Dear friends, I hope this message finds you well. I'm Yuan Lai from New Distribution. A couple of days ago, something triggered me to write this article. A distributor owner who is a member of our alliance sent me a message asking about the many articles and information he had recently read, analyzing market changes and trends. The judgments about local distributors seem rather pessimistic: no future, no way out, they will be eliminated! Distributors are anxious. Whether it's the rise of hard discount formats or the response of chain supermarket stores, the矛头 (blame) is directed at eliminating distributors. On the other hand, at the annual distributor conferences of various first-tier brands before the Chinese New Year, they all emphasized: Distributors are the "root" of the brand's sustainable business development, and we must continuously empower and support distributors. First-tier brands want distributors, but chain retailers want to eliminate them. This owner asked me: Will distributors be eliminated? Should we retreat in an orderly manner or continue moving forward? Let's discuss the future and way out for distributors based on the questions raised by this owner. Will distributors be eliminated? First, let me give my view: No! I won't analyze business theories. As long as the cost of transferring goods between upstream and downstream in the industry is not zero, there will always be space and value for local distributors. When people in the industry say "distributors will be eliminated," we need to clarify what they really mean. My understanding is: Not all distributors will be eliminated, but some will. What does that mean? The current market environment is one of stock competition. Consumer demand for a particular product is relatively constant. For example, if a consumer buys Mengniu at a store shelf today, they won't choose Yili. When market capacity remains unchanged, it's a battle between brands for consumers. In a specific market, it's essentially a battle between Mengniu distributors and Yili distributors. This is using dairy as an example, but it applies to the entire FMCG industry. Of course, Mengniu distributors can't completely eliminate Yili distributors because the brand will support them. If a Yili distributor is really ineffective, Yili will also support a new distributor. But if we look at the snack food sector, the local trade and distribution landscape may undergo major changes. For example, in the same region, Distributor A handles Mondelez, Want Want, Strong Group, etc., while Distributor B handles Lay's, Chacha, Dali, etc. In the past, the business logic for A and B was: you do yours, I do mine, each growing their own pie. A does 30 million in business, B does 60 million, and they don't interfere with each other. But when entering a stock market, coupled with chain supermarkets' direct operations and snack discount stores grabbing downstream stores, if Distributor B only handles the above brands, they can no longer achieve sales and profit growth. When all costs are increasing simultaneously, only by taking on more brand distribution, grabbing more store shelves, and expanding business scale can they stabilize, improve per-capita efficiency, and gross margin. At this point, Distributor B begins to compete for Distributor A's business. Therefore, when we say distributors will be eliminated, it's not because hard discount formats or community group buying directly eliminate them; they only have an impact and cause decline. The core is: Because hard discount stores have arrived, taking 30% of existing stores' business. Your peers—more excellent and capable distributors—to ensure the stability and continuous growth of their own business, have to increase resource investment and grab the remaining shelf space. Hard discount formats take 30% of business, your peers take 20%, and eventually you can't survive. When the industry says "distributors will be eliminated," the essence is that competition between distributors within a city has already begun. Distributors are eliminated not because of hard discount or chain supermarket direct operations, but because your peer distributors, to ensure their own business continuity, leave you with no business to do. The distributor community will always exist, but individual distributors may not. Distributors will be eliminated, not by outsiders, but by your peers! What kind of distributors can continue to survive? Now that we understand the above logic, let's see what kind of distributors can sustain themselves. I believe there are only two types: brand-oriented distributors and retail-oriented distributors. Brand-oriented distributors, to put it bluntly, work for upstream brands. They earn the gross margin that the brand allocates to them. If you manage well, with good processes, systems, and business incentives, your profits will be higher. If you manage poorly, with employees slacking off, untimely clearance of near-expiry products, and missing rebate policies, your profits will be lower (or possibly none). The upstream brand directs where to go. If working for one brand doesn't make money, then work for ten brands (except for exclusive distributors). For example, handling Nongfu Spring, Tsingtao Beer, Unilever, Yunnan Baiyao, Haitian, etc. Looking at the FMCG distribution sector, currently, brand-oriented distributors are the majority. As the market enters a stock phase, competition among peer distributors intensifies, and requirements for distributors increase. In the past, promotional activities and shelf displays were done by first-tier brands, but today distributors are required to do it themselves! Doing it yourself not only demonstrates your marketing and promotion capabilities