---
title: "Distributors Carry Many Products but Don't Make Money: It's a Product Structure Problem!"
description: "After the pandemic, some are happy and some are worried. A case in point: a distributor in Shandong with annual sales of about 10 million yuan, only handling one beverage brand from Tianjin in two specifications, mainly for catering channels and small shops. The pandemic exposed the fragility of such a narrow product structure. Many distributors have problematic product structures, and adjusting them is key. New Distribution invited Mr. Li Feng, CEO of Anshan Hongye Hengda Trading, to share practical insights on optimizing product structure to increase profits, reduce costs, and ensure stable development."
author: "李锋"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-05-14"
language: "en"
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markdown: "https://xinjignxiao.com/en/articles/distributors-carry-many-products-but-don-t-make-money-it-s-a-product-str-328625ae.md"
original_source: "https://mp.weixin.qq.com/s/bR5YjeUggLdSTiWZD1Im8A"
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---

# Distributors Carry Many Products but Don't Make Money: It's a Product Structure Problem!

> After the pandemic, some are happy and some are worried. A case in point: a distributor in Shandong with annual sales of about 10 million yuan, only handling one beverage brand from Tianjin in two specifications, mainly for catering channels and small shops. The pandemic exposed the fragility of such a narrow product structure. Many distributors have problematic product structures, and adjusting them is key. New Distribution invited Mr. Li Feng, CEO of Anshan Hongye Hengda Trading, to share practical insights on optimizing product structure to increase profits, reduce costs, and ensure stable development.

After the pandemic, some are happy and some are worried. Consider a case: a distributor in Shandong with annual sales of about 10 million yuan, handling only one beverage brand from Tianjin in two specifications, mainly for catering channels and small shops. The past two years were decent, but when the pandemic hit, he felt the crisis: with only one beverage brand, he couldn't sell anything during the lockdown. In fact, many distributors have problematic product structures. The pandemic exposed these issues. For distributors, adjusting the product structure is key. To address this, New Distribution invited Mr. Li Feng, Executive President of Anshan Hongye Hengda Trading, to share his practical experience on how distributors can adjust their product structure for optimal profit, cost reduction, and stable development.
> **1. Is it necessary to adjust the product structure?**
> **2. How to classify products?**
> **3. How to adjust the product structure to maximize profits?**

**-01- Adjusting the product structure is time-consuming and labor-intensive. Is it really necessary?**
Many distributors have been in business for over a decade and feel experienced. They think adjusting the product structure is time-consuming, labor-intensive, and risky, so it's not worth it. They only think about change when business becomes difficult, but by then it's too late. I believe that adjusting the product structure must be done early. This pandemic has been a wake-up call: without change, the road ahead will be even harder. Seize this opportunity to make changes quickly and capture market opportunities.

Adjusting the product structure is inevitable for distributors. Upstream manufacturers have development needs; when they launch new products, you must distribute them. Competition within the industry is fierce. For competitors' best-selling categories, you must find alternative products. Without alternatives, you're giving opportunities to competitors. Moreover, market demand trends are shifting. The purpose of a business is to meet market demand, so you need to anticipate changes and plan accordingly.

From an external environment perspective, adjusting the product structure is necessary. From another dimension, it's key to meeting demand. With the rise of new retail, various consumption scenarios are being explored, and consumption upgrading is a trend. The price band for new-concept products has doubled in the past five years, and brand owners are promoting such categories as mainstream. For example, mineral water used to cost 1 yuan, but now it's typically 2 or 3 yuan, or even higher. If you don't follow the consumption upgrade and keep selling 1-yuan water, you'll eventually be eliminated.

Especially the post-2000s young consumers have high average spending, seeking happiness, fashion, and personalization. Price is not an issue for them. Although this group accounts for about 20% of the population, they contribute about 40% of consumption. We should adjust our product structure around this group and target their consumption patterns.

On the other hand, distributors' costs are increasing, and many profits are eaten up by expenses. Especially for small and medium distributors, the foundation is already laid; they need to take on new brands to increase profit points and accelerate development. Some distributors pursue a "big and complete" approach, accepting any cooperation, leading to a messy product line without core positioning. Salespeople have too many product lines to manage, old product sales decline, new product launches fail, capital is tied up, and warehouse near-expiry products pile up, causing annual losses of hundreds of thousands of yuan. Such distributors definitely need to adjust their product structure!

**In summary, whether due to external pressure or future development needs, distributors should not hesitate. Adjusting the product structure is a required course.**

**-02- How to classify products?**
Many distributors are not very clear about their own product structure. To adjust it, you must first base it on product classification, using data to analyze the sales proportion and profit proportion of each product line, and identify which categories need adjustment. Based on years of distribution experience, I roughly divide products into 11 categories, as follows:

**Channel-specific products:** Differentiate items; different channels have different prices. For example, supply prices for special channels can be slightly higher than traditional channels.

**Battle products:** These are distinct from core offline products; they are used to compete with rivals, serving as cannon fodder.

