Every few years, there are claims that distributors will be eliminated or replaced, but over the years, in FMCG, distributors have always existed, and some are doing very well. As FMCG enters the consumer era, with severe product oversupply and companies focusing more on brand service, consumer demand for high-tech, high-quality, and personalized products has rapidly increased, leading to a wave of distributor 'optimization.' As a result, many distributors have evolved with top brands, transforming their organizations, mechanisms, and models to fulfill their historical mission. As FMCG enters the internet era, especially under the impact of mobile internet, the call to 'de-distributorize' has grown louder. The impact of e-commerce platforms on traditional channels is evident and intensifying. The result is that distributors are continuously differentiating, giving rise to multiple survival models, such as brand distributors who work with multiple brands, channel distributors who focus on core channels, and category distributors who control and develop major categories. Now, the supply chain revolution has begun, with claims that there is no place for distributors and that they will be 'bypassed.' Will distributors be 'bypassed' this time or differentiate again? The answer is certain: every channel change is an opportunity for new types of distributors to stand out, and differentiation is an inevitable trend. Distributors cannot be eliminated The only reason a thing is eliminated or replaced is that its core value is substituted. So what are the core values of distributors? Essentially, distributor value can be divided into macro value and micro value. 1. Macro value Here, I agree with the view of Zou Wenbiao, president of Zhoupu Data: If the essence of a distributor's business is the brand's purchasing power, hiring them to serve the regional market on behalf of the brand, then the distributor's customer is the brand, and the value is to serve the brand well, clearly understanding the brand's goals and will. If the brand is not important to the distributor, and the real customers are retail terminals, then how to provide product selection and supply chain services to the retail end is the core value. In short, the macro value of distributors has two points: first, as an extension of the brand's hands and feet downward, managing and serving the market; second, helping terminal retailers extend upward, providing good service and supply chain support. 2. Micro value First, capital: Many customers need advance payment, also known as accounts receivable. Relying solely on the manufacturer's own strength is stressful and difficult to achieve. Distributors have local advantages and can control risks. Distributors can provide necessary financial support, which greatly mitigates risks. Additionally, there are gray areas in dealings with customers, such as public relations expenses, which distributors can easily handle. If distributors cannot provide financial support and also need to buy products on credit from the enterprise, requiring longer payment terms, the distributor's value is greatly diminished. Second, resources: Resources include customer resources and personal connections. In terms of customer resources, distributors are entrenched in a region, industry, or field, often possessing rich personal connections and customer resources, which is their competitiveness. They cherish these customers more than the company's own team and pay more attention to customer satisfaction. In terms of personal connections, locals dealing with locals have inherent trust endorsement, such as in customer complaint handling or coordination with local government units, where the brand directly handling it may be inefficient and not necessarily effective. Then, reputation: Distributors live in a circle, relatively stable, and the longer the time, the more important their reputation. This is more reliable than the manufacturer's own employees. At least they treat their customers sincerely and won't easily abandon them. This is important, as it significantly reduces communication costs in daily operations. Finally, service, warehousing, logistics, etc.: An important value of distributors is their ability to respond to customer needs promptly, providing technical, logistical, and resource support, which any brand's direct sales team cannot match. Their management of warehousing and logistics has iterated into the most market-matched processes, more efficient and cost-effective. Summary: Through the macro and micro value analysis of distributors, it is difficult or even impossible for brands to directly operate the market to achieve F2b2C, because these values are not easily replaced. Even if capital could replace them, it would come at a huge cost, which the FMCG industry, being related to people's livelihood and characterized by thin margins, cannot bear. Distributors are always on the path of differentiation Let's not discuss why distributors need to continuously differentiate; indeed, during the three years of the pandemic, distributors who remained unchanged were almost eliminated. The surviving distributors either have deep pockets or have differentiated to match the market's current survival methods. 1. Here, let's first talk about what a value chain is? 'Value chain' is the most frequently mentioned concept because it is based on the enterprise's own value generation mechanism. Enterprise value creation is composed of a series of activities, which can be divided into basic activities and support activities: basic activities include internal logistics, production operations, external logistics, marketing and sales, and service; support activities include procurement, technology development, human resource management, and enterprise infrastructure. These different but interrelated production and operation activities constitute a dynamic process of value creation, i.e., the value chain. As Porter said, competition between enterprises is not just competition at a certain link, but competition across the entire value chain, and the comprehensive competitiveness of the entire value chain determines the competitiveness of the enterprise. Applying this to distributors, survival of the fittest is inevitable. Those distributors who have survived the pandemic, intense competition in a stock or even shrinking market, and the pressure of a sustained economic downturn are necessarily winners in value chain competition. Hence, a saying circulates: Distributors either differentiate and transform, or conservatively switch industries! 2. What are the directions for distributor differentiation? Some have proposed that under the current background, distributors have only three choices for development.
