---
title: "Economic Downturn: Distributors in a Panic"
description: "The era dividend has disappeared, but structural opportunities still exist. As consumption patterns are reshaped and channel structures are reconstructed, distributors face internal and external pressures, yet those who adapt can still find growth."
author: "田静"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-07-29"
language: "en"
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# Economic Downturn: Distributors in a Panic

> The era dividend has disappeared, but structural opportunities still exist. As consumption patterns are reshaped and channel structures are reconstructed, distributors face internal and external pressures, yet those who adapt can still find growth.

**Introduction**: The era dividend has disappeared, but structural opportunities still exist.
**Author** 丨Tian Jing
**Reviewer** 丨Gou Gou
**Layout** 丨He Wen

"For humanity, disease has always been the most terrifying killer and a key player in shaping history." This is a maxim from *Guns, Germs, and Steel*. After every global pandemic, humanity steps into a new era. Three years of the pandemic have reshaped consumption patterns and accelerated the reconstruction of channel structures.

From a past of supply falling short of demand to now oversupply, new channels keep emerging, and distributors are caught in a pincer movement. On the surface, traditional distributors face issues like chaotic pricing, rampant cross-channel dumping, high costs, and a demoralized team. The deeper reasons are that the total volume of FMCG consumption is shrinking, market competition is intensifying, and manufacturers struggle to offer effective solutions or products to improve distributors' margins. Facing fierce competition, distributors are forced into a huge survival predicament.

Many distributors lament: "Business is no longer doable; the old terminal tactics don't work; special displays don't drive sales; heavy promotions have no effect." Indeed, distributors are facing a continuously diverging landscape.

**Divergence**

**Weak Corporate Growth**

During market visits in May, we heard more sighs from distributors: "It's too hard; making money is too hard now." First, categories are hitting their ceiling. Growth in many FMCG categories has basically peaked, with over 15,000 new products launched each year, and this number keeps rising. Second, costs are high. Distributors' operating costs haven't decreased with declining sales; instead, they increase year by year, especially labor costs—not only high but also hard to recruit and retain good salespeople. Storage and operating costs also rise annually. Third, there's insufficient risk resistance. Due to limited agency areas, a distributor's total business volume is generally not large. During the pandemic years, most distributors' operating profits were dismal; those who managed to survive are already the best in their regions.

**Rapid Online Expansion**

In the past, products entering stores depended solely on distributors. Now, channels are diversified—online, offline, online+offline—and there are more and more channels for products to enter stores. E-commerce shopping has become mainstream; even low-value items like bottled water and toilet paper are bought online. Live-stream e-commerce, Douyin, Xiaohongshu, and other diverting channels keep emerging, offering consumers more choices and convenient shopping experiences. The market is gradually transitioning from an incremental era to a stock-grabbing era. This has led to a sharp decline in foot traffic for physical stores. Recently, the first-half financial reports of major KA supermarkets came out: Bubugao, Renrenle, and Suning.com all reported losses. Although Yonghui Superstores turned a profit, sending a positive signal, the severe decline in supermarket foot traffic is an indisputable fact. As suppliers, distributors naturally suffer the consequences. Clearly, the rapid online expansion directly squeezes distributors' living space further.

**Channel Fragmentation**

Channels are like a huge reservoir, gathering various flows. As traditional channels lose competitiveness, the emergence of new channels is inevitable. Two years ago, community group buying caused a huge wave of impact, focusing on rigid daily needs like grocery shopping and high-frequency consumption scenarios, bypassing distributors to link directly with manufacturers at wholesale prices, causing distributors great distress. Now, the community group buying wave is receding, but new channels like discount supermarkets, flash warehouses, and instant retail have risen seamlessly. These channels' low-price systems disrupt distributors' original pricing structures. Many platforms often cooperate directly with source production areas, manufacturers, or regional head distributors, intensifying the "too many monks, too little porridge" competition. With online impacts from live-stream e-commerce above and new channels emerging below, distributors face a series of shocks: channel replacement and price intensification.

**Disappearing Demographic Dividend**

According to relevant statistics, in 2022, China's population decreased by 850,000 compared to the previous year, with only 9.56 million new births, the lowest since 1949. Some experts worry that 2023 may see a second negative population growth, predicting new births could drop to around 8 million, and the number may continue to decline in subsequent years. With the advent of an aging population, the traditional demographic dividend is disappearing, bringing changes in consumption structure. Consumption structure is changing; K-shaped consumption is emerging—externally "chasing high-end," internally "Pinduoduo." The consumer population shows an M-shaped structure, with extreme divergence and falling. Wealth distribution inequality is worsening; one end gets richer, the other poorer; one end experiences inflation, the other deflation, with inflation and deflation coexisting—this is the so-called rich inflation, poor deflation. The second half of the FMCG market competition will upgrade from a promotion round to an elimination round, with overall growth slowing and channel competition intensifying. To break through, there are no trend opportunities, but structural opportunities still exist.

