---
title: "Facing the New Normal of Economic Downturn, How Should Distributors Manage Their Agency Business in 2016?"
description: "2015 has passed, and in the past year, the sales of the main agency brands for the vast majority of distributors have declined to varying degrees due to multiple overlapping factors. This article analyzes six major macroeconomic issues affecting distributor sales, including low GDP growth, rural hollowing-out, the rise of internet B2B, high costs and talent management difficulties, market maturity with intense competition, and product aging with consumption upgrades. It then proposes six countermeasures for distributors to survive and thrive in the new normal."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2015-12-16"
language: "en"
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# Facing the New Normal of Economic Downturn, How Should Distributors Manage Their Agency Business in 2016?

> 2015 has passed, and in the past year, the sales of the main agency brands for the vast majority of distributors have declined to varying degrees due to multiple overlapping factors. This article analyzes six major macroeconomic issues affecting distributor sales, including low GDP growth, rural hollowing-out, the rise of internet B2B, high costs and talent management difficulties, market maturity with intense competition, and product aging with consumption upgrades. It then proposes six countermeasures for distributors to survive and thrive in the new normal.

2015 has passed, and in the past year, the sales of the main agency brands for the vast majority of distributors have declined to varying degrees due to multiple overlapping factors. Let's first analyze the six major macroeconomic issues affecting distributor sales:

1. Low GDP Growth and Weak Consumption
China's GDP growth rate over the past 20 years (source: Bloomberg)
According to the current development status, official statistics show that the national annual GDP growth for 2015 should be around 6.9%, while unofficial statistics put it below 4.5%. Importantly, low growth is the new normal for China's future economic development.
The typical impact of low growth is that consumers' direct income and salaries stagnate or even slightly decline, making consumer spending habits more conservative. People are reluctant to spend even if they have money, and when they do spend, they tend to favor value-preserving goods.

2. Hollowing Out of Rural Towns and Severe Empty Nest Phenomenon
As China's urbanization process reaches a new stage, the outflow of population from townships and villages below the county level is an indisputable fact. Many counties, townships, and villages have begun to see large areas of empty nests. In many agriculture-based villages, the labor force under 50 years old has basically all gone to cities for work, and these people are also the mainstream consumers.
Data from the sixth national population census shows that among the 31 provincial-level administrative regions, 14 have net population inflow, 17 have net outflow, and more than 10 provinces have lost over 2 million people. Inter-provincial population mobility is accelerating. Anhui Province, with the largest population loss, has 9.623 million people living or working in other provinces.
These people continuously contribute to first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen, as well as provincial capitals, causing severe economic contraction in their hometowns, which has a serious impact on local retail industries.

3. Rise of Internet B2B
In 2015, new B2B models such as Alibaba's 1688 model and Yijigou emerged. Although these may seem like just hearsay to distributors for now, when they come with strong capital, it's no longer a question of whether distributors are willing to change, but whether your market has value worth changing. If so, these emerging companies with technological, model, and capital advantages will sweep through like a flood, quickly wiping out the inefficient and resource-wasteful distributor industry.
Additionally, although e-commerce channels have a relatively small total volume, accounting for only 10% of China's total retail sales in 2014, their rapid growth momentum and strong advantages in communication and pricing have had a significant impact on traditional offline businesses.

4. High Costs and Difficulty in Recruiting, Managing, and Retaining Staff
In 2015, another feeling among distributor bosses was that it became increasingly difficult to find people. There were more people recruiting in the talent market than job seekers. White-collar workers were in surplus, while low-end labor and technical talent remained scarce and hard to find. Almost no distributor was fully staffed. China's real economy fundamentals haven't collapsed, but labor costs are growing at over 10% annually. This means distributors face both a talent shortage and rapidly rising costs. The bigger problem after difficulty in recruiting is retention and management. Distributors now basically dare not criticize employees for fear they'll say, "I quit!" This situation will continue into 2016 and is unlikely to improve in the short term.

5. Market Maturity, Disappearing Incremental Growth, and Intense Competition for Existing Market Share
As China's market economy slows down, incremental growth in various categories is gradually disappearing. Instant noodles, milk, ham sausages, beer, liquor, and almost all industries stagnated in 2015. With no room for incremental growth, companies and distributors must compete for consumers in the existing market space. Most FMCG products entered a fierce stage in the second half of 2015, and competition in China's FMCG market will be unprecedentedly brutal.