First, go high-end. High-end is definitely a trend, but it is also slow and won't bring short-term sales growth; its contribution to profit is greater than to sales growth.
Second, create private labels. The premise for private labels is scale. Without scale, there is no cost advantage.
Third, transform into platform distributors. The emergence of platform distributors seizes both the opportunity of internet transformation (B2B platforms) and the supply chain revolution. I agree with these views, but they are limited to the development considerations of regional top distributors. From a value chain perspective, going high-end aligns with the trend; the most intuitive value chain is that all participants in the channel chain can profit, increasing enthusiasm and integration, solving the problem of channel-level participation. Creating private labels also aligns with the trend. Whether consumption is downgrading or upgrading, consumers' consumption concepts have gradually matured. People will pay more attention to cost-effectiveness when services, experiences, and quality are similar, and brand premium power will weaken. The most intuitive value chain is to meet consumers' demand for good quality and low prices at all levels. Becoming a platform distributor also aligns with the trend. Distributors can: a. Build a platform around the upstream of the industry chain, becoming brand operators. Transition from a channel-segmented organizational structure to a brand-segmented one, integrating existing channel customer resources, and establishing a platform.
b. Build a platform around the midstream of the industry chain, forming a business alliance. This can achieve mutual support and win-win cooperation among distributor groups, and through business alliances, crowdfunding, warehousing services, logistics services, etc., maximize resource efficiency and establish a platform.
c. Build a platform around the downstream of the industry chain, serving as supply chain and business mentors for terminal outlets. This can provide one-stop services for terminal outlets, from product selection, operations, warehousing, to logistics, improving the overall efficiency of many shop owners who have long been unprofessional in management. It should be noted that building a platform for the sake of building a platform is meaningless. The premise for establishing a platform is also to re-integrate the value chain of platform customers, thereby creating a new value chain system. 3. How should distributors below the waist differentiate? I think we can consider from two aspects: First, seize the tail of the internet, optimize the channel chain, integrate existing channel customer resources, connect online and offline, improve the operational efficiency of customer vehicles, warehousing, and personnel, meet consumers' expectations of value for money, and thus achieve value chain reconstruction and appreciation. Second, continue with a consumer-centric business strategy. Distributors should achieve the extension and balance of the industry value chain based on 'terminal is king' and 'consumption is king.' Continue to meet consumers' personalized product or scenario needs; continue to provide consumers with value-added services beyond products; continue to build community marketing capabilities to meet consumers' needs for deep experiences. Final Thoughts Distributors can rest assured that as long as they continue to differentiate, the probability of being eliminated is almost zero. As Mr. Liu Chunxiong said: Every channel change is an opportunity for new types of distributors to stand out; the key is whether distributors see it as a problem or an opportunity. Clearly, the channel transaction structure is changing, and the channel value of distributors is being reassessed. In the past, it was an upgrade competition; now it has entered an elimination round. The current impact of hard discount on traditional channels is also a new channel change. For distributors, is hard discount an opportunity or a challenge? How should they respond? From December 5-7, 2023, 'New Distribution' will hold the First China FMCG Hard Discount Conference in Zhengzhou. At that time, outstanding national FMCG distributors and brand owners will be invited to discuss the impact of hard discount on traditional trade and how to respond. If you are also interested in hard discount, you can scan the QR code to add our customer service WeChat, inquire about the details of the hard discount conference, and join the [Hard Discount] themed community to discuss the development trends and opportunities of hard discount together.