---
title: "Distributors: Maybe It's Time to Give Up on Tier-1 Brands"
description: "Distributors of tier-1 brands are facing increasing pressure due to low margins, high tasks, and weak control, leading many to consider shifting focus to tier-2 and tier-3 brands. However, the key to success lies not in abandoning tier-1 brands but in developing professional distribution and sales capabilities while maintaining a balanced brand portfolio."
author: "葛畅"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2025-01-11"
language: "en"
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# Distributors: Maybe It's Time to Give Up on Tier-1 Brands

> Distributors of tier-1 brands are facing increasing pressure due to low margins, high tasks, and weak control, leading many to consider shifting focus to tier-2 and tier-3 brands. However, the key to success lies not in abandoning tier-1 brands but in developing professional distribution and sales capabilities while maintaining a balanced brand portfolio.

**"Distributors of tier-1 brands are really struggling now; you don't know what the future development model will look like."**

During a recent market visit, I met General Manager Zhang, a dairy distributor representing a tier-1 brand. His words revealed deep unease about his current business situation. "We're very passive. The market is tough this year, but manufacturers still demand growth. Many distributors can't afford to pay for goods, and they get dropped at a moment's notice. Those who haven't been dropped are nearly dragged down. If it weren't for the channel resources I've accumulated over the years, I'd have a hard time holding on."

**However, this unease has intensified with the fierce competition in the industry.** According to Zhang, at the beginning of this year, many white-label dairy products began to make a push in the market. Initially, he didn't take them seriously, but their price advantage severely impacted his sales. "I can't compete with them in a price war. Every link—personnel, warehousing, stores—incurs costs, but our operational profit margin is limited," Zhang said after a long pause. **"I have an emotional attachment to the brand, but now I can't see how to make it work."**

**"It's no longer just about my efforts."**

Similarly, General Manager Fang, a snack food distributor in Hebei, had the same experience and feelings. "I used to represent a tier-1 beverage brand. Over four years, I lost 10 million yuan, draining all the profits I made from other products." Reflecting on the reasons for failure, Fang believes: **First, the brand's gross margin couldn't support the company's internal and external operating costs; second, the manufacturer's promises were hard to deliver, making it difficult to protect the distributor's interests.** "At that time, supermarkets required monthly promotions and activities. Costs for material posting, end-cap positions, etc., had to be borne by the distributor. One supermarket alone required an investment of 30,000 yuan. If the return rate was high, the manufacturer would compensate one to two percentage points, but the profit was still only enough to cover employee wages and return losses. Delivery costs were a total loss."

With the emergence of various new retail formats and market fragmentation due to competition, Fang's business became increasingly difficult. **Throwing money at activities and incentives only resulted in volume without profit.** "In the first two years, leveraging the brand's momentum, I did manage to cooperate with many downstream stores, but now it's no longer just about my efforts," Fang said. He admitted that the struggle in the third year made him think deeply, and he finally decided to give up the tier-1 brand. Subsequently, the regional manager approached him and earnestly tried to persuade him to stay, promising additional personnel and policy support. Fang held on for another year, but the outcome was still bleak. "It's hard for us to communicate directly with top management of tier-1 brands. Regional managers can only guarantee that they will fulfill their promises during their tenure. **Once they leave or are transferred, the distributor's business can easily be affected.** " This time, Fang chose to cut his losses. Recalling that he had to return goods worth three to four million yuan and had uncollectible accounts, Fang waved his hand with a smile. **"When it's time to give up, you have to give up."**

**"Small brands can make money; I have to survive."**

But for distributors, giving up is never an easy choice. **The retention or abandonment of a tier-1 product can sometimes directly affect cooperative relationships with downstream stores.** Distributor General Manager Wang said this was one of the core issues his company considered when deciding to abandon a tier-1 snack brand recently. "My main purpose in handling tier-1 brands is to expand my network and make a little money on the side. If I really can't make money, then my evaluation criterion is whether giving up the brand will affect stable cooperation with downstream customers." To this end, Wang conducted in-depth market research in various regions and routes, visiting stores to understand customers' intentions and operations. "Because it wasn't profitable, I cut all the brand's expenses in stores some time ago. One customer returned all the goods, but he still sells our snack products now. He sells whatever we have." When asked why, Wang continued: "I visited him in person that day. He said it wasn't because of the brand that he chose us; it was just because there were no more fees that he stopped. But he still sells other products because they have good quality and profit, and he feels assured cooperating with us." Based on comprehensive feedback from sales staff and terminals, Wang realized that his company's achievements in the local snack food sector did not rely on that brand but on the company's products, services, and the trust accumulated over 20 years in customers' minds, which had established long-term stable cooperation with stores. **After verification, Wang decisively gave up the agency for that brand.** Although he also knew that for long-term development in the trading business, participation of tier-1 brands is essential, he was not in a hurry at the moment. "I still have other tier-1 brands that are doing well. It's just this one that I think can be put aside for now." Wang considered that in the future, based on strategic plans, he might take back this brand, but for now, he only wants to free up more capital and energy to do more profit-oriented tier-2 and tier-3 products to explore new growth directions. **"There's no special reason; small brands can make money, and I have to survive."**

Indeed, standing at a crossroads with unclear prospects, more and more distributors are turning their attention to tier-2 and tier-3 brands.

