"The FMCG business is getting harder and harder: sales are declining, near-expiry products are increasing, payment cycles are lengthening, and market prices are chaotic... The harder we work, the less money we make." This is the sentiment of most traditional distributors today. In today's FMCG industry, emerging channels are continuously diverting sales from traditional business, leaving traditional distributors with a shrinking market and increasingly brutal competition. For those still holding on to traditional business, they have long entered a shrinking market, and most feel their days are getting tougher. Although some encourage traditional distributors to expand into new business or transform, only a few can successfully achieve transformation. Most traditional distributors are destined to engage in fierce competition within the traditional business domain. In a shrinking market, there is no win-win; it's a process of survival of the fittest. Common Mistakes Distributors Make in a Shrinking Market
- Waiting, Relying, and Being Eliminated Last month, I visited a distributor whose sales were declining. "The economic environment is bad this year, and terminal sell-through is slower than last year," the distributor complained as soon as he saw me. I asked what measures he had taken. He said, "I hope the company can provide policy support and increase promotional efforts." Many distributors hold this mindset. They were used to smooth sailing and playing with the wind, but when faced with significant difficulties, they are at a loss, waiting for manufacturers to provide support and solutions. But in today's market, competition among manufacturers is also fierce, with heavy pressure on sales and profits, and expenses are being cut. Distributors still fantasize about getting policy favors from manufacturers, which is almost impossible. In such circumstances, if you cannot proactively find ways to cope with competition and expand business, you will eventually be eliminated by the market. Frankly, being eliminated only shows that you are not strong enough; there's nothing to regret. To survive the elimination game, distributors must ask themselves what unique advantages they truly have. You must either be good at selecting products, have low operating costs, strong channel capabilities, or strong promotional capabilities. You need to excel in at least one area; that is the foundation for survival. If a distributor has strong brand operation capabilities, they can do OEM and become a regional powerhouse without being constrained by manufacturers. If they have strong channel capabilities, they can succeed with any brand they take on. If they select products well, they can leverage product strength to establish a foothold in the local market.
- Blind Expansion, Falling into a Quagmire Many distributors still stick to their original territory, watching sales and profits visibly decline, filled with anxiety. As a result, some begin to actively expand into new business to earn more profit. Distributor expansion mainly takes the following forms:
- Channel expansion: Adding new channels not previously operated (rather than incremental new channels). For example, if they previously did traditional supermarkets, they add foodservice channel operations.
- Brand expansion: Adding agency brands within the same category (these brands are competitors to the original brand, vying for the same customer resources, exacerbating internal resource consumption without bringing additional increment).
- Category expansion: Operating across categories (but different categories have vastly different operating models, and in new categories, you face more mature competitors, making it hard to break through).
- Regional expansion: Taking over larger markets, such as moving from urban areas to townships (because some markets are hard to find new customers, these markets are assigned to nearby customers, but distributors need to prepare more resources to match the larger market). A major client I visited this year adds new categories every year and complained, "It's so hard. I've been in FMCG for over a decade, but this year is exceptionally difficult. Every day I communicate policies with various manufacturers, track expense reimbursements, and monitor each manufacturer's distribution targets. I'm dizzy with work, yet sales and profits are still declining." It's not that distributors aren't working hard; it's that there are too many things from manufacturers to handle, and they simply can't cope. Market work becomes a task, and declining sales or profits is normal. Essentially, expansion is not a bad thing; the key is that many distributors' capabilities are not yet sufficient to match more areas when they expand. In the traditional field, it's basically a shrinking market. "Expansion" requires investing substantial resources to win competition, and more energy to manage and coordinate internal and external affairs to grow in new areas. If you can't do well in the field you've been in for years, or haven't established a competitive advantage, why do you think you can succeed in another equally competitive field?
- Head-on Competition with Strong Rivals Often Leads to Bloody Defeat Today, the core of the market is building competitive advantage. Distributors do not operate in a vacuum; market operations cannot ignore competitors. A major client in the nightlife channel, with money and social connections, was doing very well in that business. A large manufacturer approached this client to operate the local foodservice channel. The manufacturer's goal was to leverage the client's resources to develop large foodservice outlets, achieving simultaneous improvement in product mix and sales. The client was confident: if he could handle nightlife owners, foodservice owners would be a piece of cake, and he had a team and capital. The result was disappointing. The main competitor was very strong in the local market. Without sufficient resource investment, large foodservice outlets couldn't be negotiated. Even when they managed to get in, the competitor's salespeople would hide the products where consumers couldn't see them. Due to product homogeneity, even with product exposure in some stores, local consumers insisted on drinking the competitor's products. After a year of struggle, the market showed no improvement. The client saw no hope and had to exit the foodservice channel. Strength does not equal competitiveness. Without considering the competitive landscape, all efforts are in vain. How Should Traditional Distributors Respond to a Shrinking Market?
