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“Flattening” was once one of the sharp swords for FMCG companies to break through sales bottlenecks. The ultimate goal of “flattening” is to control sales channels and ensure smooth product distribution by simplifying sales levels. In the corporate “flattening” strategy, distributors, as the intermediate link between manufacturers and terminals, are undoubtedly to be flattened. Therefore, how to flatten themselves before the company does is a question distributors need to consider. In addition, against the backdrop of industry oversupply, distributors can only achieve growth by deeply tapping the potential of every terminal. To this end, this article summarizes three measures for distributors to flatten their distribution systems and deeply analyzes the conditions and timing for successful “flattening.”
Three Typical “Moves” of Flattening
First Move: Binding Second-Tier Distributors to Go Deep into Terminals
Representative Company Profile: Jiangsu Bo'ai Zhidu Trading Co., Ltd. (hereinafter referred to as “Bo'ai Zhidu”) is the general agent for Jinshiyuan in Xinghua region. After taking over Jinshiyuan in 2001, it has continuously cooperated with the company and now operates the full range of Jinshiyuan products. It has also co-developed Guoyuan Daya with the company. By designing and implementing the flattening measure of “binding second-tier distributors to go deep into terminals,” Bo'ai Zhidu now controls more than 1,000 retail terminals and has strong channel control.
Move Description: Binding second-tier distributors to go deep into terminals, as the name suggests, is a method for distributors to bypass second-tier distributors and directly control terminal channels. To achieve this goal, the distributor first screens a list of second-tier distributors willing to form an alliance, designs an alliance plan based on “exclusive sales wine,” then negotiates with target second-tier distributors one by one to establish an alliance. The distributor maintains an equal cooperative relationship with other second-tier distributor companies, maintaining and strengthening the cohesion among alliance members through shared interests, achieving the “peaceful marginalization” of second-tier distributors.
After handling the relationship with second-tier distributors, the next step is to enhance services to terminal merchants and gradually strengthen contact and understanding with terminals. The distributor should divide its agency sales area. In the divided areas, it seeks high-quality terminal merchants and grants them the title of “special distributor,” giving them vague rebate rewards. This not only stimulates the enthusiasm of terminal merchants but also ensures market price and order stability to the greatest extent. In addition to providing more profit support, the distributor should also focus on maintaining “personal relationships” and provide more services to terminal merchants with strong strength.
Move Interpretation: First, second-tier distributors are a group with years of accumulated distribution networks but no proprietary brands. For second-tier distributors, they sell whatever wine is popular and do not bother to persuade channels to sell unpopular wine because profit is their focus. The alliance based on “exclusive sales wine” exactly meets the profit-seeking needs of second-tier distributors, so this model is easily accepted by them.
Second, second-tier distributors maintain channels through a dual effect of “personal relationships” and “prices,” which is the result of years of accumulation, but their control over channels is not very strong. Distributors are upstream of second-tier distributors and have more room for price concessions. If they spend more time strengthening contact and exchanges with terminal merchants, distributors can control terminals more firmly.
Third, the development of exclusive sales wine is also key to the success of this “move.” Exclusive sales wine should be a product with high local brand awareness and consumer recognition, making it easier for the market to accept and smoother cooperation.
Second Move: Terminal Alliance
Representative Company Profile: Saide Star Enterprise (hereinafter referred to as “Saide Star”) became the general agent for Rourou Seed Wine in Bengbu in 2008. With the popularity of Rourou Seed Wine in Anhui Province and the company's intensive cultivation of sales channels in Bengbu, it has established a vast distribution network.
Saide Star selects high-quality terminal retailers to cooperate with. First, it evaluates the fixed and network asset value of the terminal, which is used as the terminal's cooperative capital; then, Saide Star invests working capital for the store's operation and is responsible for redesigning and renovating the storefront. Thus, the store becomes a retail store jointly funded by Saide Star and the terminal. Subsequently, Saide Star replicates this model continuously, forming cooperative relationships with every high-quality terminal. All retail stores appear to consumers with a unified image and product structure. Thus, multiple terminals form a terminal alliance under the model centered on Saide Star Chain Company, and its interests are tightly bound with each terminal, resulting in very stable cooperative relationships.
