic approach of so-called distributor alliances, whether local or cross-regional. I believe that joining a platform, especially a B-end e-commerce platform, is basically suicide for distributors. The so-called huddling together for warmth alliances will only result in two outcomes: either the small participants manage to hollow out the leader (the large distributor who controls or holds major shares), or they become a wedding dress for the leader. But either way, it's a spring dream wasted.

> **What Should Distributors Actually Do?**

From the distributor's own perspective, there is an anxiety about the future, more severe now than in the past. But I think the most important thing is that our distributors lack the concept of sustainable operation. Deeply speaking, distributors only see their business as attached to manufacturers, without self-managed business. Distributors should first have a great awakening on this issue. Although distributors obtain profits through transactions with manufacturers and grow through interactions with them, distributors are not merely business entities attached to manufacturers. They must have their own business model and development strategy. This is the most lacking issue for Chinese distributors.

**The way out for distributors is to become intelligent, that is, to construct a new business system with self-resources and aspirations at the core.** When distributors become independent business entities, they will find that their profit structure is not just the price difference between purchase and sale, but a natural result of optimizing business strategy, operational tools, and personnel systems. That is, as long as you change your thinking and adjust your profit model, you can not only cooperate better with manufacturers but also gain space for independent development.

On this basis, start re-planning new profit sources, use the 'Nine Paths of Distributor Profitability' to reset your business system, re-plan your profit model, and truly gain independent development space.

Mobile Internet is an era
No one has seen this era
All views are predictions
Since 2014, we have been devoted to this unprecedented era
Fans, communities, self-media, micro-business, explosive products, B-end e-commerce
Three years of facts prove
Bonarecheng's insights have basically been validated
Three worlds enter the accelerated evolution of co-evolution
All challenges and problems of marketing in the mobile internet era
Here, end doubts, start the journey

**Source: Bonarecheng (ID: chief-wisdom)**

-END-

The best FMCG distributor learning platform in China
Dedicated to providing professional, practical, and actionable tutorials for enterprises and distributors
Committed to helping Chinese FMCG distributors grow rapidly

**The most professional and practical knowledge base in the FMCG industry**

Reply with the red number below to get the corresponding content
Reply with number 1 to view the complete knowledge base
| **001** Excellent Article Selection | **002** Distributor Market Operations | **003** Terminal Visit Management | **004** Sales Supervisor Skills | **005** Sales Volume Improvement Techniques | **006** Channel Expansion | **007** Managing Distributors | **008** Distributor Development | **009** Distributor Internal Operations Management | **010** Team Management | **011** Efficient Distribution Techniques | **012** Sales Manager's Eighteen Skills | **013** KA Operation Methods and Strategies | **014** First Lesson for New Salespeople | **015** Internet, Brands | **016** Distributor B2B Transformation |
[Long press QR code to follow]


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671