---
title: "Distributors That Only Do Warehousing, Financing, and Wholesaling Are Close to Closing Down!"
description: "The harder business gets, the more distributors should think about how to run their business in the next 2-3 years, especially in an era of new retail and online e-commerce. New Distribution has predicted that regional distributors will evolve into three types: brand operators, category operators, and regional supply chain companies. Regional supply chain companies are rare (1-3 per region) and demanding, making them less ideal for most distributors. Brand and category operators are more feasible, requiring directional adjustments based on existing resources."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-09-04"
language: "en"
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# Distributors That Only Do Warehousing, Financing, and Wholesaling Are Close to Closing Down!

> The harder business gets, the more distributors should think about how to run their business in the next 2-3 years, especially in an era of new retail and online e-commerce. New Distribution has predicted that regional distributors will evolve into three types: brand operators, category operators, and regional supply chain companies. Regional supply chain companies are rare (1-3 per region) and demanding, making them less ideal for most distributors. Brand and category operators are more feasible, requiring directional adjustments based on existing resources.

****Click to read the original text for details****
The harder business gets, the more distributors should think about how to run their business in the next 2-3 years, especially in an era of new retail and online e-commerce.
**Regarding the evolution of distributors in a regional market, New Distribution has predicted that they can be broadly divided into three types: first, brand operators; second, category operators; third, regional supply chain companies.**
Frankly, regional supply chain companies are relatively few in a regional market, around 1-3. Comparatively, the conditions and requirements for becoming a regional supply chain company are higher, and this path is not the best strategic choice for most distributors.
Becoming a brand operator or category operator is relatively easier, and making some directional adjustments based on existing accumulated distribution resources is a good choice.
**A brand operator, simply put, is one who reaches a deep strategic cooperation with an upstream brand, becoming the designated local operator, with that brand accounting for more than 50% of the distributor's business.**
Common brand operators include distributors for brands like Yili, Mengniu, Nongfu Spring, Arawana, and Nice (exclusive sales). These distributors typically have a product structure of "1+n": one core strategic brand and n non-well-known products. Main categories include water and beverages, dairy, and grain and oil.
The distributor's strategy at the frontline terminals, sales promotion, and marketing basically revolve around the core strategic brand, with other products as auxiliary and sold incidentally.
**The above are brand operators, oriented towards the implementation of a strategic brand's sales services. In contrast, category operators are oriented towards the integration of a specific category, maximizing the occupation of terminal store category shelves, squeezing out competitors, then adjusting product structure, promoting high-margin new products, and obtaining profits.**
Common category operators include distributors for snacks, general merchandise, daily chemicals, and condiments. Of course, the above are "large categories," which can be further subdivided into "small categories" such as oral care, paper products, household cleaning, personal care, and bread. These category operators often have over 1,000 SKUs.
**In the next 2-3 years, the mainstream evolution of distributors will move towards these two types. Based on these two types, let's look at what the core profit logic is for distributors.**
**How do brand operators make money?**
Brand operators have a "1+n" distribution structure, and the core of making money depends on the distribution of the strategic brand. There are two key points: **first, the distribution method; second, internal management.**
**1\. The distribution method determines whether you make money**
For single-brand distribution, regardless of volume, if it still relies on the wholesale model, it is almost impossible to make money in the current era. If you only represent one strategic brand (which is 90% likely to be a first-tier well-known brand), the price system for its best-selling products is very transparent.
If you only do warehousing and financing, you are easily attacked by "product diverters" on price. **Therefore, reducing second-tier distributors and directly controlling terminals is a path every brand operator must take.**
At this point, many distributors worry that if they give up second-tier distributors and go direct to terminals, they may not be able to support their staff and vehicles. Yes, if you only do best-selling products of well-known brands, it is indeed difficult to achieve profitability.
But well-known brands do not only have best-selling products; first-tier brand manufacturers basically launch at least a few, sometimes over a dozen, new products each year.
