---
title: "Distributors: In the Era of Thin Margins, Sales May Decline, but Profits Must Rise!"
description: "Distributors' business is tough, but they won't disappear; 70% of business still happens offline. The key is to shift from chasing sales growth to improving management efficiency and expanding beyond regional limits."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-07-06"
language: "en"
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# Distributors: In the Era of Thin Margins, Sales May Decline, but Profits Must Rise!

> Distributors' business is tough, but they won't disappear; 70% of business still happens offline. The key is to shift from chasing sales growth to improving management efficiency and expanding beyond regional limits.

******Distributors' business is tough, it's a consensus. But will distributors disappear? The answer is definitely no!** Offline trade circulation channels, although no longer the only channel in the current context of e-commerce, still account for 70% of business in absolute terms, requiring distributors to serve. **The inevitable result of tough business is that some distributors are eliminated, and some evolve. Today, it's hard for distributors to grow by simply adding a brand, adding people, and adding vehicles.** Even if growth occurs, it's only volume growth, not necessarily profit growth. It's possible that cost increases far exceed profit increases, which is a realistic issue every distributor must face. How should distributors do business, or how should they actively respond?
Recently, New Distribution had a conversation with Mr. Wu Min, general manager of Hefei Bangwei Trading Co., Ltd., a senior daily chemical distributor in East China. We reviewed the distributor business together and discussed the key points of trade business management and future directions. **-01-****Three Turning Points in Distributor Business** Around the 1990s, with the reform of the trade circulation system, a large number of distributors emerged. At that time, material scarcity and rapid economic growth meant that as long as a distributor could grab a good brand and choose a good category, business would grow. **The growth of consumer demand is the driving force behind trade business growth.** Of course, in this process, upstream manufacturers' control and requirements further suppressed distributor development, especially in the beverage and food categories. Grid management, manufacturer-led deep distribution, and direct sales to terminals by salespeople meant that most distributors' functions were limited to logistics, warehousing, and capital advances. From the 1990s to now, the distributor group has undergone 30 years of iteration and elimination. Wu Min told New Distribution that during this period, there were three key turning points that determined whether a trade business could grow big. **First wave: Did early entrants have the awareness to directly operate terminals?** Not only logistics and capital advances, but also considering their own team to gradually penetrate terminals. In the early days, it was easy to grasp terminals; with goods and customer relationships, business could basically be done well. **Second wave: Around 2007, the rise of international and domestic KA stores.** In local areas, a KA store was often the center of regional foot traffic. If a distributor entered the store market first around 2008 and used it as a base, expanding wherever stores opened, business would naturally be good. 2007-2017 can be called the golden decade of KA stores. **Third wave: Around 2015, marked by Tmall's single-day revenue of nearly 100 billion on November 11, online B2C e-commerce officially became a mainstream channel.** Before 2015, if distributors with strategic vision laid out plans in advance, grabbed online distribution rights from manufacturers, and opened online stores, they could catch this wave of dividends, and the leap in trade business could be faster than the previous two. These three waves of dividends can be said to be dividends given by the times. If you caught them, growing the trade business was basically no problem. But now, there are not many dividends left. **And with the end of each wave of dividends, the strong get stronger, and some small, weak distributors are basically eliminated. Wu Min recalled that around 2012 and 2013, in Hefei, there were at least 30-40 daily chemical distributors, but now, the number of scale players may be less than half.** At the current juncture, the dividends given by the times are basically gone. In a fully competitive market environment, every distributor must cultivate intensively and manage meticulously. This is reflected in two aspects:
> **1\. Vertically, seek efficiency from management; 2\. Horizontally, break regional restrictions.**
**-02-****Seeking Efficiency from Management: Sales May Decline, but Gross Margin Must Rise** Wu Min said, "In previous years, many distributors had good business development. If you earned 100 yuan and leaked 20 yuan, it didn't matter because you could still earn 80 yuan. But now it's different. **External high-speed growth is unrealistic. At this point, distributors must consider turning back to management. Saving money is making money.