In the second half of this year, I visited more than a dozen distributors and listened to their business conditions and market challenges. Among them, one distributor's remark left a deep impression: "The current market is no longer about earning more or less, but about losing money if you're not careful!" At some point, distribution became a high-risk business, with heavy asset operations yet bearing upstream constraints and downstream rules, squeezed from both ends. Now it's even harder, with various direct sourcing and direct supply initiatives waving the banner of 'de-intermediation,' and a slight misstep could lead to elimination. This article shares some of the market observations I've made recently, discussing the market problems distributors faced in the upcoming 2024 and the breakthroughs made by those who performed well. High Operating Costs, Intense Market Competition "The market has been tough in the past two years, with both profit margins and profit amounts declining." When discussing business conditions, more than one distributor boss reported this. According to the "2023-2024 China FMCG Distributor Business Condition Survey Report" released by New Distribution in August this year, 7.1% of distributors saw revenue growth, 14.2% remained flat, and 48.7% saw declines. In terms of profits, only 18.2% of distributors saw increases, while a larger 63.2% saw declines. This means that a significant portion of distributors, even if their business grew, saw profits decline. The main reason for this is: operating costs continue to rise, but the profits given by manufacturers are being squeezed. In the past, a few people, a few vehicles, a few hundred square meters of warehouse, and representing a few brands could start a business. But now it's not possible; channels are too fragmented and scattered, foot traffic in terminal stores is declining, and simply placing products on shelves doesn't drive sales. Therefore, stores have higher demands for service, price, and efficiency, which means many distributors, even if their business scale hasn't changed much, have to invest more manpower and resources to sustain the business. "The current market is no longer about earning more or less, but about losing money if you're not careful!" Natural market growth has disappeared, and profits can no longer support so many distributors. To survive, many distributors have to resort to wholesale markets to dump goods, and to enhance competitiveness, they source low-priced goods externally, further disrupting the market. According to feedback from a beverage distributor, "Because cross-regional selling is too severe, the largest local chain system has never been able to be entered. A certain brand's beverages come from all over the country—Anhui, Jiangsu, Shandong... different every month." "Supermarkets are hard to deal with, and business is declining. The return rate from small stores is also rising sharply. Customers we've worked with for seven or eight years are now comparing prices. In the past, we had to guard against theft, fire, and supermarkets, but now we also have to watch out for small stores going bankrupt!" Downstream product circulation is blocked, while upstream continues to push inventory. High inventory levels and rising return rates have become the last straw that breaks the distributor's back. During a market visit in the first half of the year, I saw an extreme case: a distributor boss representing a brand had monthly shipments of only 600,000 yuan, but due to the manufacturer threatening with expense verification and tempting with territory allocation, under repeated inventory pressure, his inventory reached over 10 million yuan. On the surface, he seemed prosperous, but in reality, he had mortgaged his house and car and was borrowing money to keep going. Wanting to Quit but Afraid to, Searching for a Way Out in Confusion Market pressure is forcing distributors to make changes. Facing declining business, to ensure basic revenue, many distributors are forced into involution. Distributor Mr. Wang (pseudonym) is a typical example. Mr. Wang operates in a county-level city, and with a scale exceeding 100 million yuan, he is the absolute category leader in the local area. But in his words, the scale of over 100 million looks glamorous, but only he knows the bitterness behind it. "Business declines about 10% each year. To cover costs, I have to find every possible channel that can bring sales." The categories he distributes are declining sharply, but costs for utilities, labor, and warehousing remain. To ensure revenue, Mr. Wang had to start working with e-commerce platforms like Duoduo and Meituan, but that only compensates for sales volume, not profits. "After doing this for so many years, even if I want to sell, no one buys! A business over 100 million can't be easily stopped; every day is a cost." To seek growth, he used to only serve large stores, but now he has to pay attention to small stores. However, sales of his original categories in small stores are pitifully low. To do well in small stores, Mr. Wang had to shift from a single-category business to multi-category and cross-category operations. "I'm busy every day, spinning like a top. I've thought about giving up completely, but considering the more than a hundred people under me who have followed me for so many years, I can't let go and don't dare to let go." "I have no choice but to grit my teeth and try again, doing B2b, treating it as my last entrepreneurial venture!" Wanting to stop but not daring to, wanting to quit but not daring to. If even leading distributors are like this, one can imagine the survival conditions of mid-tier and tail-end distributors. Breaking Free from Role Constraints How can distributors seek breakthroughs? Ren Wenqing, CEO of New Distribution, once proposed this viewpoint: The existence and development of distributors are superficially due to manufacturers' needs, but essentially due to market needs. The distributor group will not be eliminated; elimination only happens because your products or services have no one paying for them, and the market doesn't need you, not because you are defined by a certain market role. Under the same market conditions, we also see some distributors stepping out of traditional trading businesses, breaking free from the constraints of the 'distributor' identity, and actively making breakthroughs. Here, I also summarize some points for reference. 