**Becoming a brand operator is not just about selling best-selling products; the core is that upstream manufacturers hope distributors can continuously "promote high-margin new products." If distributors cannot sell new products, even if best-selling products sell well, it is hard to make a profit.**
**2\. Internal management determines whether you make money**
If you look only at front-end gross margins, the profit space for brand operators is very limited, especially in the distribution of well-known first-tier brands like Yili, Mengniu, and Arawana. Therefore, many distributors joke that making money is "saved."
Many manufacturers have begun to advocate "cost reduction and efficiency enhancement" to distributors. The core behind this is that front-end margins are limited, so distributors must seek benefits from back-end management. **The core of management is not blindly reducing costs, but increasing efficiency, especially the visit and promotion efficiency of frontline staff, and the service efficiency of back-end warehousing and distribution personnel.**
For example, for dairy distributors to achieve profitability, the key is freshness management, directly reflected in the management of exchanging old-stock products.
For old-stock products, if the method is still "unified return to warehouse for inspection and review, then centralized return to KA stores or some small stores for special offers and bundle sales," the two logistics handlings, plus the dispersion of business time and energy, make profitability very limited.
**How do category operators make money?**
**For brand operators to achieve profitability, they must either directly control terminals and promote high-margin new products, or focus on cost reduction and efficiency enhancement, doing extreme management, and seeking benefits from management.**
Compared to brand operators, the profit logic for category operators is achieved through product integration and product matrix, no longer looking at the single buy-sell price difference of a single product.
Typically, **the product structure of a category distributor is 3-5 first-tier well-known brands, plus n non-well-known brand products in that category or non-best-selling products of first-tier brands. Generally, distributors do not rely on best-selling products for profit, but rather profit through n non-well-known products.**
At this point, the core role of first-tier brands is to connect with terminals, ensuring sufficient customer relationships and stickiness, thereby increasing the entry rate of non-well-known products and the shelf display share after entry. In this process, gradually increase the SKUs in this category.
A snack food category operator told me, "For downstream small store customers, I don't pay much attention to single-store sales; I consider how to fill the snack food shelves of small stores and how to increase the SKU share. Regarding upstream brands, besides grasping a few core mainstream brands, I focus on which products are popular in the snack food category, continuously introducing new products to meet the profit needs of small stores."
In fact, focusing on different categories, there are differences in terminal strategies.
For example, in paper products, Mr. Nie Biquan, General Manager of Shaanxi Baihui Trading, once shared at the "Distributor Landing Growth Course" organized by New Distribution that he does paper category distribution by combining multiple first-tier brands to form a brand matrix to seize terminals.
He gave an example: In 2016, a certain A brand had about 40% market share in the local market. To attack the market and "kill" A brand, they lost 2 million yuan that year. But by the next year, A brand disappeared, and the 2 million yuan loss was recovered in just one year.
**Category distribution, relatively speaking, is more like a positional battle. The competitors are not only brand manufacturers but also local distributors of the same category. What distributors need to win is not against manufacturers or terminals, but against similar distributors.**
In New Distribution's view, **brand operators are still more manufacturer-led, while category operators are self-led by distributors. Compared to brand operators, category operators have higher anti-risk capability and higher profitability.**
Frankly, whether transforming along the path of brand operator, category operator, or regional supply chain company, distributors must re-plan their business, combining their own resources, capabilities, and the external market environment.
Philip Kotler, the father of marketing, once said, **"Within five years, if you still do business the same way, you are close to closing down!"** For distributors, if you are still a sedentary merchant, warehousing distributor, financing provider, or wholesaler, closing down is indeed not far away!
_*** From September 23 to September 25, the 4th China FMCG Conference organized by New Distribution will be grandly held in Shanghai. We have invited nearly 10 outstanding distributor representatives from across the country to share their practical business methodologies on stage, covering digital management, compensation assessment, building B2B platforms, opening warehouse membership supermarkets, etc. These are the practical experiences of distributors in the frontline market, shared one by one, with on-site exchanges. Interested friends, don't miss it!**_
**Are you "watching" me?**


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