- Find Competitors' Weak Points and Focus on Breaking Through Competitors may be strong, but they cannot be strong in every aspect. They may be weaker in a specific product segment or a particular channel. For a weaker brand to develop in the market, it must first find the competitor's weak points (which could be differentiated sub-products or channels where the competitor is relatively weak), then focus its attack to build its own moat in a specific sub-product or channel. Last month, I visited a beer client whose business had been growing for two consecutive years, with smooth monthly ordering. What intrigued me most was that the main competitor was very strong in that market, holding over 80% share. Previous clients had all failed within a year. When I arrived at the client's warehouse, I found that inventory was not large, at normal levels. During our conversation, I learned that the client had started distributing Brand A in 2023. The client admitted, "The main competitor is very strong in this market. Other brands also tried to take a share from the main competitor but all failed." Based on this, the client decided to avoid the main competitor's strong segments and chose a differentiated high-end product. This product had high recognition and significant differentiated selling points. Combined with consumer promotional activities, as expected, consumers were interested in this differentiated product, and results came quickly. Although the competitor launched strong counterattacks, the team's resilience led to a six-month tug-of-war, eventually gaining store support and establishing a foothold in the market. This product has grown year after year, and terminals are very supportive because the client is the only one operating this product in the market, ensuring stable prices and high terminal margins. In contrast, the main competitor often had price chaos due to high volume, causing dissatisfaction among terminals. This year, the client also took on another high-end product, and sales growth has been good.
- Expand Business Under Conditions That Leverage Transferable Core Capabilities or Advantageous Resources to Win Competition To pursue growth, many distributors are committed to diversifying, even venturing into businesses they are not good at, often ending in failure. Those who can leverage transferable advantages can quickly open up the situation, reduce switching costs, and often have a higher win rate in new fields. Not long ago, I visited a client of a beverage brand. This client's sales had grown rapidly in the past two years. During our conversation, I learned that the client started distributing a certain beverage in 2023, and only served foodservice outlets. I was curious why they only did foodservice, as it seemed risky. The client told me that he had been dealing with local late-night snack and food stall owners for over 10 years. He decided to take on this product precisely because its main sales channel was also foodservice, matching his area of advantage. Leveraging his channel system, stable terminal relationships, and rich foodservice experience, he quickly scaled up the volume, and the growth trend remains strong. In expansion, it's best to fully utilize existing advantages rather than start from scratch. Of course, if it's an emerging field with less competition, you can try it, quickly accumulate experience, iterate and grow in practice, and build competitive advantage.
- Focus on Advantageous Areas, Refine Operations, and Amplify Competitive Advantages To win competition, you need to focus on an area you excel in, cultivate it meticulously, and leverage your advantages. Beer client B only does traditional supermarkets. Many beer distributors are obsessed with foodservice outlets because, for beer, single-store volume is high in foodservice. The client admitted, "I know my capabilities well. Foodservice requires high customer relationships and capital, and carries greater risk. Even if offered, I wouldn't do it because I lack experience or advantage there. The products I previously distributed were all for supermarkets. Beer can be delivered together, sharing logistics costs. Doing traditional supermarkets, even if it's hard, is fine; I feel secure and grounded." The client added, "Supermarket capacity is declining, and competition is intensifying. At this time, competitors lack patience, and their terminal visits and service are not what they used to be. I am more patient than competitors, provide better service, more timely delivery, and more timely exchanges, so my opportunity comes." "Because I've dealt with supermarkets for years, I know which stores are doing well, which are not, and which stores are suitable for which product tiers, better than the terminals themselves. At the same time, I continuously optimize inventory and displays, optimize product mix, reduce near-expiry products, and increase profits based on terminal sales." The client became more excited as he spoke. Later, I visited the supermarket outlets the client was responsible for. As he said, although single-store capacity is declining, sales are steadily increasing thanks to the fight for terminal resources. Having a clear self-awareness, solidifying basic skills, and continuously amplifying existing advantages can also achieve counter-trend growth.
- Appropriately Contract the Battlefront The essence of contracting the battlefront is to focus resources and win competition. Without competition, there's no need to focus; the more intense the competition, the more you need to focus. A major client had been taking on new brands in recent years and now has nearly 10 brands of various sizes. Just dealing with manufacturer visits keeps him busy. Moreover, each brand is extending its product lines, requiring full coverage of high, medium, and low ends. The sales team complains more and more: "There are more and more assessment indicators, work is getting harder, and salaries are shrinking." The boss is also frustrated: sales have increased, but at year-end, profits are still declining. So, he cut some brands and contracted his product lines, keeping only brands and products that are competitive locally. As a result, the team's work efficiency improved, sales grew, and profits increased. Now the boss has more time to think about future directions and opportunities. Do business according to your strength. Greed leads to indigestion. If you want everything, you end up with nothing. Brands or products that are losing money should be adjusted promptly to travel light. Many distributors are reluctant to give up agency rights, mainly because they are tied down by manufacturer expenses, fantasizing about surviving on manufacturer support. But now manufacturer expense investment is increasingly compressed. If you lose money this year, you'll lose even more next year. Survival of the Fittest In a rising market, everyone's efforts yield results, and there's no need for a life-and-death struggle. But in a shrinking market, competition among traditional distributors has reached a critical point of survival. You must be competition-oriented, focus on your advantageous areas, focus resources, markets, and products, do what you are good at, and amplify your competitive advantages to break through bottlenecks.