**New products:** Products newly launched by manufacturers, or products you haven't paid attention to but treat as new.

**Fast-moving, high-volume products:** Cash-flow products; the faster the turnover, the higher the profit margin. For example, if a product earns 20 yuan per case and turns over once a month, you only earn 20 yuan. But another product earns 15 yuan per case and turns over twice a month, you earn 30 yuan.

**Network-building products:** Usually first-tier brands; profit may not be high, but they can open channels. Especially for distributors with sales of 10-20 million yuan, to grow bigger, you must take on first-tier brands to build network channels, thereby driving sales of high-profit products from third- and fourth-tier brands.

**Profit products:** Core lifeline products with both profit and sales; these must be protected. If sales of these decline, other products can't compensate for the lost sales or profit.

**High-margin products:** Niche products with low volume but precise positioning, low competition, and high profit. For example, a distributor of hot sauce in modern channels targets high-income consumers, selling only 100,000 yuan a year but with a gross profit of 60,000-70,000 yuan.

**Expense-offset products:** Products with average sales but favored by upstream manufacturers, who are willing to support expenses and personnel. These products can reduce distributor costs. For instance, promotional staff supported by the manufacturer can be flexibly used to also sell other products, boosting the entire product line.

**Seasonal products:** Products that sell well during holidays, like nuts, gift boxes, milk, and eight-treasure porridge. For example, eight-treasure porridge can account for over 70% of annual sales during the New Year period.

**Potential products:** Products with modest sales but in mass categories; they can grow big in one or two years and become core products in the future. For example, in the three northeastern provinces, soybean oil is the main cooking oil. Yihai Kerry, Jiusan, and Fulinmen have all launched high-end flavored soybean oils. Prices are high, but consumers are accustomed to soybean oil, so it's a mass product. In terms of price band, sales may not be huge, but profit is 2-3 times that of ordinary products. This is a potential product.

**Elimination products (no profit, no volume):** At year-end, when data shows low sales and no profit, eliminate them immediately.

Distributors should categorize their products accordingly, using data to list the 11 categories. Then, adjusting the product structure for different categories becomes much simpler.

**-03- How to adjust the product structure to maximize profits?**
Distributors of different sizes have different strategies for adjusting product structure; you must differentiate positioning!

Implementation should be based on product sales and profit proportions, as follows:

**1) High sales, low profit:** Sales account for 30%, profit less than 15%, and profit margin only slightly above expense ratio. Typically first-tier brands with high volume but low profit; these are the core to adjust.

a. If net profit margin is slightly above expense ratio by 1.5% or more, you can cultivate or raise prices; you must increase profit margin.

b. If net profit margin is below 1%, consider giving up cooperation.

**Sales account for 30%, profit over 20%, net profit margin between 1%-2%: these can be cultivated over time.**

a. Ensure sales don't decline; increase profit margin.

b. Increase sales by 15% and reduce expense ratio.

**2) Sales account for 5%, profit over 10%, net profit margin between 5%-10%: retain these. Allocate part of the profit to the team, using performance incentives to get salespeople to focus.**

For example, if you originally sold 2,000 cases with a profit of 20,000 yuan, but you allocate some profit to incentivize salespeople, they sell 4,000 cases. Salespeople get 10,000 yuan, and your profit is still 30,000 yuan.

**3) Medium-low sales, high profit: sales account for 10%, profit 15%-20%: focus on cultivation.**

Reward 2 yuan per case for matching last year's sales volume, and 4 yuan per case for exceeding it. Also support terminal display and case-cutting rewards.

**4) Sales account for 3%, profit 6%, and it's a mass category: it's a potential product. Evaluate and operate with a long-term perspective, focusing on promotion.**

**Sales account for 30%, profit over 30%, net profit margin between 2%-5%: these are core lifeline products; protect them at all costs.**

**5) New products:** New products are usually launched by brand owners around future consumption trends, often with high prices, high profits, and high expense support. Distributors should fully utilize upstream brand owners' personnel assistance, product case support, and expense resources, go with the flow, combine efforts with the manufacturer, start with easy tasks, and focus on breakthroughs.

However, distributors should also pay attention to factors such as market positioning, market capacity, and future development trends of the brand owner's stage-specific main products; don't blindly stock up.

**Emphasize one point: new products must be sold to stores that can sell them; avoid salespeople pushing new products to customers with good relationships, which leads to channel stuffing.**

Take Anshan Hongye Hengda as an example: we roll out new products according to time nodes, targeting TOP20, TOP30, and TOP40 outlets, while restricting salespeople from distributing to other outlets.

Secondly, when promoting new products, if the price positioning remains unchanged, you must be willing to invest expenses—use money to smash! Rewards must be in place, such as PK, distribution rewards, incremental rewards, and material usage rewards. Let data speak and reward accordingly.

**There are no unsellable products, only unsellable people. Heavy rewards and heavy penalties, persistent execution, and gradually increasing sales targets.**


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