On August 22, New Distribution released the '2023-2024 China FMCG Distributor Business Condition Survey Report' at its third distributor conference.

First, the overall data: 46% of distributors failed to meet their sales targets (for their TOP1 brand), while 55% met them.

Let me start with my personal impression.

This data is slightly better than what I've seen on the front lines. This might be related to the sample selection, as the participating samples are likely more active. Compared to the 2024 semi-annual reports of listed FMCG companies, where 66% saw a decline in marketing, distributors seem to be doing slightly better.

To understand these numbers, we need to consider the broader context: In the first half of 2024, GDP grew by 5%, total urban retail sales grew by 3.6%, and FMCG grew by 2.3% (Kantar data).

With only 2.3% growth, the FMCG sector is hovering between stock competition and contraction; any misstep could lead to a decline.

This report can be interpreted in two ways.

One interpretation sees the 46% failure rate and feels relieved, thinking the environment is indeed bad. This provides a reason for anxiety and an excuse for poor performance. After all, if the environment is bad, poor results are forgivable.

When the tide rises, all boats float; when it falls, they hit the rocks. This is not determined by the distributor's operational capability but by the external environment.

The other interpretation sees the 55% success rate and wonders how they are growing against the trend. I'm curious: who are they? How are they growing? Does their growth represent a trend?

To answer these questions, we need to examine the detailed data.

Which distributors are growing?

According to the data, four types of distributors are still growing in the era of contraction.

First: Major distributors are growing.

This conclusion is expected; scale is a ballast against crises. But if we only look at scale, it can be misleading. As I'll analyze later, scale is a result, not a cause. The factors behind scale are what matter.

Second: Multi-category distributors are growing.

In the era of contraction, many industries are shrinking rapidly, and in certain years, entire industries decline, such as dairy and beer in the first half of 2024. However, some categories perform well, like water and beverages. Others are greatly affected by channel structure changes, such as leisure snacks.

Multi-category operations resist risk. This is also expected.

Third: Distributors with integrated online-offline operations are growing.

Traditional distributors mainly operate offline. This data shows that distributors can no longer be too traditional.

Fourth: Distributors with B2b platforms and integrated operations are growing.

This data is indicative and represents a trend. B2b platforms and integrated supply-marketing are not traditional distributor models. Many distributors still don't understand what a B2b platform is, let alone integrated supply-marketing.

Data alone is meaningless; it only becomes meaningful when combined with marketing and market trends. The above data corresponds with my judgment on channel trends.

So, what are the channel trends in FMCG?

Farewell to small-scale

Embrace the era of major players

History tells us: The deeper the economic downturn, the more market share concentrates in large enterprises. The downturn merely accelerates the concentration trend.

The growth of major distributors is just history repeating itself. So, don't think that when the environment is bad, everyone suffers equally. In fact, the gap widens.

Economic downturns are prime opportunities for advantaged enterprises to rise.

The deep distribution model that began in 2003 led to the miniaturization of Chinese distributors. Only Guangdong, Fujian, Zhejiang, and Jiangsu were exceptions. Therefore, these regions have more major distributors, while the north has few.

Small-scale distributors benefit brand owners' control. Only industry giants have the capability to manage such small distributors and reach deep into terminals.

During the miniaturization process, industry giants embedded their organizations and used subsidies that lulled distributors into complacency, making distributors' functions incomplete and thus achieving control over them.

The FMCG industry completed oligopolization during the growth era, and small-scale distributors played a key role.

The dependence of small distributors on giants meant that over 20 years of deep distribution, Chinese channels made little progress.

In the era of major distributors, many small distributors will be eliminated, albeit passively during the contraction.

Once the trend towards major distributors begins, it won't stop. Future market share will shift more to major distributors, and small distributors will be eliminated faster.

Another reason for the elimination of small distributors is that in the contraction era, the industry's mid-tier and long-tail shares shrink further. Especially county-level distributors relying on long-tail small manufacturers will shrink faster as the long-tail market gradually disappears.

In the contraction era, industry sales don't grow, but major distributors rise, meaning channel concentration will increase rapidly. Therefore, I've always emphasized that if becoming big is hopeless, distributors should consider shrinking or exiting to preserve their gains.

New Distribution's survey data shows that major distributors are growing, which is expected and represents the channel trend.

Distributor Role Transformation:

Serve the F-end or the b-end?

History tells us: Economic downturns are opportunities for successful players to transform.

It's normal for economic cycles to force transformation. After all, who would willingly go under the knife without illness? Taking medicine when sick is normal.

