Collapse is imminent It's not new for major FMCG brands to change distributors, but it is new to find no distributors willing to take over. In the past, when brands changed distributors, they were the proactive party. When a brand was dissatisfied with a distributor and wanted to replace them, there were plenty waiting to take over. Now, when major brands change distributors, it's often because the distributor voluntarily quits, forcing the change, and often no one is willing to take over. This year, I've had extensive contact with over 100 frontline distributors. Listen to their discussions: "A brand has changed distributors two or three times in our county." "No one in our county is willing to handle XX brand anymore." "XX manufacturer recently approached me, but I didn't take it." "Last year, the manufacturer gave me a Best Cooperation Award, but now I'm not planning to continue." This was said by a distributor in a slightly intoxicated state. In 2016, I wrote "Distributors Quit Without Notice," proposing that "distributors say no to major brands." At that time, it was an isolated case, not widespread. But I was sensitive to such signs. In 2023, I wrote "Major Distributors Are Abandoning Major Brands," which had some prevalence. But the widespread phenomenon this year still surprises me. Honestly, I'm worried about the channel systems of leading FMCG brands! The entire FMCG channel system is on the verge of collapse. It's normal for a manufacturer to change distributors, and it's normal for a manufacturer to find no distributor to take over. But when major brands collectively face difficulty in changing distributors, it's abnormal. Drucker said that if three people in a row can't do a job well, it must be a job designed for God. Similarly, if so many distributors are unwilling to take on major brands, then the current distributor role is also "only God can do it." Distributors proactively shrink operations Viewing the widespread distributor changes from the perspective of channel environment deterioration is one angle; viewing it from distributors proactively shrinking operations is another. When frequent distributor changes become proactive contraction, manufacturers will face an even more uncomfortable channel environment. I divide the deterioration of the channel environment into three stages: Stage 1: Deterioration of manufacturer-distributor relations Forced stocking, advance payment, and no profit. These are the three major complaints distributors have had against manufacturers, and they are also the mutated actions of deep distribution at its end. Complaints are complaints, but they are far from collapse. Forced stocking: manufacturers have always been forcing. But distributors also have countermeasures. Strictly speaking, it can't be seen as a major factor affecting manufacturer-distributor relations. Advance payment for expenses: has always been common. Similarly, it shouldn't be a major factor for a breakdown. No profit: has also been common for years. Although major brands don't bring profit, they at least bring traffic! It doesn't seem to be the reason for the current severity of manufacturer-distributor relations. Stage 2: Deterioration of the channel environment From individual cases of manufacturer-distributor relations deteriorating to widespread channel environment deterioration is more fatal. First, first-tier brands have "full control" over distributors' salespeople. First-tier brands basically have an internal control system for distributors' salespeople. Independent teams, paid by the manufacturer, managed by the manufacturer. This management style is fine from the manufacturer's perspective. But it disrupts the traditional profit model of distributors: using brands to drive sales of generic products. Brands drive volume, generics make money. Because first-tier brands' "full control" model leaves distributors no opportunity to bring in generics, what's the use of first-tier brands? Second, hard discount snack stores have expanded to township markets, and the long-tail category of snacks, which was previously the most profitable for distributors, suddenly has direct factory-to-store supply. During my visits to northern townships, I found that almost all retail business in townships has been absorbed by "hard discount snack stores." Third, the "Pang Gai" (store renovation) and chain stores' "factory-to-store direct supply" systems have taken away distributors' last hope. Supermarket stores are renovated, chain stores have direct supply, small stores are supplied via B2b, leaving little distribution space for distributors. Distribution as a business may be disappearing. Fourth, long-term policy-driven stocking has led to price inversion, leaving distributors without hope. Marketing expert Niu Enkun said that policies used to work every time, but long-term use results in price collapse. Price collapse leads to channel collapse. Stage 3: Distributors proactively shrink operations Now we have entered the third stage. Previously, distributors said they didn't make money, but it was just verbal accounting. Or, if you only counted first-tier brands, they didn't make money, but overall they did. Now, overall they don't make money, and there's no hope of making money. In the past, distributors told manufacturers "we don't make money," but they still did business. "Not making money" was just a complaint. Now, when they say "not making money," they quit, without even complaining. The long-term deterioration of the channel environment, especially retailer-led factory-to-store direct supply, has left distributors without hope. So, distributors have begun to proactively shrink operations. Any brand that doesn't make money in the short term is cut, whether major or minor. Some have even cut more than half of their brands in a short period. At this point, the deep distribution system is on the verge of collapse! The channel system supported by the deep distribution model is unsustainable. Excessive channel push Last year, I talked with a former director of a major brand who had left. When I asked about the decline in sales at his old company, his answer was simple: "How can a big single product that has been sold for over 10 years generate incremental growth?" This woke me up. Why are the big single products cultivated 10 years ago still the leading products? Because in the current environment, the deep distribution system has lost its ability to launch new products. Since 2020, brands that have been successful in launching new products (new products, high-end products) have relatively harmonious manufacturer-distributor relations. Occasional distributor changes don't affect the overall situation. Old products are at the end of their strength, yet they still rely on high-intensity deep distribution to expand sales. This is a difficult task and will only disrupt the channel system. The entire channel system has been under high-pressure distribution for a long time. It lacks the ability to launch new and high-end products. First-tier brands