Tip: Click the blue text above to follow "FMCG Distributor Professional Consulting" for more insights on marketing and distributor internal management.
After the baptism of fierce market competition, the true price differential (i.e., gross profit) that distributors can obtain through selling products has been squeezed dry by peer competition. Under pressure from competitors slashing prices on similar products, prices have to be sold lower and lower, making profits exceptionally thin. If this continues, distributors will face the deprivation of their right to survive, and there will be no room for them to exist! It is urgent to discuss new profit models for distributors!
It is often said that distributors' businesses are just working for manufacturers all year round: acting as porters, transporters, market developers, brand guardians... Usually, distribution doesn't make money, so at year-end, distributors look forward to seeing how manufacturers perform, hoping to get a little back from profits as rebates to satisfy them. How big is the year-end red envelope? What is the secret hidden discount? Distributors eagerly await whether manufacturers will make a big move at year-end to comfort their "wounded hearts" after a year of sales. It seems that the era when distributors could make profits from selling goods in the market has passed. The year-end rebate from manufacturers has become the sole source of profit for distributors.
Is this the entirety of the future profit model for distributors?
Not at all! Although the situation is very severe and distributors' profits are increasingly squeezed, with market development, some new profit models will emerge. The question is whether distributors are prepared, or whether they can start exploring from now on.
1. Innovation for Profit—Innovation is the Source of Everything
Here, we must mention Jiangsu Hongtu Sanbao Company's "production + distribution + retail" profit model. It is difficult to summarize Hongtu Sanbao's profit model with a very apt term, so we temporarily call it the "production + distribution + retail" model, but its self-proclaimed "WDM" business model is famous in the industry. This "WDM" model organically combines the three business models of "Walmart," "Dell," and "McDonald's," that is, it integrates the profit models of production-oriented, distribution-oriented, and retail-oriented enterprises, subverting the traditional single profit model. By encompassing the profit models of both upstream and downstream distributors, this comprehensive profit model has irreplaceable epoch-making significance.
Why is this model called the "production + distribution + retail" model? It turns out that Walmart's profit model attracts customers by selling a variety of products at low prices and makes profits through "small profits but quick turnover." Dell's model achieves no inventory through direct sales, obtains orders on-site, reduces operating costs, and gains cost and competitive advantages, also yielding considerable operating income. McDonald's model achieves management and operational benefits through chain development, standardized management, and service. Hongtu Sanbao incorporates and organically integrates these three models, combining manufacturer—channel—terminal, that is, occupying the entire marketing value chain, naturally gaining core and comprehensive profit advantages. This is a beneficial exploration of future distributor profit models.
2. Delivery for Profit—Segmenting Enterprise Sales Steps, Elevating Delivery Function to a Key Position in Sales
For industries with not too wide channels and not too many distributors, there may still be significant room to continue making money through distribution. But for the FMCG industry, which has a large, mixed, scattered, fiercely competitive, and disorderly distribution team, they may need to explore more other ways out. Let's break down distribution behavior to explore future distributor profit models.
In fact, from the manufacturer's perspective, product transactions mainly consist of two parts: obtaining sales orders and delivery. With the development of social division of labor and specialization, this division will become more and more obvious. That is, the days when enterprises combined order acquisition and delivery may be gone forever. Thus, future distributors can obtain operating profits from delivery alone.
This has been confirmed in many enterprises. Manufacturers will increasingly strip out the delivery function, and some far-sighted distributors can completely transform when distribution profits become thinner and competition intensifies, turning into professional delivery service providers or engaging in partial delivery services outside of distribution. Coca-Cola vigorously promotes its partner system; these so-called "partners" can only obtain delivery fees from the delivery volume, and if they circulate Coca-Cola products through wholesale channels, they cannot get rebates from the company and may even be penalized. Some beer companies, due to large daily transportation volumes, long distances, and high frequency, face significant cost and management pressure if they handle all transportation themselves. They have begun to let some distributors with strong transportation capabilities help deliver goods to dozens of other distributors on behalf of the manufacturer, making these distributors with strong transportation capabilities become the manufacturer's integrated delivery providers... It can be said that these provide confused distributors with another way to survive and make money.
3. Resource for Profit—Branch-Company-Style General Agency Models Become a New Wealth-Building Tool for Some Large and Strong Distributors
After years of distribution accumulation, some distributors have developed very strong distribution resources locally, such as customers, channel networks, reputation, capital, government and public sector relationships, etc. At the same time, their internal management and external market management levels have gradually reached or even exceeded some production-oriented enterprises. If we agree that future competition is competition for resources and management, then these distributors have the potential to take the lead in the future "money-making campaign." Therefore, these large distributors also start from their own strengths and engage in deep cooperation with enterprises, which is another exploration of new profit models for distributors.