6. Aging Mainstream Products, Consumption Upgrades, and Product Structure Adjustments
Many companies previously didn't need to innovate; they could simply imitate and follow, benefiting from China's economic growth dividend. But quantitative growth has peaked. Domestic FMCG companies generally face rapid aging of main products, faster product iteration, consumption upgrades, and increased demand for high-quality, high-priced products. These factors have led to stagnant or even negative growth for most domestic FMCG companies this year. However, many companies simply attribute these issues to the internet and economic downturn, while being conservative and lagging on critical issues like brand positioning, product upgrades, and product structure adjustments.

**No matter how serious the above problems are, distributors must continue their business, and to do it well, they must accept and adapt to these objective difficulties. To survive under these challenges, distributors must first clarify their thinking. The original development model will definitely need changes. How to change? This isn't just a problem solved by listening to experts or manufacturer guidance. The core is whether the boss has methods to increase sales, protect profits, seek survival, and ensure stable development.**

**I don't have a magic cure, and most distributors with sales below 30 million yuan don't need a panacea yet. Solidly managing the enterprise and maintaining the market is a mandatory task for every distributor under the new economic normal. In this mandatory task, I propose six countermeasures for distributors' reference:**

1. Compress Costs and Improve Efficiency
The most obvious phenomenon brought by low GDP growth is conservative consumer spending, leading to weak consumption. Although FMCG is a necessity and less affected by the economy, in a highly competitive environment, increasing revenue and reducing expenditure—especially reducing expenditure—should be a priority for distributors. How can you reduce or compress operating costs while ensuring steady sales growth?
First, distributors should save all unnecessary costs and processes. If one person can do the job, avoid using two even if you need to raise the salary. Hardware renovations and reforms that can reduce labor costs and improve operational efficiency should be accelerated.
Sales management software and financial software are essential management tools for companies with sales over 10 million yuan. Companies with conditions should implement them as soon as possible. Through software, visualize, digitize, and informatize enterprise operations, use data for analysis, decision-making, and employee management, thereby reducing management costs and improving work efficiency. Digitizing the trading company is key to scientific management and efficiency improvement, and it's one of the basic tasks for distributors transitioning to modern trading companies.

2. Appropriately Increase Agency Product Categories and Increase the Number of Outlets
The hollowing out of towns and empty nests inevitably leads to a decline in per-store output. If the distributor's main agency brands are not very strong, it's recommended to appropriately increase the diversity of agency products when distributing in villages, increase the number of outlets visited by vehicles, and extend the visit cycle, thereby increasing the output per vehicle and covering vehicle costs.
In severely hollowed-out areas, distribution functions can be transferred to secondary wholesalers, with distributors regularly arranging personnel to assist them in distribution and outlet development. The remaining transport capacity should be shifted to urban areas for full-channel control of urban outlets. Developing special channels should be a key task in 2016 and a blue ocean for sales growth.

3. Embrace Internet Operations and Upgrade
In today's era of endless new internet concepts, distributors should appropriately "touch the internet." At the very least, they should understand basic internet concepts, thinking, models, and B2B models that affect them. Actively follow and embrace the internet. If conditions allow, actively participate and adjust their operational models to use the internet, rather than rejecting or waiting.
If there are local online malls or B2B operating companies seeking cooperation, participate actively as long as conditions are suitable. Even consider joining or acting as an agent for relevant internet platforms. Learn to arm yourself with new internet tools. Don't worry about being eaten by B2B platforms; the only way not to be eaten is to understand, join, and do what the internet can't do.

4. Leverage Manufacturer Personnel to Reduce Costs, Increase Salaries and Benefits, and Provide Appropriate Welfare and Care
Leverage manufacturer personnel to reduce costs: Some manufacturers have budgeted positions for business personnel in local markets. Distributors with conditions can strive to recruit under dual management, with manufacturers paying salaries and distributors paying commissions, or additional expense subsidies to reduce salary costs.
Increase salaries and benefits: For the distributor's own staff, one of the stable core factors is increasing salaries and benefits, which is also the premise of all management. Increasing salaries doesn't mean directly raising wages, but transforming the role of salespeople from selling goods to selling services. The core is no longer selling goods, but doing actions that make consumers buy goods. Around this role transformation, change the salary assessment system. On the basis of the original base salary plus commission, add multiple assessment indicators such as outlet development, terminal merchandising, product distribution, and shelf display. Improve work quality to bring market sales and profit growth, thereby offsetting the cost increase from wage raises.
Humanistic care: The most notable characteristic of the post-80s and post-90s generation is independent thinking and values. Humanistic care from trading company bosses not only enhances employees' sense of belonging but is also the lowest-cost method to stabilize employees and reduce turnover. There are many ways to show humanistic care, such as dinners, birthdays, annual meetings, travel, etc. Most bosses have their own tricks, so I won't elaborate here.

