Click to read the original text for details. Lao Wang is a dedicated distributor for a leading domestic daily chemical manufacturer (referred to as Manufacturer A). Five or six years ago, he took over the agency for a fifth-tier city. The sales area designated by the manufacturer was the urban area plus one subordinate county. At the time of takeover, the sales target was around 4 million yuan. Lao Wang, with a sales background, personally oversaw the market, strictly following the manufacturer's policies: adding vehicles and staff, strengthening township distribution, focusing on key retail outlets, and conducting displays and promotions. Sales indeed grew year by year, but by 2017, the manufacturer's sales task had approached 10 million yuan. Although the market area had expanded by one more county, the task of over 9 million yuan was overwhelming, with average monthly inventory exceeding 4.5 million yuan. Even so, the manufacturer insisted the target was achievable with effort, citing the resident population of over 1 million in Lao Wang's territory. When Lao Wang calculated his accounts, he found that while he had made some money in the first two or three years, profits had sharply declined in the last two years despite higher sales, and he had actually been losing money for over a year. Continuing this way, he might even lose the profits from previous years. Lao Wang made a tough decision and submitted a withdrawal application to the manufacturer, completely ending the partnership. Now, he represents several non-exclusive brands, including strong first-tier products and second- or third-tier brands in other categories. Although sales are not as high as with Manufacturer A, profits are decent, and crucially, his average monthly inventory is only one-fifth of what it was. Even now, Lao Wang, like a character from a Chinese novel, vents his grievances about his two years with Manufacturer A. Especially since 2015, he felt "kidnapped": to receive the promotional discounts and market expense support promised by the manufacturer, he had to meet quarterly and annual targets. This year, it has become even more stringent, with monthly targets replacing quarterly ones. Otherwise, the manufacturer would not reimburse promotional discounts and market expenses—basic costs such as discounts on products sold at promotional prices and monthly expenses like wages for in-store promoters and shelf display fees. Lao Wang said that without reimbursement, he would definitely incur losses, so he had no choice but to comply. He noted that while the manufacturer had some assessment of these expenses in previous years, it was never as extreme as now, tying them entirely to target achievement without considering the reality of market investment. After two years, Lao Wang, "having suffered long, becomes a doctor," identified several reasons for his declining profits and losses: 1. Sales were entirely driven by the manufacturer's pressure. Every month was a rush of promotions and activities to ship goods, regardless of profit, just to recover funds and raise money for the next shipment. To secure expense reimbursements, he had to keep pushing volume, creating a vicious cycle with no time for market development. 2. The manufacturer bundled assessments across categories, forcing him to take goods regardless of sell-through. If products didn't sell, he was told to cut prices, offer gifts, or hire promoters, with no regard for profit. Lao Wang mentioned that to clear slow-moving toothpaste and shampoo, he sold some near-expiry items at 10% of the original price! These were promoted as high-margin products but became the biggest money-losers. Clearing them ate deeply into overall profits, yet not clearing them was impossible due to poor market sell-through and constant returns from scattered supermarkets. 3. The manufacturer launched new products and forced them on him without discussion. Lao Wang had to take the required quantities first. As a result, many new products required immediate disposal strategies, as slow sales tied up capital needed for the next month's targets. 4. Profitable products sold poorly, while bestsellers had no profit. The so-called high-margin products came with high mandatory targets. If sold slowly, they tied up capital and risked expiry, forcing low-price clearance. Other bestsellers were undermined by other distributors' low-price promotions, making prices transparent and leaving no room for profit. Lao Wang said that with targets rising annually and market costs climbing, he could no longer bear the erosion of profits and high inventory pressure, so he chose to exit. He also noted that being a distributor for these big manufacturers looks glamorous on the surface but is rotten underneath, with razor-thin profits. It's like being trapped in a bottomless mire, hands bound, with no way to extricate oneself. So, how can distributors in the "mire" save themselves? 1. Don't put all your eggs in one basket. This is the most critical and simplest principle. Big manufacturers grow by squeezing distributor and channel profits, and if you fail to meet targets, you're kicked out. Distributors should choose manufacturers and brands with varying recognition and profitability to complement each other, forming a suitable product portfolio to enhance overall profitability and resilience. Only through diversification can you counter the risk of being replaced by big manufacturers and take control of your own destiny. 2. Control the category structure of your warehouse. As a distributor for a big manufacturer, you have little say; the manufacturer decides what you stock. Your warehouse is essentially the manufacturer's warehouse. They may place orders for you or force allocations. If products don't sell, can you return them? No, you bear the cost. Sometimes, you need to calculate carefully: don't accept slow-moving products just for promised expense reimbursements, as the disposal costs may exceed those reimbursements and more. 3. More categories in stores isn't always better. Distribution rate is a key metric manufacturers use to assess distributors. If you claim targets are too high, they check your distribution rate; if it's low, they say there's room for growth. If it's adequate, they check store inventory. Many new supermarkets or those in areas with population outflow and weak consumption may accept stock to get fees, even for products that won't sell. As the local distributor, you must accept returns to maintain cooperation, leading to hidden losses that you bear. 4. Grasp industry trends, adopt internet marketing thinking, and explore new channels. E-commerce, new retail, and CS channels (which traditional distributors rarely touch)—whether you've heard of them or not, you need to explore and develop them. If you stick to traditional models, relying solely on wholesale and regular supermarkets, you may soon find it unsustainable. 5. Seek transformation in your own business operations. Traditional distributors face multifaceted impacts. The wolf and the lion have both arrived. Manufacturers' target pressures, market price impacts, and the low entry barrier of the trading industry—anyone with a truck and some goods can become a "wholesaler." How can traditional distributors develop or even survive? Besides the above points, transformation is the most discussed topic in the industry. But don't blindly follow the advice of certain "experts" advocating fancy concepts like "O2O platforms" or "unified warehousing and distribution." As a traditional distributor in a small city or county, can you really do O2O? Can you, as a distributor for one brand, share warehousing with a competitor's distributor? How to find a feasible transformation path? Personally, I suggest either developing downstream by opening small to medium-sized supermarkets or cosmetics stores that fit new retail models, or moving upstream by joining forces with other distributors to create your own original brands. Of course, this is just my personal opinion for reference. Source: DIAO叔有句话 -END-