Distributor cooperation can take loose alliances or advanced integration forms. If alliances based on shared interests are like finding a lover, integration is more stable, akin to finding a wife. Chinese distributors face two enemies: the rapid expansion of domestic modern commerce and the entry of multinational retail. Traditional business thinking and models cannot counter the attack of collectivized, centralized operations. Distributors' operational efficiency has three characteristics (data primarily from FMCG, especially alcoholic beverages; due to international statistical differences, figures may vary but do not affect conclusions):
Slow circulation speed. Chinese state-owned commercial enterprises have an annual working capital turnover of about 2.3 times; private/individual distributors are faster, but in the Yangtze River Delta, distributors only achieve about 4 times annually, while Japanese wholesale/retail enterprises achieve 15-18 times, and multinational chains can reach 20-30 times.
High inventory rates. This manifests in two aspects: product turnover times and inventory as a percentage of total sales. Currently, distributors in developed regions of China have an average annual product turnover of 15-18 times, while inventory accounts for over 17% of sales. Modern supermarkets in China have an inventory ratio of about 4.22%, and the average for the US, Japan, and Germany is between 1.14% and 1.29%.
High logistics costs. According to World Bank estimates, China's logistics costs account for 16.7% of GDP, Japan 9.6%, and the US reached 10.1% in 2000.
Research on distributors in different regions shows that net profits are generally low; a 20 million yuan alcoholic beverage turnover might yield only a few hundred thousand in profit. Neither strength nor capability is sufficient to counter modern business formats. Distributors with modern management concepts develop faster and have higher operational quality. A good example is in Nanjing, Jiangsu: a distributor grew to 62 million yuan in 8 years. He was previously a regional manager for a multinational biscuit company and is one of the few distributors we've seen who compiles his own training materials.
At this stage, distributors still have room to develop and many choices. What limits them from growing bigger and stronger is their own mindset and awareness. "Business is easy, but finding partners is hard" is the root cause of wasted and duplicated distributor resources. Only through integration can distributors find a way out; only through integration or alliance can they leverage collective strength to achieve economies of scale and improve competitiveness.
Distributor integration not only yields high returns in product trading but also offers significant opportunities at the capital operation level. Whether entering the industry to integrate upstream manufacturers or jointly creating their own brands, like manufacturers, they can generate sales premiums and brand revenue through branding. Even the value of channel brands formed through strength in early alliance stages is a commercial force not to be underestimated.
Therefore, distributors must first learn to cooperate and ally, and second, be willing to be integrated.
- Whether allying or integrating, mindset is paramount.
Distributors fighting alone only leads to mutual destruction and being picked off by manufacturers. In cities where modern business formats develop rapidly, traditional distributors' living space is quickly eroded. Fast-growing stores are like the "cage policy" during the Anti-Japanese War: first intercepting the flow of goods from distributors, then using the massive customer traffic and mature modern management models to capture all consumers in the area. This forces distributors to compete on strength and endurance, eventually leading to decline due to cash flow depletion or increased accounts receivable risk.
Currently, controlling hotels is based on prohibiting bringing your own alcohol. If bringing your own alcohol becomes mainstream, how can distributors bypass the exclusion of modern supermarkets? The danger is that this trend is gradually gaining popularity; once it starts in a city, the media amplifies it, spreading like wildfire.
Field visits reveal that the shift from flying distributors to terminal controllers is the main survival path for many small and medium distributors. However, from consumer habits, these distributors' survival is actually precarious.
In times of crisis, the only option is to form a united front as soon as possible. Therefore, the old idea that "peers are enemies" must be abandoned. Everyone should make money together; unity is strength; peers are partners, not rivals. Only through cooperation can there be win-win outcomes; only when others make money can you make money. When others stop making money, it means the industry has no space left.
A cooperative mindset also requires a sense of division of labor. Previously, you were the king of your mountain, used to giving orders; now you must gradually adapt to collective decision-making in business.
Finally, and most critically, you must withstand tests and stay committed to the path of alliance despite greater temptations. Without long-term vision, nothing yields returns.
- Three ways for distributors to grow: manufacturer-distributor alliance, independent development, and distributor-distributor alliance.
There are many specific business models for distributor growth, but in terms of development direction, there are mainly three: upward alliance with manufacturers (the "sugar daddy" model), independent development through self-improvement, and horizontal alliance with peers for mutual profit.
In reality, many distributors are good at "attaching to a rich man," but choosing the right one is crucial. The "rich man" only needs to have some substance, not necessarily be big. A distributor once met the boss of an unknown baijiu company by chance, tasted their liquor, and found it good. Further investigation revealed the company had solid market operations. So he signed a long-term contract. Now, this distributor earns nearly 10 million yuan annually from this brand, even though the manufacturer is not famous and hasn't expanded capacity. This is the most profitable and cash-flow-positive distributor we've seen.