These distributors that have grown bigger and stronger dominate distribution resources in their regions. They use these resources as equity to jointly establish branch companies with production enterprises that want to enter the regional market, helping these enterprises enter the market quickly. In Beijing, several large distributors, due to their unique distribution resources and excellent distribution capabilities, have established sales companies with several foreign production enterprises to manage the local market through these sales companies. They have become part of many enterprises' organizational structures, expanding their survival space, winning more market opportunities, and earning more operating benefits.
4. Network for Profit—Developing Upstream and Penetrating Downstream to Gain Benefits from a Longer Value Chain
Or, they can obtain brand benefits from enterprises, transform them into operating resources, and carry out OEM production. This is what is often referred to as "developing upstream." Or, they can firmly grasp their downstream customers, tightly control the channel in the enterprise's marketing 4Ps, and provide a fairly complete and tight network organization for the enterprise. This is the so-called "penetrating downstream." Whether extending upstream or downstream, the connotation is to obtain more content from the value chain, thus naturally gaining more operating benefits; at the same time, due to differentiation, distributors gain competitive advantages, and naturally can obtain more market benefits from these competitive advantages.
Some distributors, after years of distribution and building a good network, begin to make the network generate more money. In the Northeast, many distributors have started their own brands after years of distribution. In fact, this is no different from more and more supermarkets gradually shifting from demanding profits from manufacturers and consumers to promoting private labels and seeking profits through good networks and locations. These distributors either establish their own brand for production and sales, obtain exclusive production and sales rights for some big brands in certain regions, or become the market entry machines for new products. A distributor in Beijing, after achieving great success by operating a well-known beverage brand, now holds several brands that want to enter the Beijing market for market entry and product promotion, earning considerable market promotion fees and opening up the market for the enterprises.
Why do many enterprises do deep distribution and firmly control channels? Isn't it because channels play an irreplaceable role in sales? Yet many distributors have not awakened and let this resource in their hands be handed over to manufacturers for nothing. It can be said that enterprises are extremely reluctant to refine management and sink channels, but if they don't manage channels deeply, they may be at a disadvantage in competition. Therefore, the distributor group can completely help manufacturers respond to rapid market changes and endless competition by penetrating downstream. Here, there is no need to give examples; any distributor who penetrates downstream and gains control of channels will not suffer losses but will taste the sweetness.
Of course, there is also a distributor model called the "pipeline company" by experts, which also stabilizes one's sales network, treating the channel as a pipeline that can carry different products, achieving increasing profits through economies of scale or product complementarity. In this pipeline, you can do grain and oil, beverages, or snacks. This model, besides being used by current distributors, will also be a very common profit model in the future.
5. Management for Profit—Shifting Business Focus from Product Trading to Management, Seeking Benefits from Management
Some distributors are increasingly impatient with being the "porters" as manufacturers call them. They have become "contractors," meaning they have distribution rights but no longer do distribution themselves. Instead, they contract the products to some salespeople or employees below them, only doing management and sitting back to reap the benefits from the salespeople or employees.
This type of distributor has gradually formed a climate in some regions and is intensifying. Before ordering goods from manufacturers, these distributors have each contracted salesperson or employee report their order plans, then request goods from the enterprise. After receiving the goods, they immediately distribute them to these employees, who must pay "cash before delivery." Some distributors also set sales targets for these contracted employees at the beginning of the year or month, and if completed, they can give additional rewards, which greatly stimulates the enthusiasm of these employees.
This way of making money through management elevates distributors to a higher level, and it is also an important direction for the future development of distributors. It can be said that when a considerable number of distributors no longer rely solely on buying low and selling high—a rigid and low-value-added way to make money—the Chinese distributor group may also be considered truly mature and developed. Because first, distributors have stepped out of the circle of simply selling based on price. Only by stepping out of this circle and implementing flexible, varied, and systematic combinations of multiple sales strategies (such as the 4Ps) can they enter the circle of "seeking benefits from management," which can truly achieve the Chinese distributor group that has been selling for the sake of selling.
The current profit model for distributors has not reached its end; it's just that because everyone is using it, making a profit is becoming increasingly difficult. No matter which new profit model, it cannot be separated from the spirit of continuous innovation and self-improvement, from digging deep into the foundation of the distributor group's existence, and from the exploration and utilization of one's own resources. Only in this way can distributors develop more and more, their position in product marketing will become higher and higher, they will become more and more important to enterprises and consumers, and their profit space will become larger and larger.
Daonong recently opened a public account specifically about how traditional enterprises can do WeChat marketing well. If you are interested, you can follow it. Search for the WeChat ID above or scan the QR code below to follow.
--------------------------------------------