---
title: "Distributors: Alas, I'm Planning to Give Up on Top-Tier Brands!"
description: "During a market visit, a top local daily chemical distributor, Li Hua (pseudonym), revealed his intention to drop Unilever's agency despite 15 years of partnership, citing that the 10% gross margin can no longer cover rising operational costs. The article explores what distributors truly need at different stages and what value brand owners can offer to build lasting partnerships."
author: "Asher"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-03-01"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/vnPQuI5PyCPwNjRskjX0sg"
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# Distributors: Alas, I'm Planning to Give Up on Top-Tier Brands!

> During a market visit, a top local daily chemical distributor, Li Hua (pseudonym), revealed his intention to drop Unilever's agency despite 15 years of partnership, citing that the 10% gross margin can no longer cover rising operational costs. The article explores what distributors truly need at different stages and what value brand owners can offer to build lasting partnerships.

At the beginning of the month, I visited a market and had a discussion with Li Hua (pseudonym), a leading local daily chemical distributor, about the trading business. After a few drinks, the distributor suddenly blurted out, **"Alas! Although Unilever's business is big, I'm planning to give up the agency!"** Li Hua is the top distributor in the local daily chemical category, with annual sales of around 80 million yuan, of which top-tier brand business accounts for more than 25%. Having cooperated for over a decade, the distributor almost grew up with the top-tier brands in the regional market. I pressed on, **"You've been cooperating for over ten years, why don't you want to continue now?"** Li Hua (pseudonym) did the math: his company's operating costs are 8%, which does not include various fees paid to supermarkets, business commissions, promotional staff costs, etc. The 10% gross margin from top-tier brand business can no longer support daily operating expenses. "Many top-tier brands are facing this problem now. For channel partners who have cooperated for a long time, the profit structure hasn't changed much over the years, and it can no longer cover operating costs. Indeed, there's no way to continue." "In the past, the company's growth was indeed inseparable from brand cultivation, and there is certainly an emotional attachment. But distributors do business to make a living; we can't just rely on passion to persist." Li Hua (pseudonym) added with a slightly heavy tone. **How should brand owners establish long-term and solid cooperative relationships with distributors?** During the exchange, Li Hua (pseudonym) mentioned that, in his personal view, there are two issues that must be clarified in the cooperation between brand owners and distributors: **First, what do distributors really want? Second, what value can brand owners provide?** **What do distributors really want?** Some might think the answer is simple: distributors do business to make money, so what they want is nothing more than high product profits, more manufacturer fees, and larger investments. Essentially, that's not wrong; business is for profit. But profit is just the ultimate goal because the company's operations need funds to sustain. However, at different stages, the core demands of distributors differ. We can divide distributors into two stages: the growth stage and the mature stage. **First stage: In the growth stage, the distributor's business scale is at the middle-to-lower level in the region, with low store coverage and weak channel control. For example, in a prefecture-level market with annual sales below 20 million yuan, core store coverage is less than 50%.** In the growth stage, the distributor's core demand is business growth and establishing a channel foundation. Therefore, distributors need a guide to help them grow quickly. **At this time, the advantages of top-tier brands become prominent:** 1. Top-tier brands have brand awareness, helping distributors quickly establish sales channels and enrich network resources. 2. Top-tier brands have mature channel management systems, enabling quick guidance for distributors to operate the market and increase sales. 3. Top-tier brands are relatively stable, with fewer major market changes. At this stage, top-tier brands essentially act as guides. Through top-tier brands, distributors can quickly open up channels and expand market coverage. So even if top-tier brands have low profits or even lose money, distributors are willing to do it. **Second stage: In the mature stage, the distributor's business scale is already at the top in the region, even absolutely leading in the product category, with strong channel control. For example, in a prefecture-level market with annual sales over 50 million yuan, core store coverage exceeds 90%.** At this stage, distributors already have a mature distribution network, established a channel moat, and the business is in a stable state. They no longer need to rely on a single brand's strength but use a portfolio of brands for channel coverage. At this point, when scale and channels stabilize, the distributor's core demand shifts towards better profitability. For distributors, with stable channels and good market operation capabilities, brand awareness is no longer that important at this stage; the key is whether the brand can bring good profits and long-term value. At this time, the problems of many top-tier brands become prominent: **Top-tier brands plan profit margins very precisely, leaving little room for distributors to operate.