to first-tier brands, but also, by learning from first-tier brands, you can apply the same methods to sell more second- and third-tier brands, further increasing sales and gross margin. Compared to brand-oriented, retail-oriented distributors focus their business perspective on stores and shelves. For local or regional supermarket chains, they take over 12 shelves in one or two categories, monopolizing the space. Then they source products based on the category shelves, based on low, medium, and high price points, and based on functional, specification, and flavor segmentation for consumption scenarios. At this point, the distributor must become a category operation expert for the store. Essentially, they are the purchasing manager for category management under the retail store system. For small and medium stores, they supply 50% of the categories in the store, including snacks, non-staple food, seasonings, and daily chemicals. In essence, they provide one-stop supply for 2,000 local small and medium stores. This model is called a B2b local supply chain platform provider, essentially a local FMCG procurement supplier for small and medium stores. Should you be a brand-oriented distributor or a retail-oriented distributor? There's no right or wrong. Taking the brand-oriented route, based on past business inertia, can make your business more stable. But taking the retail-oriented route can make your business last longer. We believe that no matter how the market develops in the future, local retail will not become 100% chained or nationalized, and it will never disappear. As long as local retail exists, the supply chain behind it will always need a distributor or platform provider to serve it. Orderly retreat or continue moving forward? Back to the earlier topic: Should distributors retreat in an orderly manner or continue moving forward? I think answering this question is relatively simple. The role of distributors will definitely exist, but obviously, competition will become increasingly fierce. In the past, distributors only needed to maintain good relationships with upstream factory managers and downstream store buyers, and business would naturally improve. But now, your peer distributors not only know how to build relationships, but also know how to manage, promote, and incentivize. If you don't progress, don't make changes, don't learn, and just sit in the office drinking tea, making phone calls, and networking, that won't work. Therefore, to continue moving forward, distributors must invest more energy and time than before in thinking about the professionalism of this business. "Why doesn't the store stock up? Why doesn't the store stock more? Why doesn't the store continue to stock?" Instead of simply doing customer relations and networking. From the perspective of the distributor owner, if you are near retirement age, the second generation doesn't want to take over, and you don't want to make changes, then holding on to first-tier brands is also a resource. You can maintain stability. Not being aggressive, not investing, is also a way of orderly retreat. If you still want to realize personal or social value and provide more material benefits for the employees who have worked hard with you, then continue moving forward. Support them, invest in them, study hard discount, study B2b, become a category operation expert for stores, etc. The future of distributors still exists, but you have to make changes, progress, and learn! We believe that given the current environment, in 2024 and the near future, the key work for distributors is: Survive, eliminate peers; go out, expand survival radius. When facing business confusion, looking inward often doesn't provide answers and may lead to more involution; looking outward, observing the thinking and practices of more excellent large distributors, may bring you different inspiration and thoughts. From March 14-16, 2024, during the Spring Sugar Fair, the Second China FMCG Distributor Conference, organized by New Distribution and Zhoupu Data, will be held in Chengdu. At this conference, I will share on the theme "City X Trade Circulation Business Development Model" , hoping to bring deeper inspiration to the attending guests. On March 15, a closed-door private sharing session for distributors will be held: "Low-price impact, manufacturer direct control, declining customer flow, what are the options for distributors?" with one-on-one dialogues with excellent large distributors, sharing experiences, exploring business opportunities, and discussing era dividends. At the same time, we will invite 16 benchmark distributor owners and related industry executives to share their latest thoughts on distributor business. We hope to provide some direction and set up a lighthouse for the distributor community in the face of strong changes today, so that at least their business direction is not blurred or confused! The Second China FMCG Distributor Conference is not only a thought feast of knowledge, cases, and methods, but also a conference that leads the future development of distributor business! This conference will focus on the theme of "Supply Chain Revolution" . Over 3 days, there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, more than ten sub-forums and closed-door exchange meetings, and the first-ever [Ultimate Supply Chain] brand factory direct sourcing fair. We will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu, continuously brainstorming, and jointly discussing the challenges and opportunities, changes and ways out in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave. We believe this will be a worthwhile conference! For business cooperation, please contact: 🔺Scan code for ticket consultation🔺