On March 14, the 9th China FMCG Innovation Conference officially opened in Chengdu. At the 2nd China FMCG Distributor Conference held on March 16, Yuan Lai, Chief Content Officer of New Distribution, released the exclusive industry insight "Urban X Trade Circulation Business Development Model." The following are the key points of the speech: The theme of this conference is "Supply Chain Revolution." Today, I want to elaborate on the changes and development of distributors from the perspective of distributors as a link in the supply chain. My speech is titled "Urban X Trade Circulation Business Development Model." Why the word "Urban"? Because over 90% of our distributors' businesses are conducted based on local cities, unlike upstream brands that operate in national markets or downstream retail that operates in regional markets. Before officially starting the sharing, regarding the concept of "city," let me first explain: the cities here mainly refer to non-provincial capital and non-sub-provincial capital cities, excluding county-level cities under their jurisdiction, with a population of 2-4 million, which are the most mainstream second-, third-, and lower-tier cities in China. Doing business in a city is the geographical environment distributors are in, and it cannot be changed. With this premise and background, let's deeply discuss how numerous distributor bosses in cities with millions of people should plan their businesses. Brand-Oriented Trade Circulation Model Distributors emerged in the 1990s. With the reform of trade circulation, the earliest batch of distributors came from local supply and marketing cooperatives and department stores, starting their own businesses. The later batch started from 2000. At that time, the macro environment was: reform and opening up, rapid economic growth, improvement in people's living standards leading to pursuit of material needs, and supply falling short of demand. Therefore, upstream enterprises in various categories, in order to reach the last mile to consumers more quickly and efficiently, gave birth to the deep distribution model. Under the deep distribution model, brand owners formed a united interest alliance between manufacturers and distributors, achieving efficient distribution. It is because of this background that we see today's trading companies with first-tier brands as the core business carriers. It can be said that from 1990 to 2010, these 20 years formed a completely brand-oriented urban trade circulation distribution. By 2010, as some distributors improved their organizational management capabilities in business practice, and as market competition intensified and store service demands increased, some distributors were no longer limited to operating one or a few brands; instead, they formed category distribution through brand portfolios, providing category supply to downstream stores. At the same time, some distributors completely transformed into retail-oriented distributors, focusing on channels such as KA supermarkets, circulation small stores, and circulation catering. Among many FMCG categories, snacks, daily chemicals, and condiments are typical examples, such as daily chemical distributors (daily chemical package operators) and snack food distributors. Clearly, more and more brand distributors are evolving into category distributors or channel distributors. But from today's perspective, the distribution of urban trade circulation in a city is still dominated by core brands. The number of distributors ranges from hundreds to thousands. Category- and Retail-Oriented Trade Circulation Model From the current evolution of trade circulation and the scale efficiency of the commodity supply chain, it is obvious that as the number of distributors in a city decreases, the quality of distributors (those truly becoming independent, professional operating organizations) will increase. In short, the number decreases, but the scale of individual distributors increases. At the same time, we believe that future trade circulation will gradually become a model dominated by category and retail, with three typical characteristics:
1. In categories with relatively low brand concentration, such as snacks, daily chemicals, and condiments, category distribution will take the lead, forming a situation of "monopoly" or "two strong players" in the city.
2. In categories with relatively high brand concentration, such as water and beverages, beer, milk, and non-staple foods, under the influence and promotion of upstream brands, a distribution pattern will form with one or several first-tier brands as the mainstay, supplemented by dozens of second- and third-tier brand distributors.
3. Platform-based distributors will emerge in a city, focusing on thousands of small circulation stores and catering circulation as core service targets, forming a trade circulation platform based on full-category supply for these two channels. Based on the above characteristics, we deduce the future urban X trade circulation type distribution model as follows, namely the "Urban 40 Distributor Model". In the past, in a third- or fourth-tier city, around 12 mainstream categories, each major category had at least 10 distributors for distribution and agency. But in the future, as local retail's service requirements for the commodity supply chain increase, and market competition among local distributors intensifies, only those with sufficiently professional management capabilities and resource strength can truly gain a firm foothold. Therefore, we believe that in the future, a category will be divided among at least 1 and at most 3 distributors in a city, and these distributors' individual business scale will not be less than 50 million yuan. Distributor Business Development Path Model We divide distributor businesses into five levels: 10 million, 50 million, 100 million, 500 million, and 1 billion yuan. Corresponding to different business scales, the business models differ. 10 million level: Business of agency for one or two brands
50 million level: Business of agency for several brands (note: some single brands can also achieve 50 million in business)
100 million level: Brand portfolio forming category distribution business
500 million level: Category full-channel distribution + local B2B platform business
1 billion level: Multi-category full-channel distribution + local B2B platform + urban warehousing and distribution platform + retail chain business For distributors at different business stages, I have also summarized the core thresholds for crossing growth: From 10 million to 50 million, the core is the "Business Threshold." Distributors always think they are agents, with core functions of capital advance, distribution, and customer relations. As for market promotion, it is the manufacturer's salesperson's job; whether it can be done is not their concern, and they don't understand or want to get involved. Simply advancing capital and distribution is no longer a distributor's core capability; it can only be considered basic configuration. From 50 million to 100 million, the core is the "Management Threshold." At 50 million in business, the distributor has become an organized company with dozens of people and seven or eight salespeople. At this point, distributors face management bottlenecks, such as many store customers, many brand agencies, many department personnel, and lack of standardized management processes. At the same time, there is no awareness of brand portfolio category distribution. Simply stacking one brand agency after another cannot form a scale advantage on store shelves, nor can it gain additional shelf discourse power. From 100 million to 500 million, the core is the "Operations Threshold." The operations here are more about downstream store operations. Distributors must shift from distribution agency thinking to retail operations thinking. Brand agency is a business resource, not a customer. Not only distributor bosses, but also frontline business teams must deeply understand how to meet store product and service needs in their business operations. From 500 million to 1 billion, the core is the "Organization Threshold." After exceeding 500 million, distributors have become local small group enterprises. At this point, the business focus of distributors has two aspects: First, commodity supply chain; Second, warehousing and distribution logistics platform. These are the business scopes that distributors can extend around commodities and warehousing and distribution. As small group enterprises, they face obstacles in talent capability building and organizational culture construction. This is the path model for the future business development of distributors in a mainstream city. From 10 million to 1 billion, as your business continues to develop and grow, do not limit yourself to "distribution" or "agency" thinking. Take off the "distributor" hat and truly transform from distributor and agent to urban trade circulation enterprise. Supply Chain Alliance Membership To better help distributors grow their businesses, in June 2023 we established the TOP500 China Distributor Supply Chain Alliance. So far, 272 distributor bosses have joined. Our alliance's vision is to build the alliance into an information, capability, and resource sharing center for regional distributors. We believe that in 2024 and the period thereafter, the core work focus for distributors is: Survive, eliminate peers; go out, expand the survival radius. When facing business confusion, seeking answers internally often fails to find solutions and instead leads to more involution; seeking externally, looking at the thinking and practices of more excellent large distributors, may bring you different inspiration and thoughts. Distributors interested in joining can scan the QR code to contact the author.