New Distribution's survey data says B2b platforms are growing. Many people see B2b platforms simply as channel digitalization, but they don't understand that the essence is the question of who distributors serve.

In the channel F2B2b2C, distributors (B-end) sit between manufacturers (F-end) and terminals (b-end). A vague statement is that the B-end plays a connecting role between F-end and b-end.

Serving the F-end or the b-end is essentially whether to become the manufacturer's 'salesperson' or the terminal's 'purchaser'.

Distributors with major brands have only one choice: they must listen to the brand owner. This is why manufacturers can continue to push inventory. In short, the right to operate is given by the major brand.

Manufacturers 'hard push' to the B-end, and then distributors 'soft push' to the b-end. This is the current reality.

Reality isn't necessarily reasonable; it may need to change.

Terminals determine sales, and brands determine whether I have the right to operate. This is also an inevitable result of distributor miniaturization. Many channel problems stem from this factor.

With the emergence of B2b platforms, this phenomenon has reversed. The biggest difference between B2b platforms and distributors is that B2b platforms become the terminal's 'purchaser', not the manufacturer's 'salesperson'.

Technically, B2b is a more efficient system than traditional distributors; in business logic, B2b is a more advanced channel system than distributors.

Clearly, B2b platforms have larger scale than distributors. The 'floor' (minimum sales) of a B2b platform might be the 'ceiling' (maximum sales) of a distributor.

B2b platforms have initiated the trend of channel oligopolization. More brands will concentrate on platforms. Perhaps soon, the deep distribution system will disappear with the growth of B2b platforms.

I advise capable distributors to move towards B2b platforms as soon as possible. Before the internet, American channel players used other tools to achieve B2b platformization. Don't see B2b platforms as a product of the internet, but as a product of channel concentration.

Distributor Organization:

Which functions to focus on?

New Distribution's survey shows that distributors with integrated online-offline operations and multi-category operations are growing.

We should also not understand this as a matter of business model, but as a matter of operational capability. Because changing business models requires operational capability.

There are several common phenomena among FMCG distributors:

First, they are not large in scale, but they have complete functions for promotion, ordering, warehousing and distribution, and financing. Many even see warehousing and distribution as their lifeblood. This completely goes against the principles of scale operation and social division of labor. Second, in terms of organizational structure, the manufacturer's salespeople become the distributor's 'shadow general manager', and even employee bonuses and salaries are paid by the manufacturer. Some brands implement closed-loop management over distributor salespeople. Distributors lose their operational independence for a little profit.

The above two phenomena seem contradictory. On one hand, distributors are overly attached to less important functions like warehousing and distribution; on the other hand, they easily hand over important organizational functions to manufacturers, allowing embedded management.

In terms of organizational structure, if manufacturers are allowed to embed, it's hard not to serve the F-end. To some extent, this can be seen as the manufacturer's organizational control over distributors.

With manufacturers controlling distributor organizations, even if distributors want to transform their business models, they lack the strength. To put it bluntly, they continue on the trading model. The trading model for distributors has no future.

The current B2b model and channel integration model have a significant impact on channel share. Distributors' efforts in traditional trading models are largely offset by unfavorable factors. Therefore, it's crucial for distributors to return to their core competencies.

What are the core competencies of distributors? First, promotion; second, ordering.

Promotion, from traditional offline to the current three-dimensional space promotion, as well as bC integrated promotion and user operations, will become basic skills.

Ordering, whether traditional order models or platform order models, is indispensable.

It's hard to expect a distributor with an already incomplete organization to complete the transformation of channel functions.

Looking to the Future

Successful players will miss today

I have experienced three major channel transformations, and now the fourth.

From my experience with the previous three, the discourse of distributors differs before and after the transformation.

Before the transformation, the atmosphere is like now: talking about difficulties and problems.

After the transformation, the surviving distributors all miss the past, because those who survived completed their transformation during the economic downturn, and some new distributors seized opportunities and rose.

Over 20 years of deep distribution, Chinese FMCG channels haven't changed much. It's like boiling a frog slowly; we've gotten used to the comfort of the channel.

In the contraction era, channel digitalization will definitely eliminate a batch of distributors, but it will also give rise to some major and new distributors.

I think New Distribution's data is reliable and basically confirms my judgment on channel trends.

In difficult times, talk less about difficulties and more about opportunities.

If you talk about difficulties, you'll still be eliminated.

If you talk about opportunities, maybe you'll survive.

Economic downturns are prime opportunities for major and new distributors to rise.