The retail industry's narrative of 'de-intermediation' has been building over the past two years, and on March 29, it reached a climax.
'Implement naked-price direct sourcing and eliminate all middlemen!' Ye Guofu's declaration at Yonghui's 2025 supplier conference struck like a thunderbolt, reverberating through the retail and FMCG distribution sectors.
Change is certain, and de-intermediation is a trend, but is it truly possible to 'eliminate all middlemen'?
To explore this, I spoke with several retail leaders to get their perspectives. Their views were remarkably consistent: eliminating middlemen is fundamentally a false proposition. In many cases, middlemen perform indispensable functions. Is it feasible for everyone to deal directly with manufacturers? No.
For instance, consider the issue of volume: factories ship full truckloads, but your store may not need that much at once.
Another example is capital: if you source directly, manufacturers require payment before shipment—can you handle that?
These are indeed challenges that may arise in the process of retail de-intermediation.
From the logic of business operations, completely eliminating middlemen is impossible.
However, behind Yonghui's slogan, I ponder another issue: often, the more extreme the statement, the stronger the signal it sends.
For Yonghui itself, it signals Ye Guofu's determination for radical reform.
But from the perspective of the FMCG industry, the signal I see is clear: traditional 'distributors' have no way out—at least in the supermarket channel.
'Distributors' are a type of 'middleman.' There will always be room for 'middlemen' in the market, but not necessarily for 'distributors.'
Am I playing word games? Certainly not.
Late last year, as supermarket transformations were in full swing, a distributor owner told me that amid the wave of local supermarket adjustments, his business actually grew rather than declined.
The reason was simple: previously, several distributors supplied a category, but under the new requirements of supermarket adjustments, others couldn't continue, and their business shifted to him.
Over the past few years, this distributor had been deeply cultivating his ability to organize product assortments and striving to transform into a category operator. He knew this trend was unstoppable. Thanks to his advantages in product assortment and cost, he not only survived but now holds over 50% of the category share in that system.
Many people assume that supermarket transformation simply means cutting out intermediate links and having retailers cooperate directly with manufacturers.
That does happen.
But if you have a basic understanding of economic operations and market transactions, you know that middlemen are essentially specialized players who reduce transaction costs by undertaking functions such as logistics, information matching, credit guarantees, and inventory risk.
Their existence lowers total transaction costs.
Companies that claim to 'eliminate middlemen' face two paths: either internalize intermediary functions, or replace traditional middlemen with more efficient new forms.
Where is the boundary of a firm? It's about finding a balance between market transaction costs and internal management costs. The painful truth is that companies that have tried this often find that internal management costs are even higher.
So, 'eliminating middlemen' is more accurately expressed as 'replacing middlemen.'
But this does not mean that the distributor group, as middlemen, can rest easy.
In the past two years, with discounting and supermarket transformations, most distributors have seen their businesses shrink or even fail under the wave of retail reform. Only a small number have gained greater opportunities.
However, can these 'distributors' still be called 'distributors'?
'I feel I haven't been a distributor for a long time. But I don't know what to call myself,' a business owner I recently visited told me.
After talking with her, I realized that traditional definitions of a distributor no longer apply to her.
During the pandemic, they realized the traditional distribution model was unsustainable, so they gradually dropped agency agreements for many brands and focused on providing product selection services for supermarket clients.
Now they have selection teams for different categories and even their own design team. A major part of their work is to collaborate with upstream brands to create channel-customized products for supermarket clients based on terminal demand.
She isn't worried about supermarket transformations because they provide services that many supermarkets cannot replace.
Such services are needed not only by small systems but also by giants like Yonghui.
Under the influence of the Carrefour model, China's vast supermarket systems have procurement teams skilled at negotiating prices but lacking the ability to select products.
Now, a group of professional service providers has emerged, deeply cultivating different categories and focusing on providing product selection and assortment services for supermarkets.
Moreover, because they have a background in trading companies, they know how to deal with brands and serve as an excellent bridge between brands and retail.
In addition to collaborating with upstream and downstream to create channel-customized products, under the trend of direct sourcing and naked procurement, they also act as pallet operators for some brands or provide terminal services for brands in exchange for service fees.
These services essentially make them buyers for retail terminals, whereas traditional distributors are brand promoters. The two are fundamentally different.
Acting as a buyer for downstream clients rather than a promoter for brands is an increasingly clear trend among distributors, especially regional giants.
This is reflected in two aspects.
First, the awakening of subject consciousness.
In the past, distributors had a strong brand mindset; as long as a brand was good, they would take it on. When introducing themselves, they would say they were the representative of a certain brand.
Now, major distributors are increasingly downplaying brand thinking. If it doesn't make money, they won't take it even if it's offered. Many are even deliberately reducing the proportion of big brands in their business.
In the current environment, the priority is survival and profitability. More and more distributors are awakening as independent enterprises.
Second, proactive adjustment of functions.
In the past, distributors did whatever brands asked. Now, regional giants are thinking about which products are truly needed and will proactively initiate customization.
One distributor owner said, 'If we continue to rely mainly on the big single products from ten years ago, no one will make money.'
Together with the manufacturer, they completely changed the packaging of a core single product, changed the specification from 250ml to 200ml, and re-established a pricing system. The pilot results in the market were very positive.
Why have regional giants undergone such changes?
It's all a result of environmental changes.
The distributor group developed alongside brands' market penetration and terminal conquest.
In an era of scarce products and scarce brands, obtaining agency rights, covering more terminals, and having better customer relationships were enough for distributors to succeed.
But the environment has changed.
China has entered the era of consumerism. Consumerism means using consumption to solve the problem of meaninglessness. In other words: basic needs are all met, there are so many choices—why choose you?!
This is a major question from the demand side, and the supply side—retail, distribution, and brands—must answer it one by one.
Retail reform is an answer to this question.
- Supply chain efficiency: I'm cheap, or at least not expensive—naked-price direct sourcing, eliminating middlemen.
- Product differentiation: The products I sell are different—co-branding, private labels.
Traditional distributors run brand agency businesses, helping brands distribute and stock shelves. When retail changes, leading regional giants also change. Some distributors have started businesses focused on deep category operations, providing competitive product portfolios to downstream clients.
The era of obtaining brand agency rights and making money by simply stocking products at terminals is over. Now, major distributors must study retail, study consumers, and study products from that perspective.
Eliminating all middlemen is, of course, impossible—it contradicts the laws of market operations.
So, from the perspective of upstream suppliers, the true expression of 'de-intermediation' is:
A large number of small distributors lose their business;
A few major distributors with product selection capabilities and advantages in specific categories gain more opportunities;
These few major distributors may continue to be called 'distributors,' but they have actually evolved into 'category operators.'
This diagram I drew illustrates the deconstruction of the distributor identity; the roles and functions of distributors are changing.
To elaborate further, it looks like this.
This is consistent with the changes we see in the distributor group. Besides deeply cultivating a few categories and becoming category operation service providers, some are transforming into regional B2b supply chain platforms, serving small stores.
In any case, the exit of small distributors and the acceleration of consolidation among major distributors are certain trends.
In the future, major distributors may still encompass some functions of traditional distributors in certain situations, but their core roles and functions have fundamentally changed.
In the past, the market was manufacturer-led. Brands, as the source, used distributors as reservoirs to push products down. The result was that homogeneous products were everywhere, and consumers almost ignored them on the shelves.
When consumers vote with their feet for Sam's Club, Pangdonglai, Hema, and discount stores, traditional retailers have to start reclaiming control of the shelves.
Under this major era of change, retail is changing, major distributors are changing—so what should upstream brands do? We'll analyze that in the next article.
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