Introduction: The development direction for distributors is, bluntly put, to outcompete local rivals and become the regional leader.
Author | Yuan Lai Review | Gou Gou Layout | He Wen
Hello friends. As you read this, I am Yuan Lai. Recently, due to my involvement with the "Distributor Member Club," I have had many exchanges with distributor owners. Three stories touched me deeply, and I want to share them with you, hoping they bring some inspiration and reflection.
First Story
In a conversation with a condiment distributor, he said, "In the past two months, a distributor in a prefecture-level city, mainly dealing in condiments for supermarket channels, had been in business for over a decade, with annual sales of over 50 million yuan, covering more than 1,000 retail points locally. As he got older and his children were unwilling to take over, he had to sell the business for 1.5 million yuan." I sighed, "Distributors' businesses are really not worth much!" The distributor added, "We all think the buyer got a bad deal." How can a business covering 1,000 outlets and holding agencies for several well-known brands be worth less than 1.5 million? Today, we discuss what the business is worth, but the core point is: distributors' businesses are indeed not worth much. To make a business valuable, you either create a company with brand premium or have core technology with barriers. In fact, as a distributor, the core function is product delivery, which has nothing to do with technology or branding, so naturally, it doesn't command a high price.
Since it's not worth much, what should distributors pursue? Making money, making money consistently, and making more money consistently. As a supply chain operator, covering more stores, getting more stores to consistently stock up, and getting them to stock up more is the true foundation. Becoming a local top-three platform-type trading company, with a vast array of quality brands on one hand and extensive store coverage on the other, is the key to long-term survival.
Second Story
A leading flour brand started cutting distributors from 2022 to adopt a direct sales model. Based on past regional sales data, they carved out good regions. Whether the direct sales model is correct from the manufacturer's perspective is debatable, but it cast a huge shadow over distributors in surrounding areas, creating insecurity. They dared not invest in the market or promote new products. A distributor told me, "Distributors' paths are truly narrowing! Distributors in provincial capitals can consider e-commerce, but those in county towns suffer the most." After chatting, he asked me, "What do you think the future direction for distributors is?" After a moment of thought, I replied, "Distributors will become fewer, but their scale will grow. Actually, the development direction for distributors isn't complicated; supply chain business is about scale. In the past, manufacturers led distributor development; in the future, it will be based on competition among local distributors, forming a distribution landscape." I concluded, "The development direction for distributors, bluntly put, is to outcompete local rivals and become the regional leader." The distributor smiled without saying a word. This is the real thought; I don't want to comfort distributors or paint a rosy picture from an optimistic observer's perspective. The fact is, big fish eat small fish. In the past, distributors did business with a "live and let live" attitude, each doing their own thing harmoniously, even sharing drinks and boasting together. In the future, the distributor business will be: "I'm good, you're not; outcompete peers through direct competition and grabbing." Because the market pie is fixed, whoever gets a larger share will have a better life.
Third Story
Recently, I held the first internal sharing session for distributor owners in the "Distributor Member Club," discussing that the ultimate destination for distributors is to build a local supply chain platform. Afterward, a distributor called me to discuss how to build a local supply chain platform. After the exchange, the distributor owner asked me, "I agree with the direction of building a supply chain platform, but one thing I don't understand: Alibaba Retail Link, JD's Zhang Gui Bao, and Yi Jiu Pi all failed on this path. Why can we distributors succeed? We don't have as much capital or talent as them. I can't figure out what makes us capable. Is it just because we've been doing business locally for a long time?"
A very good question. I replied, "The essence of supply chain business is cost and efficiency. Deliver goods to stores at lower cost and higher efficiency."
First, cost. Let me give a simple example: think about it—is the warehouse rent for a distributor lower than that for JD or Alibaba locally? Probably ours. Because we know the local area well, we can use connections and unconventional means to rent a cheap place. These giants rent warehouses at market rates, finding seemingly cost-effective locations, but their costs are definitely higher than ours.
Second, efficiency. From a personnel perspective, giants employ professional managers locally, with annual salaries of at least 300,000 to 400,000 yuan, while our sales managers' income levels are different. This doesn't even include hidden costs like social insurance and housing funds. Additionally, the internal organizational processes and systems of giants are quite complex. When the market changes and a certain A-class product needs a price adjustment to respond to competition, the professional manager initiates approval, which goes through multiple layers; by the time it's approved, the market opportunity is gone. But for us distributors, there are at most three layers, and the boss can even make a decision based on experience. Local distributor personnel are far more efficient than giant platforms. With a short management radius, there are fewer uncontrollable risks (like corruption).
Finally, the only area where we might lag is in model operations. Giants pursue specialization in model operations, but in fact, supply chain business doesn't require overly complex or specialized (relative to e-commerce platforms) model operations. Three or four purchasing specialists managing three to five categories, and a dozen or so salespeople managing two to three thousand outlets, is sufficient. The business model is relatively clear: meet the core needs of stores: relatively low prices, timely delivery (12-hour delivery), complete categories without stockouts, and after-sales service (returns and exchanges). Therefore, the operational expertise of giant platforms cannot be applied in supply chain business because store needs are deterministic, stable, and long-term, unlike consumer needs which are diverse and ever-changing.
Summary
After telling these three stories, let me show you a set of data. Taking the traditional mom-and-pop store channel in a third-tier city as an example, let's calculate the market capacity. With 2,000 stores, each averaging daily sales of 2,000 yuan, excluding 40% for tobacco and alcohol, the average daily sales per store is 1,200 yuan. With 80% coverage and 80% penetration, the market capacity for all FMCG categories in a single mom-and-pop store channel in a third- or fourth-tier city is 864 million yuan.
Seeing this data, many distributors might scoff: "The pie looks big, but do you know how many distributors are currently supplying this 864 million yuan business? Not thousands, but at least a few hundred." Indeed, that's the current situation. But on the other hand, more and more distributors are unable to continue, and their numbers are shrinking. Yet the 864 million yuan business still needs to be done. Who will do it? It will definitely be divided among a few distributors: you do 100 million, I do 200 million, he does 300 million. Ten distributors dividing an 864 million yuan pie. Ask yourself: will these ten distributors have better days?
From a purely commercial perspective, the distributor business is indeed not profitable. But if you become a top player with a scale of 200-300 million, continuously optimizing logistics and warehousing costs, personnel efficiency, and product structure adjustments, you can achieve sustained profitability.