Excess population competes for limited resources, yet development stagnates, remaining at a low level of repetition, forming "involution." Currently, distributors are trapped in a state of "involution," with intense competition for existing resources while still following the same old paths from a decade ago...

The first to introduce the term "involution" into China was a historical sociologist returning from overseas, named Huang Zongzhi. In 1985, Huang published a book titled "The Peasant Economy and Social Change in North China," which mentioned that China's peasant economy, with excessive labor and limited land, formed an "involutionary growth."

Huang discovered that the output per individual labor had already experienced diminishing marginal productivity, meaning that the more people invested in the land, the poorer each person on average became—Huang called this phenomenon involution.

-01- What is Involution?

Simply put, involution is when excess population competes for limited resources, but development stagnates, failing to transform into a higher-level model, thus locking itself in a low-level state, repeating cyclically. To summarize, the characteristics of involution are: First, limited resources; Second, excessive competitive pressure; Third, low-level repetition. In fact, the phenomenon of involution is very similar to the business state of distributors in the current commercial circulation field. The work of distributors is essentially low-level repetition: moving goods, getting goods into stores, and recommending products.

The total market size is limited, and as more distributors enter the fray, with the total unchanged, each distributor inevitably gets a smaller share of the pie. In the era of stock competition, efficiency cannot be effectively improved; they can only engage in low-level repetition at the same level, bargaining with competitors, further making innovation difficult, essentially locking themselves into involution.

-02- Why Are Distributors Said to Be Trapped in Involution?

A few days ago, I chatted with a distributor who complained: "In this business, I'm busy from morning to night all year round, with no holidays, and I don't earn much. Why do so many people still covet such a tough business?"

This is involution. Distributors across the entire FMCG industry are trapped in a state of involution. It seems there is still huge room for exploration in the FMCG industry, but the intensity of competition is absolutely beyond imagination.

For example, a normal person's daily water intake is 2500ml to 3000ml. Without special circumstances, a person's need for water is fixed. In a sense, this determines the upper limit of the bottled water market capacity.

But do you know how many bottled water brands there are in China? Over 3,000. You can imagine how fierce the market competition is.

In recent years, new brands have continuously flooded into the FMCG track, with categories being constantly subdivided. Bottled water alone is divided into purified water, distilled water, natural mineral water, mineralized water, natural water, and so on.

Overloaded competition has led the market into a zero-sum game, directly resulting in excessively low profits. Without high profits, it's impossible to provide better benefits to employees. Employee wages don't rise, but prices never stop increasing. Want to retain talent? Dream on!

This puts the distribution business into a vicious cycle: severe talent attrition, management unable to upgrade, and many distributors still following the old paths from a decade ago, relying on human efficiency for service, adding people and vehicles, but with continuously diminishing marginal returns.

It seems distributors are busy from morning to night, but in reality, efficiency is very low. They cannot extricate themselves from complex market and management issues, nor can they use more advanced information technology to improve themselves, doing low-level repetitive work every day.

On the other hand, manufacturers generally adopt a regional agency model, with very limited resources. Apart from some chain supermarkets and convenience stores, regional sales points have already been segmented. In a second- or third-tier city, a manufacturer is divided among as few as five or six, or as many as ten or more distributors.

Each region's demand for a single category is basically unchanged. As long as the manufacturer regulates the region properly, the sales volume of regional sales points is essentially the company's ceiling.

Another issue is that manufacturers' deep distribution locks many distributors in. Through deep distribution, manufacturers control the terminals, and distributors only provide capital and product delivery. For manufacturers, it's high risk and high reward; for distributors, it's low risk and low reward.

In a sense, deep distribution damages the core resources of distributors. Manufacturers control the terminals, and distributors only need to provide capital and execute the manufacturer's standardized actions.

The most typical example is Coca-Cola's 101 distribution system. Coca-Cola bottling plants, at the town level, find a wholesaler as a partner. The wholesaler is responsible for delivering Coca-Cola products in the area and earns a certain delivery fee. Business promotion is handled by salespeople stationed by the bottling plant, while distributors only handle delivery.

Distributors waste time on a large amount of low-level repetitive labor. The work is very complex, yet no creative premium can emerge.