Independent development has limited space, and for most distributors, the time for independent growth may have passed. The fast-growing distributor mentioned earlier not only had market strategy awareness but also had capital from his father's previous business. Without capital backing, in such a competitive era, rapid development is impossible; the era of building from scratch is over.
Horizontal alliance is a way for small and medium distributors to strengthen themselves and effectively reduce excessive market competition. However, the challenge is that distributors themselves find it hard to manage the aggregation and daily business forms. Distributors may not need external brains for sales and internal management, but alliance requires external brains.
Horizontal alliance may first involve integrating product agency, unifying previously scattered procurement channels, fixing them with unified contracts, and combining products with sales models to ultimately ensure distributor profitability. Profit is the fundamental guarantee for cooperation.
In product alliance, product appeal must be clear; the newer the product, the easier to operate. Also, conduct preliminary research on markets and partners, find clients with similar concepts, analyze their operations, understand their product structure, status, and needs. The view toward alliance members should be dual: service and management.
As distributor alliances grow stronger and regional network value increases or even commands a premium, this is more accurately described as being forced into alliance. If business were good, distributors would never join alliances. It is the pressure of survival that eventually brings them together to patiently discuss future development paths.
However, for those with ambition to lead the industry, distributor integration requires more than enthusiasm; it requires leverage—capital, comprehensive business development capabilities, and finally, the patience for endless meetings and negotiations. Integration cannot be completed in a day; it requires repeated adjustment like Tai Chi.
First, regardless of the development model, it must transition from an "interest community" to a "community of shared destiny," as dictated by Chinese business culture.
Chinese business culture is relatively secretive, often relying solely on the boss's business acumen. In this context, every business process has elements of secrecy; business is everywhere. This differs from Western business philosophy and is a result of Chinese business culture.
Distributors, on one hand, wrap themselves tightly, and on the other, are infinitely curious about others' businesses. Beneath this lies unique financial and operational secrets, as well as the philosophy of "better to be a chicken head than a cow's tail." Distributors care about hierarchy. From these aspects, distributors do not want their businesses to be too scrutinized, let alone willingly open up to new collective life.
Thus, alliance becomes a relatively moderate and acceptable approach. By starting with factual business relationships through capital or products, gradually expanding the shared business portion, their concerns can be alleviated.
Distributor integration should be early rather than late, and steady rather than hasty.
Second, whether capital or networks, they can only be "aggregated," not "merged"—distributors have too few fixed operational assets.
In the vast space between enterprises and terminals, the entire distribution link is highly fluid. Even stores bought with cash cannot be reflected on the asset sheet, and warehouses or business premises are often rented. Inventory may be a few million at most and is also in flux. The truly valuable network lies in the boss's personal connections, which cannot be protected against asset risks.
According to Yingang Company's distributor service experience, a distributor typically operates more than one company, at least two, with hidden transactions between them that even the boss cannot fully explain, making it impossible to separate and sort out.
Today, if the boss says cooperation is unsatisfactory, he can switch to another company or open a new one, and his network remains in his hands.
Therefore, cooperation or alliance between distributors cannot be as solid as in manufacturing; instead, it requires analyzing business relationships, understanding profit sources, and identifying resources or operational elements that are critical to all distributors and have control value. Gradually attract aggregation from the perspective of profit increase, rather than forced merger. Currently, product input or procurement seems a good choice.
Merger is a cooperative method, but relatively risky.
Third, alliance requires comprehensive adjustment—cognition, capabilities, business models, management, etc.—and it is difficult to achieve integration in one step.
Distributor cooperation will inevitably encounter significant problems and resistance. Besides interest guidance, the difficulty of adjusting concepts and specific operational methods must be fully considered. This process may involve introducing professionals to reflect trends from a professional perspective and guide mindset shifts. Therefore, service is crucial.
Service reflects a consultant role for their business, while operational knowledge guides their business awareness. Its level is higher than ordinary seminars or training sessions; it is a continuous, in-depth business development coaching model. This model not only changes customary market management institutions and functions but also requires systematic design of specific communication content. These partners should be treated like group companies treat marketing directors or division directors, focusing on guidance and service, with a wide range of communication topics. Currently, clients coached by Yingang have generally improved their ability to manage partner business relationships. This business model's management mainly lies in stating and grasping operational results, using facts to guide outcomes.
The key to distributor integration also lies in whether the initial integration forms and content can convince the masses.
Why hasn't the alcoholic beverage industry produced a giant like Haier? Will super channel operators like Gome appear in the future? Regardless of the process, one thing is certain: this will happen; it's only a matter of time. This is both an opportunity and a challenge. The question for distributors is how to grasp and respond.
The prerequisite for distributors to become stronger and bigger is to shift from a "lover" mindset to a "wife" mindset, enabling them to counter the squeeze from both ends and achieve free, self-determined operations.
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