---
title: "FMCG Companies' Deep Distribution Model Urgently Needs Upgrading"
description: "The Chinese market is characterized by multiple tiers, diverse retail channels, and a lack of integrated logistics, with millions of mom-and-pop stores being a key distribution channel. The deep distribution model, while effective in the past, now faces challenges from declining foot traffic and the rise of omnichannel retail, necessitating upgrades in management, value chain, and consumer marketing."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-11-25"
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# FMCG Companies' Deep Distribution Model Urgently Needs Upgrading

> The Chinese market is characterized by multiple tiers, diverse retail channels, and a lack of integrated logistics, with millions of mom-and-pop stores being a key distribution channel. The deep distribution model, while effective in the past, now faces challenges from declining foot traffic and the rise of omnichannel retail, necessitating upgrades in management, value chain, and consumer marketing.

******Characteristics of the Chinese Market**
1. China's market can be divided into tiers from first to sixth, with significant disparities in per capita disposable income across regions, east-west, north-south, and urban-rural divides.
2. The number of physical channels is large and diverse: 150,000 CVS stores, over 6 million mom-and-pop stores, 20,000 large supermarkets and hypermarkets, and countless distributors and wholesalers.
3. There is no large-scale logistics and supply chain system to help brand owners achieve one-stop delivery.
4. The highly fragmented mom-and-pop retail model has not formed relatively concentrated shopping channels.
5. There is an asymmetry in capabilities between manufacturers and distributors; most distributors only have logistics and delivery capabilities and cannot complete localized marketing.
6. Information asymmetry: consumers' independent awareness is low, influenced by channel behavior.

******Mom-and-Pop Stores Are the Largest Retail Group in China**
In the FMCG industry, small stores are commonly referred to as terminals.
The so-called terminal refers to the place where goods, after leaving the factory, pass through distributors, sub-distributors, and wholesalers before finally reaching the transaction point where they meet consumers.
In China, there are approximately 6.8 million mom-and-pop store terminals. Different FMCG categories may have slightly different statistical calibers, but all are above 4 to 5 million.
Mom-and-pop stores have been an important target of deep distribution in the past distribution system of the FMCG industry. Brand owners, through their own sales representatives or those of distributors, complete visits, distribution, maintenance, and visual merchandising, ultimately leading to consumer selection and purchase.
Mom-and-pop stores are one of the most important distribution channels for Chinese FMCG products, especially for immediate consumption goods.

******Deep Distribution Is an Effective Solution to Cover Millions of Mom-and-Pop Stores**
****1. What is deep distribution?**
Deep distribution is an effective solution proposed to address the coverage of millions of mom-and-pop stores in China. By emphasizing the construction of an integrated manufacturer-distributor relationship, it extends operational reach through the distribution link to the retail link, and gains competitive advantage by establishing partnerships with distributors and retailers.

****2. How to operate?**
  * Refined terminal layout (distribution rate, tiered management)
  * Terminal visual merchandising (deployment of various display materials, standardized usage)
  * Terminal activation and interception (using sales guides, promotions to intercept users)
  * Terminal incentives (sufficient profit margins to stimulate channel distribution)
  * Rapid sell-through (high turnover rate, quick capital recovery)
  * Empowering partners (professional skills training for partners)
  * Off-store proactive marketing (breaking through retail space limitations, conducting activities in areas with dense target traffic)

****3. Why is deep distribution effective in the Chinese market?**
  * In an environment where demand exceeds supply, it solves the efficiency of distribution.
  * In a low labor cost environment, it solves the problem of how to rapidly and massively penetrate products into terminals.
  * It solves the competition problem.
  * It is logically self-consistent, integrating three forces (product power, channel power, brand power).

******Retail Industry Sees Declining Foot Traffic; Small Stores Have Begun Omnichannel Retailing**
**1. Users consume across all scenarios; offline physical retail is no longer the only option.**
In March this year, Ms. Zhu Yijing, then Vice President of Mondelēz Greater China, disclosed at the New Distribution Channel Innovation Conference that 64% of Chinese consumers shop across all channels, with an average of more than 5 shopping channels. This means that retail in China is no longer single-channel but omnichannel.
China's internet infrastructure is well-developed, and omnichannel shopping is an inevitable trend. The vast majority of consumers no longer complete the closed loop of cognition, transaction, and delivery in a single scenario.