** In many distributors' view, even if the profit is low, since it's a top-tier brand that can generate volume, the total profit is still acceptable. But the reality is often that distributors can't even get a reasonable profit margin. **On one hand, because the manufacturer's pricing system and policies are based on national market performance.** However, many local markets and retail formats vary greatly. The seemingly reasonable profit margins are completely insufficient in actual market operations, even resulting in losses. For example, distributor Li Hua cited that in the local retail format, supermarkets charge not only entry fees and barcode fees but also monthly promotional staff management fees, sanitation fees, barcode replacement fees, and promotion profit difference compensation fees. Some supermarkets even charge for first-level displays. **On the other hand, as a local commercial entity, the distributor's operating costs, warehousing costs, and personnel costs are continuously rising.** In the past, brand profit margins could cover these costs, but many brands' profit margins haven't changed, so they can't cover costs. **Therefore, for distributors, just because you are a top-tier brand doesn't mean I will necessarily allocate resources to you. The channel is in my hands; selling your products is just "icing on the cake," not "fuel in the snow."** As a brand owner, you need to put yourself in the distributor's shoes and understand what they need at different stages. Only by understanding the essential needs can you achieve long-term and stable cooperation. **What value can brand owners provide to distributors?** In recent years, although online channels seem to be flourishing with new models like O2O, community group buying, and live-streaming e-commerce constantly emerging, the exhaustion of traffic is also evident, customer acquisition costs are increasingly high, and overall online growth is slowing down. **Looking back, in the FMCG industry, offline remains the basic business for the vast majority of brand owners, and the core source of business is still distributors.** **Of course, the offline market has also been changing in recent years, with the trend towards larger distributors becoming more obvious.** In a region, market share in a single category is gradually moving towards the top players. Small distributors are either eliminated or become sub-distributors in the process of market changes. This also sends a signal: **the market led by manufacturers is shifting to one led by distributors.** **In the past, a top-tier brand could often make a distributor successful because stores and consumers had strong brand recognition. But now it's difficult; there are too many products to choose from in the market, and stores have many options, so the distributor's operational capabilities are invisibly amplified.** **Therefore, in this process, brand owners need to deeply think about what value they can provide to distributors.** Based on interviews and case experiences from past consulting and training, New Distribution summarizes three types of value that brand owners can provide to distributors in the current market environment, thereby building stronger channel partnerships. **First, incremental value.** The brand is in a stage of rapid market growth, with many blank opportunities and large growth space. For the distributor's business, it is entirely new increment, not cutting into their existing business. **Second, profit value.** Profit is the standard for distributors to judge whether a business is profitable: how big is the product profit margin, how much money can you make selling your goods, and can you sustain profitability. **Third, professional value.** In the past, brands talked about managing distributors, but now the perspective should shift to empowering distributors. From the perspective of the distributor's business, provide professional guidance to help distributors improve their operational management capabilities, thereby enhancing their business profitability. For brand owners, achieving any one of these three values can promote the development of the distributor's business and help them grow. **Summary:** The manufacturer-distributor relationship is like a fish-water relationship, where both sides achieve mutual success and win-win cooperation. Without the vast offline distributor community, it would be difficult for brand owners to achieve large-scale coverage and become strong in China's vast and complex market. High-quality distributors are a scarce resource. Developing and replacing a distributor costs brand owners a great deal, and may even lead to the market being quickly seized by competitors. For brands, if they want to attach importance to the offline market, they need to stand from the distributor's perspective, pay attention to their real needs, and evaluate the value they can provide, in order to truly establish a solid cooperative relationship with distributors.


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