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Many food distributors embark on a treasure hunt every year, attending sugar and wine fairs and researching market food trends. In the previous year, many new products emerged in the market, and in the coming year, even more new products will appear. Faced with a dazzling array of new products and existing old products, how should distributors choose? How can they create a product portfolio that maximizes profit? How can they ensure the fastest turnover with the least capital to generate greater profits?

This series of questions often troubles many distributors. This article discusses the principles of product portfolio for distributors.

Principle 1: Complete Categories, Clarify the Goals of Each Category

In actual product portfolio work, we often hear successful distributors say that their secret to success is not making money from every product, but from every batch of products.

In fact, their successful experience is that in product portfolio work, they first combine products from the perspective of product categories. Such a product portfolio is essentially a category portfolio.

Similar to the principle of product line combination for enterprises, distributors' category portfolio should have more categories and a fuller variety, providing second- and third-tier distributors with a "one-stop distribution" service, saving them manpower and resources.

As mentioned earlier, not making money from every product but from every batch means that even if you don't make money or lose money on some products, you can make money on another batch of higher-profit products. By averaging across several categories, the distributor ultimately makes a profit.

A more successful category combination method is the "three-thirds" approach: one-third of products slightly lose, one-third slightly earn, and one-third earn more. What does this mean?

That is, by product category, some categories are already very mature in the market, and channels and consumers are very price-sensitive, as many distributors say: "sold through." For such categories, don't expect to make much from them; instead, use them to "drive sales," just as many distributors use branded products to drive sales.

The one-third that slightly earn are often products in a rising phase. Due to their slightly higher profit, but to achieve good sales performance, market development and investment are necessary, resulting in not necessarily high final earnings. However, distributors need such products to enrich their product line and as preparation to prevent mature categories from aging.

As for the categories that earn more, they are actually some new product categories or new products, even some niche products. They have the highest profit and opaque prices. Mixing them with mature products can yield high profits.

Principle 2: Category Combination Should Be Relevant

Some distributors lack regularity in product portfolio, selling whatever category is hot in the market, often leading to high investment but not necessarily high profits.

A true product category combination needs relevance, similarity, and complementarity.

This relevance refers to the correlation in product characteristics among categories.

For example, a liquor distributor can use their channels and relationships to distribute dairy products or beverages. You cannot suddenly act as an agent for clothing products if you are in FMCG; without relevance between categories, you add burden to yourself.

Or, a liquor distributor acting as an agent for cigarettes also has some relevance, as we all know the saying "tobacco and alcohol are inseparable."

Principle 3: Channel Overlap Principle

A reasonable category combination is more importantly about channel sharing and commonality. Categories can share a common channel, and when combined, there is no need for the distributor to rebuild channels or make large-scale adjustments to existing channels, maximizing the utilization of distributor resources.

We know that the main channel for some milk products is the catering channel, while many beverages mainly go through the supermarket channel. If you think milk and beverages can be completely combined, you are prone to mistakes. For example, Huiyuan and Mishi mainly use the catering channel. If you combine them with Wahaha, you stretch the distributor's front and divide resources, often with poor results.

Principle 4: Similar Channel Model Principle

In the food industry, different food companies often adopt different channel models. Some use deep distribution, some use extensive channel models, and others use "joint sales" models. These various channel models are often incompatible.

Distributors need to be cautious when selecting products. If you combine products from companies with different channel types, it is easy to make it difficult for your sales staff to divide work effectively, but it is impossible to operate the market by product, channel, and team separately. The final result often leads to internal management chaos and neglect of one thing for another.

Principle 5: Seasonal Combination Principle

Each product category has different peak and off-seasons. When combining product categories, it is best to make the peak and off-seasons complementary. That is, stagger their peak and off-seasons, then combine them to ensure products are sold throughout the year, ensuring the distributor's total sales and cash flow operate normally.

For example, the peak season for beverages is mostly in summer. As a distributor, if you only operate beverages, then in winter, beverage sales decline, affecting your business. If you can choose categories suitable for winter, such as instant noodles, you can enrich your product categories.

Principle 6: Product Mutual Exclusion Principle

Everyone knows the saying "only competition leads to healthy development," but in actual product portfolio, some distributors in remote areas think that the company is far away and its management whip cannot reach, so they act as agents for similar products, and these two similar products are in fierce competition.

For example, simultaneously acting as agents for Coca-Cola and Pepsi, or Master Kong and Uni-President, often results in pleasing neither and doing poorly in both.

Principle 7: Product Lifecycle Complementarity Principle

In addition to the earlier principle that mature products are price-sensitive and used to drive sales, growth products grow quickly and have higher profits, allowing appropriate profit-taking, we combine products at different life stages to ensure complementarity across stages, greatly reducing the distributor's operational risk.

In other words, when mature products decline, growth products enter maturity, and new products enter the growth stage, forming a complete product growth ladder, ensuring sales do not fluctuate drastically. This way, while avoiding and preventing risks, you can fully pursue profit maximization and operational stability.

Principle 8: Principle of Continuously Creating Surprises

Creating surprises means discovering products that make customers' eyes light up. These are new varieties, seasonal or phased products, rapidly growing products, and products that can quickly become popular and yield considerable profits within a certain period. In the food industry, new product categories often emerge every three to five years. For example, fruit juice drinks around 2000, vitamin candies and sports drinks in 2003, and herbal tea and milk tea in recent years are all popular product categories.

As a distributor, you should continuously create surprise products, proactively discover new consumption trends, select new products that align with trends, create new market trends in the local market, and repeatedly motivate the lower-tier channels.

In summary, no matter how many and how complex the product portfolio principles are, as a savvy distributor, you should always adhere to a major principle: first, position yourself. Do you want to be the most professional distributor for a certain channel, the distributor with the most complete channel types, or the distributor with the most thorough channel sinking? Only by positioning yourself, finding your longest board, and combining products based on that longest board, and using the above eight principles in product combination, can you become a qualified distributor who understands product portfolio.

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