****2. O2O, community group buying, and other online near-field retail models have significantly reduced foot traffic for immediate consumption stores.**
Yonghui Superstores released its Q3 2021 report. The financial report shows that in Q3 2021, Yonghui Superstores' operating revenue was 23.008 billion yuan, a year-on-year increase of 3.86%; net loss was 1.095 billion yuan, a year-on-year decrease of 726.56%. For the first three quarters of 2021, Yonghui Superstores' revenue was 69.835 billion yuan, a year-on-year decrease of 3.90%; net loss attributable to shareholders was 2.178 billion yuan, a year-on-year decrease of 207.37%.
In fact, this is Yonghui Superstores' first loss since its listing 11 years ago.
Regarding the reasons for the loss, Yonghui Superstores raised an important point: community group buying had a significant impact on Yonghui Superstores' foot traffic. In fact, not only supermarkets but also mom-and-pop stores have been severely affected by new retail models such as community group buying and O2O.

**3. Unmanned retail models such as unmanned shelves and vending machines are closer to consumers.**
In the past two years, a large number of unmanned retail cabinets and shelves deployed by new retail institutions have further affected foot traffic in small stores.

**4. Small stores' own operations are gradually extending to online and community spaces.**
Mom-and-pop stores have not sat idly by in response to external environmental changes. Based on their natural immediate consumption and LBS community attributes, the small store business model has long been equipped with internet wings. From in-store mobile payment to O2O delivery, to B2B order procurement, to community group buying and community operations, small stores have already developed the ability to connect and serve consumers in their communities in a three-dimensional way.
We see that whether from offline to online, from procurement to transaction, from delivery to community, the service capability is almost comprehensive. People don't move, goods move; goods don't move, people move. The logic of people, goods, and places in small stores is no longer simply a point of sale. Small stores have already begun omnichannel retailing.

******The Limitations of the Existing Distribution Model Are Obvious and Urgently Need to Be Broken**
**1. Management level**
  * High labor costs, extremely complex management
  * Internal and external integration, top-down integration, emphasis on execution, insufficient market responsiveness
  * Strong in pushing, weak in pulling, emphasizing competition, ignoring demand

**2. Value chain level**
  * Distributors/wholesalers have insufficient profits, easily leading to involution
  * Insufficient tolerance for disruptive new things (low fault tolerance in the value chain)

**3. Consumer marketing level**
  * Overemphasizes the importance of channels, ignoring consumers and the core demands of retail stores
  * The distribution model is limited to physical space and physical stores, unable to extend to community and online spaces

******Several Ways to Break the Deadlock**
**1. Activate the model**
Labor costs are rising significantly, but terminal manpower cannot be reduced; improving per capita efficiency is the only choice. Through models such as Siheyi and Wangqing, where the company organizes, distributors set up the stage, and joint operations allow employees to start their own businesses, enhancing individual initiative.

**2. Empower with technology**
Through technical means, shift from regular route visits to data-supported precise visits. Use AI image recognition and camera monitoring to improve the effectiveness of salesperson visits, thereby reducing the frequency of visits.
B2B online ordering, online payment, and other B2B tools reduce non-productive time for salespeople and extend their online service time.
Through big data support and analysis tools, improve the structural issues of products sold by salespeople and the structural allocation of terminal resources.
Through community, mini-program coupons, Moments, one-code-one-item, and other promotional tools, reduce the distortion of large promotional activities conveyed by salespeople.

**3. Extend capabilities in operations**
O2O: Based on same-city retail platforms such as Meituan, Ele.me, Duodian, Taoxianda, etc., the C-end reach of small stores requires business to gradually optimize for individual stores, ultimately achieving ubiquitous online shopping for consumers.
Same-city new retail: Based on the product category characteristics of the enterprise, complete channel reach through community e-commerce and community group buying. Whether tactical promotions or strategic coverage, ultimately it must be covered in the community space of small stores to achieve reach.
BC integration: Based on the decline in foot traffic in small stores, enterprises further extend their operations, extending their reach from small stores to consumers in the small store community. Leveraging the LBS advantages of mom-and-pop retail stores, through tools such as mini-programs and one-code-one-item, complete the connection and marketing activities for C-end consumers in the surrounding community of small stores.
Ultimately achieve capability extension, consumer reach, and complete C-end operations such as attracting new customers, activating, and repurchasing.
It is certain that although the deep distribution model is a heavy and tiring job, as long as mom-and-pop stores exist, the deep distribution model can only be upgraded, not undergo major changes. Moreover, as previously stated, deep distribution emphasizes the integration of manufacturers and distributors, extending operational reach to small stores, not adding people and vehicles to penetrate lower-tier markets.
Therefore, in the current market environment, the deep distribution model should first consider how to use technical means and new models to solve the current problems of high distribution costs, inflexible methods, and incomplete reach. Achieve cost reduction, efficiency improvement, optimization, and extension, ultimately achieving omnichannel same-city retail.

| Founder of New Distribution, FMCG industry channel expert, original author of over 400,000 words of FMCG industry research articles. For communication, you can add WeChat by long-pressing. When adding, please indicate your company, position, and name.

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