**Tier-1 Brands vs. Tier-2/3 Brands**

**Do a Comparative Analysis Before Choosing**

When mentioning reasons for wanting to give up tier-1 brands, common ones include strict requirements, heavy tasks, low profits, and weak control. On the other hand, many small brands have risen rapidly in recent years by leveraging new channel advantages, attracting distributors with high gross margins, high freedom, and high growth trends, and gradually shifting their focus toward tier-2 and tier-3 brands. So, **is transitioning to tier-2/3 brands the optimal solution?** Let's first make a simple comparison between the two.

* **Tier-1 Brands**

**1. Advantages—Help establish upstream and downstream cooperative relationships.** For store owners, tier-1 brands are both bestsellers and must-sell items, so there is a certain demand. Therefore, distributors find it easier to promote them, leveraging brand influence to reduce the difficulty and cost of market promotion. At the same time, it positively promotes deep cooperation between distributors and stores and enhances market position. For example, distributors holding tier-1 brands are seen as having higher professional standards and operational capabilities in the region, making it easier to gain cooperation opportunities with other brands.

**2. Disadvantages—Small profit margins and weak operational control.** Bestsellers also have their corresponding disadvantages: high market maturity and low gross margins are undeniable facts. For example, distributors might have 20-30 percentage points of gross margin on other products, but for tier-1 products, it might be below 10 points, or even no margin at all, only getting money after completing annual rebates. On the other hand, tier-1 brand owners have higher decision-making power in market promotion, channel strategies, etc., and most distributors can only operate according to the brand's requirements and plans. This leaves many distributors lacking autonomy and flexibility, making it difficult to adjust business strategies in a timely manner based on local market conditions.

* **Tier-2/3 Brands**

**1. Advantages—High gross margins and strong operational autonomy.** To incentivize distributors to actively promote products, tier-2/3 brand owners often offer higher profit margins, and distributors bear less pressure in sharing marketing expenses. This further improves actual profit levels, allowing distributors to have more funds for business expansion or service quality improvement. Additionally, distributors have a certain degree of autonomous decision-making in sales areas, sales tasks, price adjustments, etc. For example, based on local consumer habits and market competition, distributors can independently decide promotional prices and promotion methods to better meet market demand.

**2. Disadvantages—Require more time, energy, and stronger operational capabilities for product promotion and risk avoidance.** However, representing tier-2/3 brands also means distributors will face challenges such as difficulty in store cooperation and slow product movement due to lower brand awareness and consumer recognition. How to make stores sell without worries, or even proactively promote the product? How to do product promotion well to help stores sell better? These are issues that must be considered when representing tier-2/3 brands. On the other hand, some tier-2/3 brands may have incomplete supply chain systems, weak product development capabilities, and inability to iterate in time to meet market demand. Distributors may need to spend more time and energy in selecting cooperative products to avoid potential risks.

In summary, tier-1 brands can help distributors establish sustained cooperation with downstream stores while discovering new growth opportunities, while tier-2/3 brands can give distributors more autonomy and bring greater profit margins. **But in today's environment, which demands higher personal capabilities from distributors, it's actually necessary to grasp both aspects firmly. This is the reasonable brand portfolio layout for a distributor in a regional market or city.**

**Final Thoughts**

It's not an isolated case that tier-1 distributors are struggling now. But the purpose of this article is not to encourage distributors to give up tier-1 brands and transition to tier-2/3 brands. On the contrary, observing the commonalities of many excellent large distributors, their product portfolios must cover different price bands, different brand positions, and diversified categories in a comprehensive structural design, just with different proportions. For those distributors who are confused and trying to embrace or abandon certain types of brands, it's advisable to first rationally and objectively think about the current business model and the potential pros and cons of the choice, and make the choice most suitable for their current development stage. **Beyond the choice, getting rid of the dependence on brands and developing their own professional sales promotion operations and large-scale distribution coverage capabilities are the core competitiveness that distributors cannot be replaced by today.**

**【New Order · Symbiosis】**

******The 10th China FMCG Innovation Conference**

**Time: March 17-19, 2025**

**Location: Chengdu, China**


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