---
title: "FMCG Channel 'De-Flattening': An Isolated Case or a New Trend?"
description: "The FMCG channel is witnessing a 'de-flattening' phenomenon, where manufacturers reduce internal sales layers and distributors become larger, with 'new provincial agents' or 'new city agents' replacing former 'county agents' or 'small regional agents'. This is a correction after flattening, but unlike the past, these new agents do not appoint sub-agents but set up branches to directly serve terminals, marking a shift from the previous multi-tier distribution model."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-07-18"
language: "en"
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# FMCG Channel 'De-Flattening': An Isolated Case or a New Trend?

> The FMCG channel is witnessing a 'de-flattening' phenomenon, where manufacturers reduce internal sales layers and distributors become larger, with 'new provincial agents' or 'new city agents' replacing former 'county agents' or 'small regional agents'. This is a correction after flattening, but unlike the past, these new agents do not appoint sub-agents but set up branches to directly serve terminals, marking a shift from the previous multi-tier distribution model.

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The FMCG channel 'de-flattening' phenomenon has already emerged.
What is the channel de-flattening phenomenon? It is when manufacturers reduce the internal layers of their sales system, distributors become larger, and 'new provincial agents' or 'new city agents' replace the former 'county agents' or 'small regional agents'.
This is a correction after flattening. The difference is that under the 'new provincial agents' or 'new city agents', there are no longer sub-agents but branches that directly serve terminals. Therefore, FMCG channel de-flattening is not a return to the original 'multi-tier distribution' state.
Whether channel de-flattening is an isolated phenomenon or the beginning of a new trend deserves attention.
Since 1997, flattening has been a trend, but this trend roughly ended in 2014.
The flattening trend was initiated because manufacturers were too far from terminals, with too many channel layers, and Chinese marketing could not do without channel-driven strategies. Even multinational companies with strong brand power had to compromise with channel-driven approaches.
So, what are the reasons for ending the flattening trend and even experiencing de-flattening?
01
Let's talk about the history of channel flattening.
In 1997, the Asian financial crisis broke out. The Chinese market shifted from a 'shortage economy' to a 'surplus economy' without warning.
At that time, Kangshifu, Xurisheng, Wahaha, Shuanghui, and others took the lead in implementing 'downward focus'. They cut off provincial-level major distributors and 'started marketing from prefecture-level cities'.
Around 2000, the mainstream channel structure of FMCG with 'county as the basic operating unit' was established.
In 2003, under the basic pattern of 'county agents', deep distribution was initiated. Deep distribution meant bypassing second-tier wholesalers to reach terminals directly. Of course, this mainly involved A and B class terminals. Second-tier wholesalers still existed, mainly serving C and D class terminals.
Around 2010, in a number of 'duopoly' industries, such as dairy and instant noodles, brand owners began 'direct operation', with distributors only undertaking 'financing and logistics' functions, while terminal management, ordering, and promotion in central cities were handled by brand owners.
Brand owner direct operation was the extreme of channel flattening.
In 2014, flattening basically ended. Because in 2013, most FMCG industries reached their sales peak, and in 2014 they began to decline. The sales decline disrupted the rhythm of deep distribution, and 'saving sales' became a short-term emergency task. Since then, they never returned to the rhythm of deep distribution, and even 'second-tier wholesalers' began to make a comeback because they could help with short-term inventory pressure.
02
Even at the height of flattening, there were exceptions. There were regional exceptions and industry exceptions.
Regional exceptions were Guangdong, Fujian, Zhejiang, and Jiangsu. These regions had many 'provincial agents', 'city agents', and 'cross-regional agents', while 'county agents' were relatively weak.
When manufacturers wanted to go downstream, the 'provincial agents' and 'city agents' in these regions took the lead in going downstream. The flattening of agents replaced the flattening of manufacturers. When manufacturers wanted to do deep distribution, distributors had already done deep distribution. The result of distributor flattening was that the management layers of distributors increased.
In fact, manufacturer flattening was also a 'last resort'. Either manufacturers flatten or distributors flatten. Only by continuously approaching terminals can sales be done better.
Industry exceptions, such as the cosmetics industry, once took the path of flattening but quickly returned to 'provincial agents'. The main reason was the polarization of the industry. Strong big brands directly did KA, while ordinary brands did low-density distribution. Low-density distribution does not require flattening.
Currently, many industries with low industry concentration basically have no flattening. The reason is low-density distribution, which relies on the radiation capability of large wholesalers rather than distribution capability.
03
The dividend of flattening has already peaked, and its historical mission should end.
In 1998, when I was implementing channel flattening in enterprises, I discovered that a single channel flattening could lead to natural sales growth of over 20% within 3 years. If other sales work was done well, the growth rate would be even faster.
Because channel flattening naturally brings about an improvement in channel penetration.
Deep distribution is also a means to enhance channel penetration. 'Distribution + promotion': distribution improves terminal penetration, and promotion is a means to drive sales.
After deep distribution, the division of labor among frontline employees, such as shelf stockers and promoters, was basically simple work with 'standard actions'. Although these standard actions had no technical content, they were simple to manage and very effective when there was room for growth.
But when the pawn reaches the end, it loses its power. The same is true for flattening.