**Future**

Amid internal and external troubles, distributors are undergoing a major test of the times. So, the old cheese is gone; where is the new cheese?

**View the Present from the Future**

In the past, you might have heard statements like: "My territory (market scope) is large," "I have many customers," "My sales are high," "I distribute many varieties." Truly capable and visionary manufacturers might question: "Is the territory large but the market work detailed?" "Are the customers many but of high quality?" "Are sales high due to cross-channel dumping or intensive market cultivation?" "Are the varieties many but the structure reasonable?" Those who only look at the present and boast are often short-lived. How to make excellent manufacturers choose you? How to build your own advantages?

1. First become strong, then big: first deep, then wide. Build your advantages first, and others will come to cooperate.
2. Category-based operation, do monopoly business. In a diversified channel environment, representing a single brand carries high risk. Broaden category operations, ideally monopolizing at least 50-60% of the local market share, to gain strong competitiveness.
3. Platform-based operation, boss becomes investor: Through platform-based operations like B2B models, achieve scaled distribution and make regional business bigger.

**Those Who Understand Human Nature Conquer the World**

In team management, a distributor in Zunyi, spanning paper hygiene, daily chemicals, rice, flour, oil, and alcoholic beverages, achieved annual revenue of 500 million yuan with a team of over 300 employees. Through a points-based management system, he perfected humanized management.

1. Boost team confidence: Have genuine confidence; if the boss has confidence, the team has confidence. Stabilize people's hearts to stabilize the team.
2. Strengthen internal management: Every management aspect must be specific to each person, with detailed responsibility division. For example, near-expiry product management, inventory management, payment management, and expense management must all be assigned to specific responsible persons.
3. Omnichannel breakthrough: Unlike ten years ago, the current channel landscape is diversified. Keep up with the times and make omnichannel breakthroughs online and offline.
4. Team incentives: Set aside one day a week as "payday." This is not only recognition of employees but also an incentive; money is one of the most effective incentives.

At the same time, enterprises should possess four capabilities:

1. Digitalization: Currently, digital capability has become an essential capability for enterprises, whether in finance, warehousing and logistics, store transactions, or consumer profile analysis—all require digital management.
2. Promotion capability: Promotion capability is one of the core capabilities of distributors. Mainstream bestsellers generally have low profits, so it's necessary to continuously push high-margin new products to increase sales and market share.
3. Third-party capability: As market competition intensifies, distributors need to have a certain third-party capability, outsourcing some business functions.
4. Professional capability: Distributors need to continuously learn to meet customers' changing needs, improve sales performance, and strengthen the enterprise.

New Distribution has visited the market for years, and many distributors who leverage internal management and digital capabilities have achieved success.

**Opportunities**

Recently, New Distribution organized the first phase of the [National Benchmark Distributor Study Tour]—visiting Jiayun Yunshi, setting an example for the industry. Mr. Fan Qi, founder of Jiayun Yunshi, went from being a distributor to a platform provider and supplier in six years, with over 18,000 square meters of warehousing and logistics for one-stop supply and closed-loop digital management, leaving visiting distributors with deep thoughts and inspiration.

This also validates what Zhao Bo, founder of New Distribution, once emphasized: **The era dividend has disappeared, but structural opportunities still exist.** Indeed, in 2022, China's birth population fell below 10 million, only 9.56 million, a historic low. It is expected to decline further in 2023. Negative growth has already appeared, and wealth is polarizing. The second half will upgrade from a promotion round to an elimination round. How to seize structural opportunities?

1. **Diversify risks and strengthen internal capabilities:** Expand new channels and form an efficient management system.
2. **Category-based operation, become a regional head:** Shift from single-category to full-category operations, become a head in the region, and offset risks from channel weakening.
3. **Supply chain integration:** Once distributors develop to a certain extent, to grow further, they must scale up. At that point, merging and integrating the supply chain is an inevitable result.
4. **Get infinitely close to consumers:** The shift from "product-centric" to "consumer-centric" requires distributors to get infinitely close to consumers. This is the trend for the entire industry.

Over the past three decades, distributors have continuously progressed and evolved, enduring many tests and trials. Looking back from 2016, if we stand five years later and look at the past five years, we will find that for the entire Chinese distributor community and the channel industry, this is a "major test of the times": if you don't change, you will go bankrupt. As the mass growth dividend gradually disappears, distributors need to more keenly grasp the structural growth dividend. To develop better, distributors must now achieve scale, structure, and supply chain integration.


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