Therefore, the key now is to help distributors break free from this state of involution and create more value.

-03- How to Break Free from This State?

In "The Three-Body Problem," there is a plot: Human technology is locked by the Trisolaran civilization using sophons, preventing particle colliders from smashing particles to study microphysics. After that, human civilization continues to develop new things based on existing technology and even builds a massive space fleet. Humans are confident in their technological development and believe they can defeat the Trisolarans. But Trisolaris uses just a single droplet to destroy the human space fleet.

Why use this example? Once thinking is locked, no matter how much you polish the existing model, you're just deceiving yourself; it's ultimately just involution.

This is especially true in the commercial circulation field. The old business models from a decade ago have lost competitiveness, and change is inevitable. For distributors, breaking free from involution means reducing costs, improving efficiency, and making the business bigger.

How to do it? I think there are several options to consider.

1) Look at the Big Picture, Choose Good Products

Distributors often don't realize they're trapped in involution and need external forces to help. Brands are a good external force. Choosing a good brand is very helpful for a distributor's growth.

In product selection, first, look at the consumption trend of the category—whether it's on the rise or decline—and choose brands based on the category's consumer demand.

For example, Shenzhen's Hongguan Trading seized the consumption trend of "short-shelf-life bread" and rose rapidly in just three years.

Second, assess whether the market is a fully saturated stock market. For example, bottled water and ambient milk have entered a mature stage with saturated competition. Whether you can withstand the impact of competitors after entering requires deep consideration.

2) Adjust Category Structure, or Even Switch Tracks

"Often, beverage businesses don't grow big; daily chemical businesses don't grow small." This doesn't mean everyone should do daily chemicals, but it tells distributors that categories have bottlenecks.

For example, water and beverage distributors face a highly saturated market, even a red ocean. Should they consider switching categories?

Many distributors have a mindset error: they think it's natural to invest hundreds of thousands in the brand, but when it comes to investing in their own team or doing things themselves, they feel pain even for tens of thousands.

Distributors have teams, terminals, and resources. They can try new tracks, such as ODM and OEM brands. For example, condiments have high gross margins and not particularly high brand concentration. With channel resources, distributors can easily introduce private label products.

I once communicated with a water and beverage distributor who, while representing a major brand, invested hundreds of thousands each year in OEM private label products, distributing them through his own channels. The annual returns were comparable to the agency business that required millions in investment.

3) Try New Models (B2B)

Try building a local B2B supply chain platform, which is what we call a "channel-type distributor." Although there are barriers, it completely breaks through the market bottlenecks based on brands and categories.

The definition of a channel distributor is based on procurement logic, not agency logic. Traditional distributors represent brands, with upstream brands at the core, distributing for the brand. Channel distributors, on the other hand, focus on small store needs, helping them achieve one-stop procurement.

From 2013 to now, national B2B has reached a bottleneck, covering at most over 2 million outlets. The core reasons: logistics costs, management radius, and localized consumer habits prevent effective national coverage.

After being educated by these national B2B platforms, small stores have actually begun to gradually accept the habit of ordering online. This is also a prerequisite for distributors to try B2B.

Of course, the maturity and popularity of tools allow every distributor to achieve scaled distribution through tools.

One point to emphasize: not all distributors are suitable for transitioning to B2B. I think there are two main factors: First, the ability to cover local outlets well, with at least a thousand outlets, and regular visits covering over 50% of business; Second, the category has low competition but large market capacity, such as condiments, with condiments as the core category, then extending to other categories.

4) New Technology Empowerment

Traditional distributors are called traditional because of rigid models and low efficiency.

Rigid models are essentially low-level repetitive operations, which are also the root cause of low efficiency.

For example, salesperson visit process management, product shelf management, warehouse inventory management, financial data reports, and even connections with upstream manufacturers.

These seemingly complex tasks can be replaced by digital technology.

In recent years, everyone has been talking about digitalization. What is digitalization? The core of digitalization is to liberate people, empower them, simplify original work, and allow employees to manage 200 stores instead of 100, or even more, with an easier and more efficient process.

Distributors should understand one point: complexity does not equal sophistication, nor does it equal advancement. Low-level complexity is meaningless.