Move Interpretation: First, unlike self-built chain stores, the terminal alliance model leverages the combined strength of various terminal retailers to build a chain terminal system. Therefore, the selection of terminal retailers is a key link for the smooth development and growth of the alliance. Attracting terminal retailers to jointly complete this undertaking requires a beautiful vision and, more importantly, a substantial profit-sharing plan so that terminals can intuitively feel the added value of joining the system.
Second, clearly defining the relationship between Saide Star and each terminal retailer is also necessary, as it determines whether Saide Star can strongly control these terminals, thereby achieving channel construction and consolidation.
Third, compared to self-built chain systems, this chain system formed through cooperation has two advantages. First, due to the investment in fixed and network assets by terminal retail stores, Saide Star can save a significant amount of capital. Second, once high-quality terminal retailers are found, this model can be quickly replicated, forming a chain system of considerable scale in a short time.
Third Move: Self-Built Chain Terminals
Representative Company Profile: Zhejiang Shangyuan was initially the general agent for Yilite in Zhejiang, using Yilite as a carrier to establish its sales network in Zhejiang. After building the sales network, Shangyuan promptly introduced famous liquor products to enhance brand image and continued to consolidate distribution capabilities and channel control. In 2006, Shangyuan began its own terminal chain brand—Jiu Jia Jiu—transitioning from a sales-oriented to a platform-service-oriented company.
Move Description: Shangyuan started its own chain brand—Jiu Jia Jiu—in 2006. From 2006 to 2011, Shangyuan invested hundreds of millions of yuan in Jiu Jia Jiu, exploring single-store operations and chain system management issues through trial, focusing on building the chain system in Zhejiang and Jiangsu markets. In 2012, Shangyuan Jiu Jia Jiu chain system began accepting franchises, accelerating the expansion of the chain system inside and outside the province. In September 2013, Jiu Jia Jiu Company deeply cooperated with Jinfeng Wine Industry under Shanghai Sugar & Wine Group, jointly investing in product development, channel construction, terminal maintenance, and brand marketing resources to build key markets in East China.
Move Interpretation: First, self-built retail terminals are undoubtedly a “money-burning” endeavor and a “long-term project.” Shangyuan uses Yilite and famous liquor products as core profit products, providing financial support for building the retail terminal chain system.
Second, in 2013, Zhu Yueming publicly stated that “for consumers, Jiu Jia Jiu will replace Shangyuan,” revealing his emphasis and optimism on the terminal chain system. It is believed that through capital operations, the maturity and growth of the terminal chain system will be accelerated.
Third, in the undertaking of self-built terminal chain systems, Shangyuan was an early “mover.” In an era of insufficient competition and expanding market demand, Jiu Jia Jiu passed market tests and gained consumer recognition. In the current environment, the chain terminal model is no longer new and competition is fierce. Therefore, self-built terminal chain systems need to find markets with insufficient competition and design better business models based on full reference to consumer wine purchase preferences.
Thoughts Triggered by Typical “Moves”
At first glance, these three “flattening” moves have obvious differences, but upon careful consideration, the three models share a common foundation and internal connections. First, regarding the common foundation, from understanding the three distributor companies, they are all general agents for strong local brands. This means that with the guarantee of strong brands and best-selling products, they have extensive distribution networks and strong financial strength, as well as the capital to negotiate with second-tier distributors and terminals. This is the foundation for distributors to carry out “flattening.” Next, regarding internal connections, the method of binding second-tier distributors to go deep into terminals focuses on allying with second-tier distributors, directly contacting and serving terminals through peaceful transition. However, the types and methods of services provided to terminals are not clearly defined or systematic. The terminal alliance model designs a profit and revenue model for terminals, thereby attracting terminals to cooperate voluntarily. The above two models can learn from each other. Only by properly handling the interest relationships with second-tier distributors and terminals can the flattening system be more complete and stable. Once the system is stable, the model is mature, and funds are stable, then building a terminal chain system—whether self-built, franchised, or cooperative—will be an easy task.
Source: Sugar, Tobacco, and Wine Weekly
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