Targets not met, profit margins squeezed Distributors' business is hard Recently, distributor friends have been asking me: How to do B2b? Can you introduce lightning warehouses? Should we join snack hard discount? etc. One obvious feeling is that distributors are very anxious now, all looking for new business opportunities. On one hand, competition among local peers is intensifying. From a growth market to a stock market, the biggest change is the competitive landscape among distributors. In the past, in a regional market, distributors of different brands and categories did not compete so fiercely because everyone could grow incrementally, and natural growth was stable, so there was no need for cutthroat competition. Thus, in a region, a distributor with 100 million in scale and one with 10 million could coexist. But in a stock market, especially with declining birth rates and oversupply, the original ecological balance is hard to maintain. Brands need growth, distributors need growth, so business snatching naturally occurs. During market research, New Distribution found that in local trade ecosystems, the phenomenon of big fish eating small fish is intensifying, and brands are leaning towards more capable distributors, leaving less and less space for small and medium distributors. On the other hand, the channel landscape in local markets is changing faster. New models like snack hard discount and lightning warehouses are essentially offline businesses, grabbing market share from offline markets. Especially, these new models' efficiency improvements and compression of intermediate channels lead to lower product prices in stores, hitting the markets covered by traditional distributors harder. At New Distribution's October conference, Mr. Nie from Shaanxi Baihui shared a passage that resonated deeply. "In the era of meager profits, not just distributors, but all industries are facing difficulties. Distributors experienced the era of huge profits in the past, where any business made money, but now we've entered an era of meager profits, with average income and high costs. Even in a few years, we may enter an era of no profits, with low income, high costs, and no profits." In the "2022-2023 China FMCG Distributor Business Survey Report" released by New Distribution, among 279 distributors surveyed, only 23.7% achieved their brand sales targets for the first half of the year, with an average target achievement rate of 85.4%. This is also a true reflection of the current trade circulation industry: business is hard, sales targets are not met, and profit margins are low. Why is distributors' business so easy to snatch? I talked with a friend in the retail industry about distributors, and he said something interesting: "Have you noticed that distributors' business is the easiest to snatch?" Earlier, he managed distributor relations for a leading dairy company. At that time, he felt that wherever he went, distributors treated him well and begged to become agents. But now, he gradually finds that these leading brands have difficulty finding distributors, and many blank areas have to be operated directly because there are no distributors. Theoretically, if distributors cannot be found, the manufacturer's business will decline. But in reality, looking at these brands' annual financial reports, sales are still growing continuously. The manufacturer's business is growing, but the distributor's business is not. So where did the increased sales go? Through which channels were they sold? Distributors only know that sales are declining, but many are not clear about where the decline went. In the past, a distributor operated a region, theoretically all channels in the region were theirs. But now, in a region with N channels, a distributor may only operate 1-2 channels. Community group buying may not be supplied by distributors, snack hard discount may not be supplied by distributors, lightning warehouses may not be supplied by distributors, and even some traditional mom-and-pop stores are not supplied by distributors, but snatched by leading B2b platforms... This means that even in the most traditional B-end channels, distributors' business is being eroded, and new channels are not understood or handled by distributors. Even if there is incremental growth, they cannot grasp it, so sales decline is inevitable. Looking back, why is it so easy for these new channel models to snatch traditional distributors' business? And why are manufacturers willing to support new channels? First, some traditional distributors have weak market coverage and cannot penetrate the existing market thoroughly. A few days ago, I communicated with a leading daily chemical company. They are seeking cooperation with regional B2b platforms. The reason is simple: the existing distributors' operational capabilities are too weak; they can only operate large stores and supermarkets, and basically lack the ability to cover circulation small stores. Market competition pressure also affects brands. To grow every year, they need to refine the market. From the brand's perspective, areas not covered by existing distributors are market increments. If they don't do it, competitors will, which is equivalent to giving away market share. Second, channel changes are too fast, and distributors are slow to recognize and follow new channels. During market research, I found that many distributors have a fluke mentality, thinking that new channels are just starting and have little impact on the market, so they don't need to pay much attention. This is especially reflected in lower-tier markets. Distributors see changes in various new channels in high-tier cities but do not make changes, instead believing that these formats have not yet risen locally, such as retail hard discount and lightning warehouses. But when these formats truly take root locally, they find the market