jiuyejia360 "Second-tier distributors, once active in the market, are gradually disappearing!" During market visits to Henan, Zhejiang, Shandong, and other regions, Jiuyejia360 received feedback from multiple distributors on this phenomenon. In the new stage of liquor industry development, manufacturers are strengthening control over product distribution prices and marketing methods, and based on considerations of maximizing terminal profits, they are increasingly adopting models such as self-built sales platforms or co-marketing with liquor merchants to optimize the overall industry chain, which has become a mainstream trend in channel management. However, some major distributors believe that "excessive channel flattening is like pulling up seedlings to help them grow." So, how should liquor distributors respond to the accelerating channel flattening?
Famous Liquor Brands Lead Channel Flattening, Accelerating Channel Reshuffling
The so-called "channel flattening" refers to a channel model that reduces product circulation links, broadens channel width, reasonably increases retail outlets, and fosters closer cooperation between manufacturers and retail terminals. In recent years, liquor manufacturers have increasingly understood and accepted the concept of "channel flattening," with national famous liquor enterprises leading the way, as can be seen from the financial reports of major listed liquor companies.
Kweichow Moutai's financial report shows that in the first quarter of this year, the company's direct sales revenue reached 17.807 billion yuan, accounting for 46% and setting a new historical high. According to 2022 data, with the help of "i Moutai," Moutai's direct sales proportion reached about 40%, but in just three months, Moutai increased the direct sales proportion to 46%, approaching half of Moutai's total revenue. As i Moutai continues to gain momentum, Moutai's direct sales share is about to "share equally" with channel revenue, further widening the gap with white liquor peers.
Wuliangye's financial report shows that in 2022, the company had 3,144 distributors, with distribution model revenue of 40.492 billion yuan, a year-on-year increase of 7.19%. Direct sales model growth was more significant, achieving revenue of 27.07 billion yuan, contributing about 36.6% of Wuliangye's revenue, a year-on-year increase of 13%.
Luzhou Laojiao, from the "Qiquan Model" to the "Brand Exclusive Model," has made channel reforms more flattened and specialized. The financial report shows that in 2022, the traditional channel operation model mainly relying on distributors contributed about 23.3 billion yuan in revenue, accounting for 92.75%, with gross margin increasing by 1.17 percentage points to 87.38%. Brokerage research data shows that Luzhou Laojiao's sales personnel have steadily increased from 7,000 in 2017 to over 8,600 in 2022, capable of covering more sales terminals at a faster pace.
Shanxi Fenjiu's financial report shows that in 2022, the company's controllable terminals nationwide exceeded 1.12 million. From less than 10,000 in 2017 to over 1.1 million now, terminal numbers have grown more than 110 times in six years, which is inseparable from Fenjiu's efforts in channel flattening. It is reported that Fenjiu implements a "manufacturer + distributor 1+1 channel" model to directly control terminals, that is, recruiting strong local distributors and dispatching a certain number of sales personnel to supervise and manage them, significantly improving cost efficiency.
Qianzhan Industry Research Institute pointed out in the "China Alcoholic Beverage Circulation Industry Business Model and Investment Strategy Planning Analysis Report" that currently, direct connection between liquor companies and terminal channels and consumers has low efficiency, and there is still a certain dependence on distributors. However, under the drastic channel reforms by liquor companies, the liquor circulation channel will eventually develop towards flattening.
Tian Zhuopeng, founder of Beijing Zhuopeng Strategy, believes that from the development trend of liquor circulation, the channel direction must be a short-chain model. "From a commercial structure perspective, the development of circulation channels must be getting closer to consumers. Moutai increasing direct sales and increasing chain platform quotas are attempts at channel short-chaining; Guojiao 1573's dual 124 strategy strengthens terminal large stores and consumer sinking cultivation and direct sales in key cities; Wuling's large store direct sales and Li Du experience store's innovative marketing model success are also successful cases of channel short-chaining."
Under the flattening trend, the channel is undergoing a deep reshuffle. Liu Feng, general manager of Shandong Hualu Liquor Sales Co., Ltd., told Jiuyejia360: "Now liquor companies have bypassed second-tier distributors to directly control terminals, and second-tier distributors have become dispensable. We also serve terminals better by classifying customers into A, B, C, and D categories, and we stopped cooperating with second-tier distributors many years ago."
Profit System Cannot Support Multi-Level Distribution; Channels Urgently Need Flattening Reform
In fact, channel flattening has been implemented in the liquor industry for nearly 20 years and has long become an industry consensus, which has objectively promoted deep reforms in liquor circulation enterprises. But in recent years, the pace of channel flattening has accelerated. What is the reason?
