---
title: "Distributors: It's Not About Selling Products at Low Prices, but About Low-Cost Operating Capability"
description: "In an increasingly competitive environment, distributors must possess the confidence and capability to sell at low prices, which stems from low-cost operations rather than simply lowering prices. The article highlights five key insights from a seminar, including the importance of finding profitable stores and brands, implementing tiered management, and designing compensation based on gross profit contribution."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-06-18"
language: "en"
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# Distributors: It's Not About Selling Products at Low Prices, but About Low-Cost Operating Capability

> In an increasingly competitive environment, distributors must possess the confidence and capability to sell at low prices, which stems from low-cost operations rather than simply lowering prices. The article highlights five key insights from a seminar, including the importance of finding profitable stores and brands, implementing tiered management, and designing compensation based on gross profit contribution.

Nice to meet you, I'm Yuan Lai from New Distribution.
Recently, New Distribution, together with Zhoupu Data, organized the "2024 FMCG Major Distributors' 'Way Out' Seminar," with the first session focusing on distributors in the leisure food category.
The seminar lasted from the afternoon of the first day until noon of the second day. A full day of discussion yielded rich insights. During this process, five observations left a deep impression on me, and they are also aspects that many distributor owners overlook or find confusing.
**Distributors must have the confidence to sell at low prices**
In today's increasingly competitive environment, for distributors to sustain their business, besides after-sales service, customer relations, and rapport, one crucial point is: **the ability and confidence to sell at low prices.** To clarify, this does not mean distributors should proactively sell at low prices, but rather have the confidence and capability to do so. It's not about selling low for the sake of it, but about having the strength to resist competition from peer distributors and wholesalers. The shamelessness of channel disruptors and the incompetence of those disrupted is a similar principle. If a wholesaler operates at a 25% gross margin, they might accept 20% to win a store. If a wholesaler operates at 20%, I can still manage at 18%. If a wholesaler operates at 15%, I can even sustain a 12% gross margin at a loss for half a year without profit. If you can't do that, you're out. **It's not about selling products at low prices, but having the capability for low-cost operations to counter competition.**
**The value of distributor owners:**
******Finding business opportunities**
The core value and significance of distributor owners lie in: **finding business opportunities, growth opportunities, and dividend opportunities.** However, I've noticed many distributor owners take on the role of firefighter. If you're a firefighter, your business cannot sustain growth or leap to the next level, such as from 20-30 million to 50-60 million, or from 100 million to 200-300 million. A firefighter is constantly on the road to solving problems. But solving problems never improves operations; only by focusing on finding growth, opportunities, channel opportunities, brand opportunities, and opportunities to enhance employee capabilities can you continuously cross business thresholds. Therefore, being a firefighter is not a compliment but a derogatory term, especially for owners.
**The Tao, Law, and Techniques of Distributors** If you ask distributors about their biggest headaches, these are common: personnel management, compensation and performance, return and exchange management, and near-expiry loss management. From an operator's perspective, we see these as "tactical" measures, the lowest level of operations. According to the "Tao, Law, Techniques" framework, **Tao is the distributor's strategy.** Whether to cross categories, whether to transform from a brand distributor to a category distributor, from serving upstream brands to serving stores. Whether to root in a single category or become a local B2B regional platform. The direction of the business model is the distributor's strategy. **Law is the distributor's tactics.** There are only three dimensions to operational tactics: **stores, brands, and sales personnel.** The type structure of stores, sales contribution, and gross profit contribution. The sales contribution, gross profit contribution, and potential classification of brands. The efficiency and gross profit contribution of sales personnel. The core operational strategy for distributor owners is: **make high-gross-profit stores continuously higher and more numerous; make high-gross-profit brands continuously grow in sales; make high-gross-profit personnel continuously expand their business.** This is the core action for distributor owners in daily operations, not just dealing with a factory manager or a store buyer.
**Find profitable stores and profitable brands**
With 2,000 outlets, 80% of sales come from 400 stores; with 50 brands, 80% of sales come from 10 brands. Many distributor owners stop analysis here. But they should go further: by gross profit, 80% of total gross profit comes from 400 stores and 10 brands. **The stores and brands that contribute to gross profit are not necessarily the ones that contribute to sales.**