5. Improve Outlet Quality and Quantity to Enhance Market Competitiveness
Operational models should accelerate upgrades, shifting from selling products to providing services. The original scale development through product wholesale should transform into serving terminal outlets to increase product premium. In the internet era, the core competitiveness of distributors has shifted from "products" to "channels." In a weak economy, the most effective way to improve sales indicators is to increase the number of outlets and the quality of outlet operations. For improving terminal outlet quantity and quality, keywords like direct control, regular visits, standardized terminal operations, increased SKU per store, and shelf improvement are essential. These pose greater challenges to distributor management and market control, and are areas where distributors need to put in hard work in 2016.

6. Sort Out Product Structure and Increase the Number of Branded Products
Distributors should sort out their product structure, gradually eliminate aging products with serious aging, cut products with low development potential and no profit, and gradually increase the structure and sales proportion of branded, high-margin products. For high-margin generic products, distributors should no longer treat them as key business items.
Consumers are becoming increasingly discerning, and their tastes are rising. Generic brands have basically no chance by imitating and following trends. The product development and promotion capabilities of first-tier brands undoubtedly impact distributors' competitiveness in local markets. Brands are the trust endorsement for consumer purchases in the future internet era. If distributors don't have one or two first-tier brands, they basically shouldn't consider development in the next three years.
The FMCG industry's product replacement speed is accelerating, and this is no longer an era of "one trick works everywhere." Distributors should constantly pay attention to new product trends in the industry. For niche products with product strength and characteristics, as long as the channel is right, they can sell well. Additionally, localized products have natural cognitive advantages. If the product strength is good, distributors might consider focusing on them.

**2016 is destined to be a very complex year for China's FMCG market structure. The overlapping effects of multiple factors will make market trends even more unpredictable. For distributors, enhancing corporate competitiveness and increasing their own risk resistance are two directions they must work on in the sluggish economic environment. Adjusting management methods and changing market operations require not just intuition, but also professionalism and focus. I have previously published two articles on how distributors can improve their operations and management on the official account. Interested friends can click the titles below to read them. I hope they can help distributors who are willing to change and improve themselves:**

Lin Feng's Comment: Vice President and Senior Partner of Hejun Group, General Manager of the Liquor Division
Views on the New Normal in 2016:
As China's internet develops to this point, the mobile internet upgrade and transformation of traditional enterprises is just beginning. In the development process, industry and commerce are interdependent, irreplaceable, and inseparable. **Industry solves value creation, including R&D, production, quality control, and branding; commerce solves distribution efficiency.** In the past, the internet solved the incremental growth in new development zones (Ma Yun and Liu Qiangdong solved new increments), but offline physical sales were not effectively moved online.
With the maturity of mobile internet technology, 2015 marked a new beginning. It effectively strengthened and improved the efficiency of traditional enterprises' offline business. We call this "old city renovation, stock optimization." This is a major opportunity for both traditional industrial enterprises and distributors. Simply put, it's the ability for traditional enterprises to gain "digital survival" capabilities through cooperation with mobile internet companies.
**Enterprises and distributors, using mobile internet platforms, tools, means, and methods, can understand terminal transaction data and consumer consumption data in real time, and then optimize their procurement, inventory, distribution, logistics, etc.** Therefore, in the internet environment, future industrial enterprises will more or less possess digital survival capabilities to varying degrees. From IT to DT, based on big data, enterprises will have large amounts of consumer behavior data and terminal transaction data. Enterprises and distributors will transform their supply chains based on big data, thereby gaining new competitive capabilities.
**Conclusion 1: Based on this, next year, many manufacturers and distributors in various industries will begin to actively embrace the internet, strengthen their supply chain capabilities and digital survival capabilities.**
**Conclusion 2: This year, the entire FMCG industry has declined significantly. Due to the reduction in young consumer groups and changes in their consumption concepts and behavior habits, the entire upstream brand camp of FMCG is changing. This will lead to the emergence of new brands and new distributors. Therefore, competition will become even more intense.**

**-END-**

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