impact is huge, and the business of the stores they originally covered drops sharply. At that time, it's too late to pay attention and enter, as new channels already have stable suppliers. Third, they are too far from consumers and lack data. The ultimate destination of goods is consumers. In the era of consumer sovereignty, whoever is closer to consumers has the say. This is why brands are willing to invest heavily in C-end marketing. The traditional distributor model is manufacturer → distributor → store → consumer, where distributors do not directly contact consumers. Distributors cannot judge whether the goods are actually purchased by consumers, which region's consumers bought them, or which consumer groups bought them, and brands cannot obtain effective store data. This is a major pain point for brands that need consumer insights, as they cannot optimize upstream and downstream links through data feedback. The current snack hard discount and lightning warehouses are favored by brands and consumers largely because these models face consumers directly. On one hand, consumers buy directly, effectively feeding back data, and based on data, they can provide optimization suggestions for upstream and downstream; on the other hand, goods are sold directly to consumers, basically generating little old stock, so there is no need to spend a lot of time and resources on market maintenance. From the essence of retail, the original point is still cost, efficiency, and experience. The traditional distributor model has many intermediate links, so it is not advantageous in cost and efficiency, and because it does not contact consumers, it cannot provide a good consumer experience. Currently, many new business models are integrated distribution and retail, with better cost and efficiency, and can directly do well in consumer experience. In a sense, they are a dimensionality reduction attack on traditional distributors. Mastering the initiative in the regional market is the capital for distributors to "live well" From the department store era to the KA era, to the rise of e-commerce, to the emergence of various new retail models, every stage has been painful for traditional distributors. But now the pain may come faster because there are too many changes, too fast. If distributors react slowly, the market may be eroded. For distributors, market changes are a natural law of development, and this trend cannot be stopped. The first thing distributors should do is to seize deterministic growth and master the initiative in the regional market. First, cover and intensively cultivate blank areas in existing channels. If you truly visit the market, many distributors do not do well in market coverage and have not fully tapped the existing stock. If competitors are still there, if other brands are still there, if you still have blank outlets, if your SKU count has not reached the company's quantity, if your region still has sales gaps compared to other regions, then you still have many growth opportunities in the market. Proactively do well in existing channel coverage, do not wait for manufacturers to cut your channels. Stabilize the basic market, then think about new growth. Second, seize the growth trend of new channels and models. Every channel change will hurt a group of distributors, but it will also benefit a group. In fact, every year there are various consulting agencies analyzing the development trends and data of various channels. If distributors pay a little attention, they can find which channels are growing and which are declining. Seize channels with deterministic growth, contact them at the first time, understand them at the first time, try them at the first time. When channel changes occur, you may become one of the beneficiaries. Third, seize the growth trend of brands and categories. In the past, a considerable number of distributors grew by following the growth of some brands, and the same can be done now. Kantar once released a research report on brand sales, finding that 70% of sales are contributed by brand equity, occurring in the medium and long term, while short-term direct conversion sales only account for 30%. The importance of brand equity is self-evident. The key is whether distributors can find which brands and categories have deterministic growth. From consumer profiles, store product structures, market trends, consumption scenarios, etc., comprehensively find growth brands and categories. Fourth, growth through internal organizational optimization. I once heard a share from a big distributor. The principle is simple: when you pay wages much higher than peers, your employees can help you find incremental growth. Achieving wages much higher than peers is not a snap decision but the optimization of management systems and compensation performance. Can you upgrade from sales commission to net profit sharing, and then to a partner model? Transforming employees from individuals to part of the organizational system, from employment to cooperation, yields completely different results. Fill shortcomings, grasp channels, find products, refine organization. If distributors can continuously do these four things well, they can hold the initiative in the local trade market, "sitting firmly in the fishing boat despite wind and waves." Final Thoughts Mr. Song Zhongyu, Deputy General Manager of Shenzhen Xingzhidao Trading Co., Ltd., said a sentence at the New Distribution conference that is particularly reasonable: "Distributors need not worry too much this year, because next year's business will be even harder." There is no easy business in the world. For distributors, rather than suffering from market changes, it's better to first see if they have done well in the existing market, found good products, found new channels, and optimized their organization. If not, do these things first, and you may not be so painful.