Which stores can make money, and how much; which brands can make money, and how much; which salespeople are making money for you. **Classify stores, brands, and personnel.**
Embed the concept of tiered management into daily operations, rather than simply dividing by channel type or by brand sales volume and importance.
High sales volume doesn't necessarily mean high gross profit. Low sales volume doesn't necessarily mean low gross profit. **Find the stores and brands that bring in gross profit, and naturally you'll know where the key actions in daily management lie.**
Business is never about robbing the rich to help the poor, but about robbing the poor to enrich the rich.
**Compensation and performance design based on gross profit commission**
When discussing compensation and performance, the topic of commission distribution based on gross profit contribution came up. Previously, some distributor owners gave me feedback, worrying that once data is transparent, product gross profit would be known, which is a **"core commercial secret."** They worry that if salespeople know the gross profit is good, they might start their own businesses, especially outstanding salespeople. Let me share my views: First, **the disclosure of product gross profit is not the core reason why excellent salespeople start their own businesses.** Or, even if product gross profit is not disclosed, it still cannot prevent excellent salespeople from starting their own businesses. This has nothing to do with whether product gross profit is disclosed. Frankly, if this were the past, around 2010, disclosing product gross profit would indeed increase employees' motivation and confidence to go solo. But today, in such an economic environment and in the competitive trading industry, starting a business is too difficult! Second, if you're worried that after disclosing product gross profit, local peers in the market will know, we **can manage gross profit through classification.** A, B, C, D, E, etc., through range classification, drive salespeople to sell higher-gross-profit products. At the same time, reduce the potential risk of fully disclosing product gross profit.
**Final Thoughts** Over the past decade or more, FMCG distributors have grown continuously due to demographic dividends, store expansion dividends, and product demand dividends. With people, vehicles, and products, they could make money. But now, with the diversification and fragmentation of retail formats, increasing competition, and more players, the value distributors deliver locally is being continuously diluted, even replaced. **Low-price shocks, direct manufacturer control, and business diversion are becoming increasingly common. With the differentiation of retail channels and competition for existing demand, the distributor business has entered an era of meager profits.** In daily operations, if you're not careful, you won't make money and might end up doing fake business. Can the business still be done, and where should it go? Many distributor owners report: confusion! We believe, given the current environment, in 2024 and for some time to come, the work priorities for distributors are: survive, eliminate peers; go out, expand the survival radius. When facing business confusion, seeking answers internally often won't yield solutions and may lead to more involution; seeking externally, looking at the thoughts and practices of more excellent large distributors, will definitely bring you different inspiration and thinking. Then this conference is a feast of ideas you can't miss!
****
**From August 20-22, 2024, the 6th China FMCG Conference, themed "Crossing the Era of Shrinkage," along with the 3rd China FMCG Hard Discount Conference and the 3rd China FMCG Distributor Conference, will be grandly held in Shanghai.**
At this conference, we will continue to implement "professional methodologies" and "case growth theories," bringing together all roles in the FMCG industry chain, top guest lineups, leading retail platforms, and first-line excellent distributors nationwide, interpreting the truth of industry changes from multiple dimensions, deeply linking upstream and downstream of the industry chain, and efficiently connecting cooperation opportunities!
**At the same time, three exclusive industry reports will be released and deeply interpreted on site!**
Keynote speeches, roundtable dialogues, report interpretations, closed-door salons, and networking dinners—attend this conference and refuse to be a "frog at the bottom of a well"!
**🔺Scan code for ticket consultation🔺**
**Recommended Reading**


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