---
title: "Distributors Won't Be Eliminated, But the Trading Model Will"
description: "This article discusses the future of distributors, arguing that while traditional trading models are becoming obsolete, distributors themselves can survive by transforming into platform operators, third-party delivery providers, promotion specialists, brand service providers, or circle-based deep distribution specialists. The key is embracing digitalization and adapting to the changing market."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-02-28"
language: "en"
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# Distributors Won't Be Eliminated, But the Trading Model Will

> This article discusses the future of distributors, arguing that while traditional trading models are becoming obsolete, distributors themselves can survive by transforming into platform operators, third-party delivery providers, promotion specialists, brand service providers, or circle-based deep distribution specialists. The key is embracing digitalization and adapting to the changing market.

**The Predicament of the Trading Model**
Today's article does not discuss the difficulties distributors face in the market, but rather their way out.
Difficulties such as declining sales, rising costs, tough market conditions, and shrinking profits are merely issues of earning more or less; they can still sustain operations.
The way out for distributors is whether they can continue to exist and whether there is a future. If you think this is fear-mongering, you can choose to ignore the rest.
Traditional distributors are essentially trading-oriented, relying on price differences to make money, or even if prices are inverted, they can still profit from rebates. Therefore, price difference and scale are the two most important factors for profitability. Since the deep distribution era began in 2003, distributors have operated this way, with little fundamental change.
Over the past 20 years, the elimination rate of distributors has not been high. Although it's hard to grow big, not many truly fail. Many attribute current difficulties to a poor business environment, but I believe it's mainly the difficulty of the trading model itself, which has no future now.
**Distributors won't be eliminated, but the trading model will.**
To save yourself, choose a business model with future prospects.
**Environmental Changes Facing Distributors**
Before discussing future choices, let's look at the factors currently affecting distributors' operations.
**First, the entire FMCG industry has entered an era of shrinkage.**
No growth, no existing volume, only shrinkage. Trading distributors rely on sales growth; without growth, they resort to price wars, leading to a double decline in sales and profits. This is irreversible; don't expect growth in the future.
**Second, hard discount is forcing a supply chain revolution.**
There are two channel models in the supply chain revolution: one is direct supply from manufacturers, bypassing distributors; the other is private label, bypassing both distributors and brand owners. Hard discount will affect the pricing system of all products at the terminal and also impact the intensity of soft discount. The supply chain revolution will force channels to reduce costs, a major trend for the next decade that cannot be changed.
**Third, third-party platforms are entering the channel system.**
This includes B2b order platforms, B2b delivery platforms, and the financial platforms that accompany them.
**Fourth, user operation systems.**
Existing distributors are products of the deep distribution system, with the terminal as its endpoint. However, since e-commerce, user operation has become standard for brand owners, and channel digitalization extends to user operation in the channel.
Under these factors, the issue is not whether distributors do well or poorly, but that existing distributor trade will be dismantled by specialized channel service systems. **Distributors that survive in the future will no longer be traders but other types of operators and service providers.**
Trading distributors must transform; what are the directions?
I see roughly three directions: first, towards more comprehensive and larger scale, such as platform operators; second, towards more specialized services, such as third-party delivery, promotion, and brand service providers; third, towards deeper engagement, such as circle-based deep distribution. In short, trading distributors will gradually disappear.
From practice, **regardless of the transformation model, digitalization is a standard requirement.**
Below is a brief explanation of various new types of distributors.
**Platform Operators**
Platform operators originated from the B2b wave around 2015. Influenced by B2b, internet platforms, brand owners, and distributors all invested in the B2b wave. **When the B2b tide receded, it was found that only distributor B2b and regional B2b platforms could survive, with distributor B2b mostly coming from three major long-tail categories.**
For example, in the snack food category, distributors handle top brands like Lay's, Want Want, Strong, Mondelez, and Orion, combined with numerous long-tail brands to form a brand portfolio that controls the regional category.