have generally lost the ability to launch new and high-end products in the internet environment. I believe this is the root cause of channel problems. Why have first-tier brands lost this ability? I think there are two major reasons: First, influenced by negative environmental factors, they are "involution" downward rather than "breaking through" upward. I don't oppose downward involution, but they can't only have a one-way battlefield; they also need to break through upward, fighting on two fronts. Even in a supposedly bad environment, they must have the courage and ability to break through upward. The beverage industry has performed relatively well in recent years because it succeeded in breaking through upward. Second, the dual-drive model familiar to first-tier brands has failed. Brand drive + channel distribution drive is the dual-drive model that made first-tier brands what they are. In the internet environment, the traditional brand drive model has failed, and the internet-based brand drive model hasn't been mastered, so they only increase channel drive. Therefore, excessive channel drive has become the key to disrupting the channel system. The current manufacturer-distributor problems are caused by excessive channel drive. Changing distributors won't solve the problem; it will only affect channel reputation. Changing distributors is not the antidote Major brands can't withstand frequent distributor changes. In recent years, it was common for first-tier brands to change distributors. But there were still people willing to take over, even proactively. After all, having a major brand makes distribution relatively easy and customer relations easier to manage. But after changing distributors several times, it becomes harder to change again. Because reputation declines, and market problems easily accumulate during the change process. Now there's a phenomenon where after changing distributors, they only operate for a few months before changing again, making reputation even worse, leading to no distributor willing to take over. Manufacturers' KPIs are rigid, leaving no buffer for frontline salespeople. Many first-tier FMCG brands, like last year's baijiu brands, are unwilling to let their reports look bad, trying to create the illusion that sales haven't declined. So, the process of changing distributors is often unpleasant, with market handover problems, expense settlement disputes, and chaotic pricing systems. If this happens once, the market may think it's the distributor's problem; if it happens multiple times, it's the manufacturer's problem. Now distributors generally tend to be conservative in operations: they don't attend trade fairs, don't take on new products, don't add personnel, are unwilling to advance funds, do business only if profitable, and give up if not. They generally don't have a positive outlook. In this atmosphere, changing distributors will only make things worse. The problem isn't widespread distributor changes; it's that manufacturers need to change. If they don't change, collapse is inevitable. Collapse is a precursor to collective transformation Such a widespread channel phenomenon cannot be solved by changing distributors. Similarly, distributors shrinking operations is not a way out, but it is a precursor to collective transformation. A distributor for a major brand told me that the manufacturer, to cope with declining sales, increased online investment, and in the short term, online sales share more than doubled. I think this will only accelerate channel collapse. Without the ability to launch new products, increasing online share will only accelerate distributor exit. Sales bought with traffic and price cuts won't save the company. Both manufacturers and distributors need to prepare for channel collapse. This is not alarmist; it's a reality they will face sooner or later. For manufacturers, they need to reorganize their channels. First, for large terminals, factory-to-store direct supply is an inevitable choice. Second, for distributors, guide them to transform into user operators, or cultivate a group of new operators, to take on the ability to launch new and high-end products. Otherwise, the company will have no vitality. Third, the era of manufacturers directly supplying B2b platforms may be coming. In the era of large manufacturers dominating B2b, the relationship between manufacturers and B2b platforms was complicated. With channel collapse, the supply relationship with B-end must be guaranteed. The new supply relationship may be through B2b platforms. For distributors, there are roughly three options: First, distributors with scale should try to build B2b platforms. The result of channel collapse is that B2b platforms become an important channel for the supply relationship between brand owners and retail stores. Therefore, B2b will definitely see a big explosion at the time of channel collapse. Of course, I'm not saying it's now; now there are only signs of channel collapse, not the real thing. Second, transforming into operators is an important choice. Distributors make money by trading and earning price differences; operators get functional subsidies through promotion. Of course, current operators will also benefit from profits from new product sales growth. Even if distributors are unwilling to transform, a group of young operators will rise. Through years of user operation practice, I roughly know their profile: 20-40 years old, with dreams in their hearts and paths under their feet, asset-light operations, and an independent promotion team. Third, shrink and exit. There will inevitably be a large number of distributors exiting the channel. Exit can be voluntary or forced. Shrinking is the first step of voluntary exit. Building new-type operators As emphasized earlier, companies and distributors with strong new product launch capabilities are thriving. But the method for launching new and high-end products is no longer the brand drive of the marketing department plus the channel drive of the sales department, but a new drive model. In the internet environment, an efficient model for launching new and high-end products must be an online-offline integrated approach. Based on my current practice, two teams are very important. One team is the scenario department. They go deep into consumption scenarios and use bC integration to form user awareness. This is a very effective method known so far. The baijiu industry, which is in a cliff-like decline, is widely practicing this. Another team is the flying squad. The flying squad is a mobile team in many companies, adding a fresh force to markets that need breakthroughs, driving regional breakthroughs and transformation. Another value of this team is as a propaganda and coaching team for user operation models. The above two teams are not functions of the marketing department or the sales department, but a new function combining both. Whether it's online UGC communication or online-offline integrated user operation and communication, they are marked by the internet. **🔺