** " In 2017, Bangwei Trading partnered with Hai Ruan Technology to fully enter the digital business management stage, pursuing efficiency from management. What is digital business management? Wu Min gave New Distribution an example: In the past, when a store needed display fees, it was often a paper process, a single document, and a simple report and explanation to the superior leader. You didn't know why the store needed investment, whether it should be invested, or whether the investment was effective. But now with data support, you can pull up the store's historical sales data and profit analysis. At a glance, you can see whether it's worth investing. In the past, often when a salesperson heard that a competitor had invested fees in a store, they panicked and asked for policies without considering other factors. Inertial thinking and historical evolution eventually made even salespeople think it was natural. If you really pulled out the data, you'd find that a small store contributed only 500 yuan a month but received 200 yuan in display fees. Of course, there may be other factors, but in any case, it must be curbed. **Through digital tools, business management becomes transparent, controllable, and rational. This is at the cost control level. In addition, it greatly improves efficiency in business decisions.** Through data analysis, comparing 10 brands, you can see which brand has low investment but the greatest profit contribution, or which store or outlet has the highest return on investment, and which items sell fastest. With a data foundation, brand evaluation and market evaluation naturally have a handle. In the past, distribution often had problems of chaotic distribution and over-distribution. With digital distribution tools, you can directly analyze which brands are suitable for a 5000m2 store and which for a 2000m2 store. **Chaotic distribution becomes precise distribution. Once the standard stores for distribution are determined, they are communicated to frontline sales through meetings. In this way, returns and near-expiry goods are reduced, and corresponding gross margins increase. At the same time, sales colleagues can sell not only best-selling items but also non-best-selling items.** In the past two years, Bangwei Trading proposed an internal slogan: "**Focus on micro-ecology, professional deep mining** ". Wu Min told New Distribution that today's distributor business growth and profit growth can no longer be solved by increasing the number of outlets or adding brands. Now, only on the basis of existing stock, we must rely on efficient management to find growth points. **The current distribution business is already in a state of thin margins. If management doesn't keep up, you'll basically be eliminated; if management keeps up, you may get a relatively reasonable profit return. This is the reality of the trade environment.** **-03-****Breaking Regional Restrictions: Enjoy the Dividend of Industry Decline, Reshuffle Weak Players** In the future, the survival space for distributors will become smaller and smaller. From the downstream terminal analysis, whether domestic or international KA stores, they are basically monopolized by four companies: Gaoxin, China Resources, Yonghui, and Walmart. Obviously, these KA supermarkets will gradually cooperate directly with upstream manufacturers, and their relationship with distributors is becoming weaker. In the future, distributors in KA stores will at most undertake execution functions such as local product promotion and guide management. Convenience store chains represented by Lawson and FamilyMart basically cooperate directly with brand owners, with little relationship with local distributors. **The downstream survival space for distributors is only two types of channels: first, local chain stores; second, traditional mom-and-pop stores.** With so many distributors competing for these limited outlets, some small or non-professional distributors will basically be eliminated. After elimination, the brand remains and can only cooperate with local large distributors. From this perspective, this is a dividend for local large distributors. The harsh survival environment forces small players out. At this time, large distributors in first-tier cities or provincial capitals have future operational space to break regional restrictions and extend business to surrounding prefecture-level and county-level cities. **Distributors in surrounding prefecture-level cities often can only radiate locally, with no market depth and small scale. Upstream manufacturers' cooperation with these distributors is only a simple trade relationship, not close. But large distributors in first-tier cities, if they have excellent management capabilities, can fully penetrate the surrounding areas through innovative distribution models.** In New Distribution's view, in categories such as daily chemicals, snacks, and seasonings, some distributors with relatively large scale can fully conduct deep distribution themselves and establish controllable "secondary distributors." Here, secondary distributors are not like the simple supply relationship in the past, but deep binding operations. Distributors provide secondary distributors with goods, capital, logistics, and even market promotion methods. At the same time, distributors also need to fully incorporate secondary distributors into daily management, treat them as regional partners, fully empower them, and transform into regional FMCG service platforms. **In Conclusion:**
As Mr. Wu Min of Bangwei Trading said, **today's distributor business has reached a critical moment. Distributors must, vertically, seek efficiency from management; sales can decline, but profits must be guaranteed; horizontally, break regional restrictions, take the initiative, and reshuffle small players.** **Recognize the current situation. For distributors above a certain scale, don't blindly pursue sales growth, but pursue "quality growth." Endurance is the basic strategy at present. At the same time, do a good job of refined management internally and maximize operational efficiency.**
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