In the daily chemical category, distributors handle top brands like Unilever, Blue Moon, Hengan, Jahwa, SC Johnson, and Yunnan Baiyao, combined with long-tail brands to form a daily chemical brand portfolio.
In the seasoning category, distributors handle top brands like Haitian, Chubang, Totole, Haorenjia, Wujiang, and Hengshun, combined with long-tail brands to form a seasoning brand portfolio.
Long-tail categories naturally have many brand combinations, making it possible to control the category and distribute to small terminals. Non-long-tail categories typically only distribute to secondary wholesalers, giving long-tail categories an advantage in B2b.
During the COVID-19 pandemic, some leading distributors leveraged their "supply guarantee" advantages and digital technology to enter the platform distributor B2b field, achieving great success.
There is now consensus: **For regional leading distributors, transforming from trading to platform distributors is the best option, even a must.**
The basic approach is: **Act as first-tier distributor for agency brands, second-tier for non-agency brands, using B2b order platforms to distribute to small terminals.**
**The essence of a platform operator is one-stop supply to terminals, solving supply efficiency and cost issues.**
Serving brand owners makes you a distributor; serving terminals makes you a platform operator. Previously, you followed manufacturers' commands; now, terminal demand is the baton. This is a significant shift.
Qualified leading distributors should take this path early. A region won't have many platform operators, and time is running out for distributors to transform.
The emergence of platform distributors has two major impacts: **First, brands will quickly concentrate on platform operators, leaving original distributors without brands to operate; second, it truly leads to the disappearance of secondary wholesalers.**
The final result is **one platform operator grows big, and a batch of trading distributors disappears.**
**Third-Party Delivery Providers**
Around 2000, when wholesalers were transforming into distributors, we repeatedly emphasized: **Shift from "sitting merchants" to "traveling merchants."**
"Traveling merchants" mean delivering goods to stores; "sitting merchants" mean waiting for terminals to come and pick up goods.
As a result, distributors came to believe that having a warehouse, vehicles, and delivery were their natural functions. So when we proposed separating delivery functions from distributors, many found it inconceivable: **Is a distributor that doesn't deliver still a distributor?**
Sometimes, development follows the negation of negation, spiraling upward.
In traditional channels, logistics and commerce move together. The channel includes manufacturers, distributors, secondary wholesalers, retailers, and logistics at every step. Deep distribution results in multi-level logistics.
The biggest problem with multi-level logistics is that China's logistics costs account for 12% of GDP, while Western developed countries are only 6%.
Logistics is a typical economy of scale. In the past, secondary wholesalers existed because they could consolidate orders, making delivery to small shops somewhat economical.
Platform operators centralize delivery, achieving economies of scale. However, regional platform operators are still small, so third-party delivery providers emerged, integrating orders from all platforms into one delivery system. They also seamlessly connect trunk and urban delivery, from "one less jump" to "only one jump" (a jump refers to one loading/unloading), greatly saving logistics costs.
The supply chain revolution makes brand logistics more complex, roughly as follows:
> 1. Factory → Store (private label)
>
> 2. Factory → Brand → Store (direct supply)
>
> 3. Factory → Brand → Distributor → Store (distribution model)
>
> 4. Factory → Brand → B2b Platform → Store
Even more impressive is Midea, which has achieved "integrated delivery and installation," with logistics going directly from factory to user, bypassing distributors and retailers.
Such complex logistics and delivery can only be handled by professional third-party service providers. However, third parties cannot serve all regions. Therefore, **distributors can spin off their warehouses and delivery operations, cooperate with third-party delivery providers, and become local service providers for third-party platforms.**
**Promotion Providers**
Since 2000, having capital, a team, a warehouse, and delivery vehicles has been the standard for distributors; missing any one seems incomplete.
A few years ago, when proposing third-party delivery, many distributors found it unimaginable; for trading distributors, not controlling goods meant not being a distributor.