"This is actually a game process, a game between consumers and distributors, not between distributors and manufacturers," a major distributor from Zhejiang told Jiuyejia360. In the context of information transparency, consumers want to directly connect with manufacturers to reduce intermediate costs. "Foreign luxury brands almost have no middlemen, and the wine industry also regards flattening as a key focus in channel construction. Driven by famous liquor brands, this trend is becoming increasingly evident in China's liquor market."
The above-mentioned major distributor also mentioned that the entire distribution system for white liquor is changing, and profit levels cannot support multi-level distribution. "A simple example: originally, a bottle of liquor had a purchase price of 800 yuan, and the terminal retail price was 1,500 yuan, leaving 700 yuan in profit to distribute to each level of distributor, providing enough space to set up multi-level distributors. But now, the purchase price is 700 yuan, and the terminal retail price can only be slightly higher than the purchase price. The market has changed. If we set up multi-level distributors again, no one will make money."
Jiuyejia360 previously surveyed in an article titled "Channel Survey of Famous Liquor Big Single Products: 70% of Distributors' Profits Return to Zero, and 10% Are Losing Money" that without considering factors such as year-end rebates from manufacturers, 70% of distributors operating famous liquor big single products have terminal profits close to "zero," only 20% of distributors reported "slight profits," and the remaining 10% said they were selling at a loss. This survey data also indirectly confirms the view that "channel profits cannot support multi-level distribution."
In addition, flattening is also an effective path for manufacturers to escape operational difficulties. In the view of Jia Fuchun, a new marketing consulting and training expert, channel flattening can compress costs, reduce the "bullwhip effect" and information distortion in information transmission, and make marketing decisions closer to the market. "The era of deep distribution is over because it relies on a human wave tactic, which is too costly. In the context of channel fragmentation and terminal fragmentation, manufacturers also need to be closer to the consumer end, save costs, and reasonably allocate channel profits. For example, some liquor companies in Moutai Town previously relied on channels, but now many only have one layer of agents, from the distillery to the agent to group buying, making the entire chain shorter, group buying capabilities stronger, covered outlets denser, and promotion costs lower," Jia Fuchun said.
Flattening Is Coming Strong; How Should Distributors Respond?
Under the flattening trend, compared to loss of profits, many distributors are more worried about being "marginalized" or "replaced." So, facing the aggressive channel flattening, how should distributors in the industry respond?
"Flattening does not mean marginalization of distributors. In the future, distributors will also be 'whoever is closest to the terminal will develop.' Relying solely on the function of a wholesale capital pool is no longer enough." According to Jia Fuchun's observation and analysis, there are two directions for future distributor transformation: one is to do their own terminals and chains; the other is to recruit more group buying merchants, have the ability to cover terminals, and through further flattening, give profits to channels and terminals, building their own private domain traffic and group buying platforms. Regardless of the method, he believes that the future development direction for distributors is To C.
Tian Zhuopeng also agreed with this. He said that in the future, liquor merchants with abundant C-end resources will have better days. The development direction of channels must be de-intermediation and short-chaining. The glorious days of relying on brands and distribution are gone. In the future, the profit model for liquor merchants can only rely on large store models and omnichannel marketing.
"The battle for terminals and the resources behind terminals has become the focus of competition in the liquor industry. At the same time, the integration of traditional channels and online channels is extremely critical," Tian Zhuopeng emphasized.
Jiuyejia360 previously visited the Shandong market and learned that Wang Changyong, founder of Wenlan Liquor Direct Supply, is one of the typical representatives of transforming from distributor to chain. He now has more than 40 stores in Shandong. He mentioned, "The role of distributor will never disappear because they are the tentacles for manufacturers to find user resources. But in the future, distributors will cover areas that chains cannot cover, and manufacturers should also make adjustments to provide direct supply to chains of a certain scale." However, Wang Changyong also believes that chain stores do not need distributors, but the market still needs distributors.
In this regard, a major distributor from Guangdong once told Jiuyejia360: "Flattening may bring short-term sales increases, but excessive flattening can easily cause market chaos and price chaos. It is a 'pulling up seedlings to help them grow' behavior and is not conducive to long-term brand development."
"Flattening should fully consider two points: one is price stability, and the other is brand image enhancement. Treat flattening as a tool to enrich or improve traditional channels, rather than harming traditional channels for the sake of flattening," said Yang Jingui, general manager of Beijing Taihe Jinzun Culture Co., Ltd.
Yang Jingui emphasized: "Going too far is as bad as falling short. Going too far will lose terminal display rate, reduce channel exposure, and lack consumer brand promotion and maintenance. Interdependence is best. For example, although i Moutai is a flattening tool, it also brings brand endorsement and customer flow to traditional channels. For distributors, they should still improve brand operation capabilities and C-end operation capabilities, rather than simply acting as movers, to avoid being eliminated under the trend."