1 Distributors Say "No" to Big Brands, Manufacturers Are Losing Control Over Distributors Since 2016, some major brands have had to find new distributors in the market because their original distributors quit without notice, sometimes without any warning, leaving frontline sales staff in a difficult position. If it were just a few distributors, it could be seen as isolated cases. But when this phenomenon becomes more common, it's worth pondering. Two years ago, this was unimaginable. At that time, agency rights for big brands were highly sought after. How fast times change! There has always been a term that seems unique to China: managing distributors. I have questioned this many times: Aren't customers the gods of manufacturers? We should serve the gods wholeheartedly, so how can there be "managing" the gods? In reality, this reflects the abnormal state of manufacturer-distributor relations in China, where manufacturers, especially big brands, hold a dominant position. 2 Why Are Big Brands No Longer Popular? In the past, big brands were very popular. Why? Because big brands brought huge benefits to distributors. The benefits from big brands might not be direct profits, but they certainly brought indirect profits. Big brands often became "traffic drivers," pairing with small brands to generate both sales volume and profit. What kind of era was that? I summarize it in two phrases: blowout low-end consumption, endless sales growth. In that era, all Chinese enterprises, whether manufacturers or merchants, were growth-dependent. As long as sales grew, profits grew. All problems in the enterprise were masked by sales growth. This era ended in 2013. In 2013, most industries in China reached historical peaks in sales volume. In 2014, leading companies in most industries saw their sales decline for the first time. Everyone thought it was abnormal. In 2015, sales of industry leaders continued to decline, and people thought it was basically normal. By 2016, people had become accustomed to declining sales. When sales decline, what do manufacturers do? In 2014 and 2015, the normal work for manufacturers was to "rescue sales." How to rescue sales? There were roughly three methods: First, launch new products, but few did this because new products "can't quench immediate thirst," and the marketing system didn't have the energy to promote new products; Second, increase pressure to push inventory, such as increasing promotional efforts, which most companies did; Third, some grassroots marketing staff, to save sales, opened new accounts and tacitly encouraged cross-regional selling. These practices, in 2014 and 2015, distributors had to endure. First, manufacturers were used to being strong; second, everyone thought the decline might be temporary. In the past, manufacturers and distributors believed in one principle: sales are squeezed out. Pushing inventory and promotions could always squeeze out sales. After 2014, manufacturers still hoped to squeeze out sales, and their work revolved around that. But gradually, they found that sales could no longer be squeezed out. By 2016, distributors generally saw that the decline was not temporary; it was a turning point. Distributors couldn't see the future. When distributors can't see the future, some stopped tolerating the arrogance of big brands and gained the courage to say "I quit" to manufacturers. 3 Why Can't Distributors See the Future? Besides the overall decline in sales, rising labor costs also became unbearable for distributors. Since 2003, China has been on the track of deep distribution. Deep distribution actually has two major premises: First, channel fragmentation; only deep distribution can solve the problem because the essence of deep distribution is to get as close to the terminal and consumers as possible; Second, deep distribution relies on a human-wave tactic. This is because labor costs were low. When sales are growing, cost increases can be temporarily ignored because sales growth can dilute costs. When sales stop growing, distributors find profits squeezed by both sales and costs. Sales didn't grow, promotional expenses increased and ate into gross margins; cost increases further squeezed profits. In the past, the average profit for FMCG distributors was about 3%, and the average delivery cost was 7%-8%, not including promotional and management expenses. With such low profits, any slight impact from sales or costs would push them to the break-even point. For some price-transparent fast-moving consumer goods, gross margins were already quite low. Distributors can tolerate one year without profit, but it's hard to tolerate two years without profit. If there's no hope of profit for two years, distributors gain the courage to say "no." 4 Manufacturers Begin to Compromise In the past, manufacturers rarely compromised with distributors. This time, when some distributors took the initiative to say "no," manufacturers actually compromised. Because if manufacturers don't compromise with distributors, distributors can easily quit. Initially, it was strong distributors who said "no," but now ordinary distributors dare to say "no" too. If saying "no" becomes more common, the manufacturer-distributor relationship will shift. 5 How Do Big Brands Dominate Distributors? In the past, big brands dominated distributors for two reasons, I believe: First, big brands could indeed lead merchants in marketing; Second, big brands could bring profits to merchants. Roughly since 2010, Chinese manufacturers have been largely inactive in marketing. In recent years, in the internet era, they have lost direction and no longer have the ability to lead merchants forward. Especially in the B2B field, I find that distributors are more sensitive to manufacturers. Many distributors have already taken action, but how many manufacturers have realized this? In terms of SaaS applications, distributors are also ahead. Losing the leading role in marketing and failing to lead distributors forward is a major aspect of big brands losing their dominance. Of course, declining sales, falling profits, manufacturers' inability to do anything about it, and their inability in high-value-added promotions are also important reasons. As the industry reaches its ceiling, both manufacturers and distributors now face a problem: How to achieve profit growth despite declining sales? If this problem isn't solved, big brands will further lose their dominance over distributors. -END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Tips | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | 016 Distributor B2B Transformation | [Long press QR code to follow]