When channel penetration improves to near its limit, standard actions no longer generate incremental growth, and labor costs are high, we find that a large number of frontline personnel are in a 'state of being out of control'. This statement may offend people, but it is not aimed at individuals but at the whole.
Bosses know there are many problems at the frontline, but they are powerless.
Why does this situation occur? Because channel flattening brings another problem: the internal management layers of the manufacturer's sales system exceed the limit of management penetration in Chinese enterprises.
04
When channels are flattened, we can observe another phenomenon: the internal hierarchy of the manufacturer's marketing system.
When 'provincial agents' were the mainstay, the manufacturer's sales management system had only 1-2 layers, generally not exceeding 3 layers. Now with 'county agents' as the mainstay, the manufacturer's sales system has 4-6 management layers: region, province, regional manager, city manager, and sales representative. Large enterprises typically have about 5 layers in their sales system.
In fact, no matter how flattening is done, the sum of internal management layers and external transaction layers remains constant. When external transaction layers decrease (the original second, third, and fourth-tier wholesalers disappear, which is flattening), the internal layers of the manufacturer increase, and the total of internal and external layers remains basically unchanged. This is a key point to understand for 'de-flattening'.
Another issue that must be clarified is the effective management and penetration layers in China. Beyond this number of layers, management penetration decreases.
For on-site management (such as production management), effective management penetration can be up to 3-4 layers; for off-site management (such as sales management), effective management penetration is 2 layers, and 3 layers is already a stretch.
Now, large manufacturers have 4-6 internal layers in their sales systems. In the early stages of deep distribution, frontline work was standardized, such as shelf stockers and promoters, making management relatively easy and KPI assessment less difficult.
Now that sales have peaked, most frontline employees no longer do simple work, and the original KPIs are no longer suitable. Therefore, management difficulty has increased.
05
As mentioned earlier, whether flattening or de-flattening, the sum of total management layers and transaction layers remains unchanged.
Manufacturer de-flattening implies the layering of distributors. A 'county agent' can have only 1 layer; a 'city agent' must have 2 layers; a 'provincial agent' has at least 3 layers.
Originally, manufacturers had 5 management layers, and county-level distributors had 1 management layer. Now it becomes 3 layers for manufacturers and 3 layers for distributors. Although the total number of management layers has not changed, they are all within the effective management penetration layers.
Manufacturers reduce internal management layers, and distributors increase management layers. Are there enough suitable distributors?
**Distributors are currently polarizing, and distributors with management capabilities are rising. Whether manufacturers can find these distributors is key to de-flattening.**
At the same time, after de-flattening, can the frontline actions that were originally executed or supervised by manufacturers still be executed properly?
To answer the above questions, two new concepts need to be introduced: one is 'small organization' operation based on platformization; the other is sales management based on internet data sharing, such as channel digitalization.
If the 'new provincial agents' still have 3 management layers, there will definitely be insufficient management penetration. If the 'new provincial agents' are just an operating platform, and the secondary institutions are 'small organizations' with partnership operations, then both manufacturers and distributors can keep management layers within the 'effective penetration' range.
In other words, after channel de-flattening, the total management and transaction layers remain unchanged, but the internal management layers of each organization do not exceed 3, ensuring effective management penetration. This is relatively reasonable.
The platformization of distributor internal institutions ensures that 'small organizations' have operational vitality. This is a relatively reasonable solution in the current situation where human capital is rising rapidly and the post-90s generation is unwilling to do sales work. The operational vitality of 'small organizations' compensates for the relatively weak management defects of distributors.
06
Channel digitalization enables integrated management of manufacturers and distributors, making precise channel management possible and will also promote the de-flattening trend.
After distributors become larger, manufacturers' sales decision-makers communicate directly with major distributors, greatly improving communication efficiency. In the current marketing transformation period, without effective communication at the decision-making level, relying solely on frontline personnel to pressure distributors and provide 'policy comfort' can no longer solve problems.
De-flattening is actually an integration of distributors. Facing product upgrades and internet transformation, most small distributors find it difficult to transform, while large distributors, once they understand, can transform together with manufacturers without problems.
During the marketing transformation, it is beneficial for manufacturers and distributors to share operating management systems (such as SaaS systems, C-end connection systems, or B2B systems) to achieve integrated operations.
Channel digitalization will reduce low-tech work like traditional deep distribution, such as street-sweeping distribution, visits, and promotions, and instead focus on **'precise' work based on channel data and backend support, with fewer personnel, and manufacturers penetrate channel management through digitalization.**
De-flattening, with 'provincial agents' directly operating terminals on a large scale, may raise new management issues. In fact, the 'new provincial agents' must delegate a lot of work to third parties, stick to their core work, and thus concentrate and do the core work better. For example, after platformization, 'platform + small organizations', with unified warehousing and distribution, the platform has scale, and small organizations have vitality, and even warehousing and distribution can be outsourced to independent third parties. Therefore, **the 'new provincial agents' will not become wholesalers like traditional 'provincial agents', nor will they become bloated, complex traditional distributors, but rather new-type agents that rely on channel division of labor and focus on core functions.**
Source: Teacher Liu's Forum (ID: liuchunxiong1964)
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