1. Regional Distributors Deploy B2b Market competition is becoming increasingly fierce, with one change after another, and the living space for traditional distributors is constantly being compressed. During market visits in the second half of this year, I found that in the face of change, more and more distributors are making B2b an important part of their strategic development. They are either doing B2b or preparing to do it. In a survey of 302 distributors across the country by New Distribution, 26.5% of distributors chose to build their own B2b local supply chain platform as a direction for transformation and upgrading. By deploying B2b, they complete the construction of a full-category supply chain, cover more stores, provide one-stop selection, operation, and services for small and medium stores, form strong bonds with quality points, strongly control terminal resources, ensure stable business sources, and deepen the channel moat. In the coming year, New Distribution will organize 10 in-depth study tours around B2b. The Luoyang and Nanning stops have just concluded, with very high enthusiasm for registration and learning, and the number of participating distributors far exceeded expectations. Interested friends can follow the official account for updates. 2. Distributors Transform into Category Service Providers In recent years, supermarket sales have significantly shrunk. Since April, Pangdonglai has been helping Bubugao with adjustments, and later helped Yonghui with adjustments, making supermarket adjustments a hot topic in the industry. Many retail enterprises have realized "if we don't change, we're doomed" and are scrambling to imitate. However, having been in the business of "selling shelves" for so many years, most supermarkets don't know how to operate shelves. In this process, many distributors have realized the opportunity for transformation, shifting from simply supplying goods to helping retail enterprises find the best solutions for product composition, pricing, display, and promotion, providing category shelf operation services for retail stores, and helping stores with adjustments. Recently, New Distribution has also reported some cases, such as Henan Shizhirui, which helps supermarkets with adjustments through a whole-store daily chemical output model, with zero account period and 50% annual growth; Zhengzhou Dapeng Trading, which outputs entire shelf sets in the snack subcategory, gradually penetrating by establishing benchmarks... Interested readers can check past articles. 3. Distributors Deploy Retail The once clearly separated distribution and retail links are now infinitely converging. Facing fierce market competition, for distributors, the era of simple handling and distribution is over. To survive in the future, they must have retail thinking, either selling themselves or helping stores sell better. New Distribution has also noticed that many distributors are creating a second growth curve by opening their own stores or franchising, and using store data to feed back into their trading business, with various segments synergizing. Take Jia Yongshun, general manager of Xuzhou Jintong Trading Co., Ltd., as an example. In addition to being a distributor, Jia is also a retailer and a snack store franchisee. After 9 years of entrepreneurship, he achieves annual sales of 300 million yuan in the county market, directly operates 8 chain fresh food supermarkets, and has opened 8 franchise stores of leading snack discount stores. In a live broadcast with New Distribution, Jia mentioned that each segment has its unique advantages, and this synergy can improve the overall business. For example, the supply chain system of snack discount stores can provide high-quality and low-priced goods, the B2b platform can purchase, and fresh food supermarkets can also benefit. One point that needs emphasis is that distributors entering retail must first change their mindset. Many distributors think their products are easy to sell when opening stores, but in the end, the store becomes a display room for the brands they represent and an outlet for clearing inventory, which is wrong. Since you choose to deploy retail, you must be consumer-centric and provide diversified products based on consumer needs. The value of a retail store lies in using data to feed back into the product structure of the trading business, not just as a channel for shipping goods. Final Thoughts A billion-level snack distributor told me, for a long time to come, distributors need to think about how to survive. The market changes too fast, with one retail reform after another, too fast and too complex; the brand manufacturers that were relied upon in the past are also having a hard time, with obvious declines in financial reports; distributors are even more difficult, squeezed by upstream and downstream in the past, and now at risk of being eliminated with a slight misstep. In the past, distributors served manufacturers well, providing handling, warehousing, and capital advance services to help brands sell better; but now the market doesn't need so many distributors, but it does need intermediaries with scale and efficiency advantages that can provide value-added services to retail customers and upstream manufacturers. Either sell yourself or help stores sell better. For distributors, to survive and develop, they must adapt to market needs. We can't do all kinds of business; the more confused we are, the more we need to calm down and think about where our core advantages lie, what market needs they can match, and continuously build new moats.