Thus, I summarize the four functions of trading distributors as: **promotion, ordering, delivery, and financing.**
Now, these four functions are gradually being replaced by specialized platform operators. Ordering is replaced by B2b orders, delivery by third-party providers. With these two platforms, financing platforms can also enter. Therefore, **the only irreplaceable function for distributors is promotion.**
We have already seen the emergence of independent promotion providers. For example, low-density distribution for international brands, non-core market promotion for domestic second-tier brands, and offline promotion for online brands.
A few years ago, we discovered promotion providers using digital tools, calling themselves "tray operators." In 2023, we found new regional operation models where they only complete brand promotion and leave the rest to platform operators.
**Promotion → Order → Delivery → Financing, among the four channel functions, promotion is the soul. Once promotion is done, the remaining tasks are handed to third-party platform operators.**
Five years ago, this was hard to imagine. Today, with platform operators increasingly developed, it is becoming reality.
**Brand Service Providers**
The stronger the brand, the more it needs obedient distributors. In the past intense competition, distributors dared not charge forward at all costs, but brand owners had to, resulting in brand owners doing much of the work that should have been done by distributors, leaving distributors' functions incomplete.
Furthermore, many big brands now control distributor personnel. Manufacturers handle recruitment, salaries, and even performance assessments for distributor salespeople.
If so, why don't brand owners fully control? Because some work brand salespeople are unwilling to do, and some work local salespeople have advantages.
Brand owners can control distributors by funding them. But one condition: these salespeople can only work for that brand. In a sense, **such distributors are just extensions of the manufacturer's channel functions, semi-independent distributors.**
As brand service providers, they don't simply rely on price differences; brand owners must ensure they have profits.
Since they serve a single brand, they shouldn't aim to grow big. They should be obedient, with relatively stable profits; if unstable, brand owners will compensate with rebates later.
**Circle-Based Deep Distribution**
I coined the term "circle-based deep distribution" based on my recent practice and observation.
**Some categories need not only channel solutions but also circle promotion,** such as baijiu and craft beer.
They can neither adopt the old deep distribution trading model nor the digital B2b model; circle operation is their core. They are indifferent to discussions about pure channel distributors because they are deeply involved in user operation within circles.
**Circle-based deep distribution suits mid-to-high-end products.** This model evolves from B-end promotion to C-end operation, showing vitality.
**Negation of Negation**
In the early days of reform and opening up, there were large distributors. The development of Chinese channels was actually a process of distributor miniaturization. The miniaturized distributors in the deep distribution system ensured that while Chinese distributors were weak, brand giants rose.
The current supply chain revolution runs counter to deep distribution. Deep distribution ensures terminal coverage, while the supply chain revolution ensures efficiency and cost.
**The two offset each other, negating the past and returning at a higher level.**
**Distributors can no longer be miniaturized. The current difficulties are essentially difficulties based on miniaturization.**
Either bigger and more comprehensive, more specialized, or deeper, that is the direction for distributors.
Distributors will not die out, but those who don't change will.
**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.**
On March 15, a closed-door private session for distributors will be held: "Low-price impact, manufacturer direct control, declining foot traffic, what are the options for distributors?" with one-on-one dialogues with outstanding large distributors, sharing experiences, exploring business opportunities, and discussing era dividends.
We will also invite 16 benchmark distributor owners and industry executives to share their latest thoughts on distributor business. We hope to provide direction and a lighthouse for the distributor community amidst intense changes, so they don't lose their way or feel confused!
The Second China FMCG Distributor Conference is not just an ideological feast of knowledge, cases, and methods, but also a conference leading the future development of distributor business!
**This conference will revolve around the theme of "Supply Chain Revolution," spanning 3 days, with one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, over ten sub-forums and closed-door exchanges, and the first-ever "Ultimate Supply Chain" brand factory direct sourcing event. It will gather thousands of FMCG brand owners, distributors, retail innovators, and industry service providers from across the country in Chengdu for continuous brainstorming, discussing challenges and opportunities, changes and solutions in the era of supply chain revolution. In this era, a new business era will be born. We hope every participant will have a place in this wave, and we believe this will be a worthwhile conference! For business cooperation, please contact:**
**🔺Scan code for ticket inquiries🔺**


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