Source: Condiment Business Circle (ID: twpsq0909)
Manufacturers and distributors are both partners and competitors; profits cannot be equally divided, and losses are inevitably shared. Once their cooperative relationship breaks down, it often leads to a lose-lose tragedy.
Around the struggle for market control, the condiment industry repeatedly stages melodramatic episodes.
Shuangqiao Chicken Essence manufacturer and its East China agent Shanghai Haohao took each other to court; a Henan regional agent tearfully complained that Donggu manufacturer canceled their agency, like a "throat-slitting" by the manufacturer—all highlighting the sensitive manufacturer-distributor relationship.
Where do conflicts between manufacturers and distributors come from? How can the relationship be optimized to avoid future clashes?
01 Frequent Exposed Manufacturer-Distributor Conflicts
For condiment companies, to lead the market with a product, besides excellent product quality, they need to lay out a dense distributor network. But in recent years, with intensified market competition, the relationship between manufacturers and agents has become subtle—both cooperative and competitive.
What troubles many manufacturers is that after years of cooperation with large circulation agents and wholesalers, these agents have grown stronger, to the point of overshadowing the manufacturer, and begin to demand more benefits beyond the contract.
Distributors also have their worries: they fear that the brand they invested in wholeheartedly, the market they cultivated painstakingly, might be kicked away by the manufacturer in the end, losing both investment and effort.
"The big store bullies the customer, the big customer bullies the store." Maintaining manufacturer-distributor relations is more like a game. When the two sides cannot find a balance in the interest game, the original cooperative relationship is broken, leading to a lose-lose tragedy. Similar cases are not uncommon in the industry.
02 Former Partners Turned Enemies
The most well-known case is the brand under Guangzhou Aosang, "Shuangqiao MSG," which turned against its business partner of 14 years, Shanghai Haohao.
Shanghai Haohao is an enterprise specializing in condiment agency. To quickly enter the Shanghai market, Shuangqiao found Haohao to be its exclusive general agent in East China. Under their pleasant cooperation, Shuangqiao MSG's market share in Shanghai once approached 50%.
But the cooperation was not flawless; the cracks between the manufacturer and agent widened until they broke up in a big way. As for why they fell out, each side has its own story.
Shanghai Haohao stated publicly that Aosang unilaterally informed them that the contract would not be renewed after expiration, meaning Haohao would no longer be the East China general agent for Shuangqiao MSG. "Guangzhou Aosang's dishonesty has caused our 14 years of hard work to go down the drain; their termination of agency may lead to the unemployment of over a hundred employees."
Aosang, on the other hand, seemed aggrieved, claiming that Shuangqiao MSG's position in the East China market was achieved because the company invested most of its funds in Shanghai every year, but did not receive the due profit returns; the main profits were taken by Shanghai Haohao, which forced Aosang to terminate the cooperation.
Industry insiders' view on this matter is that after growing bigger, Haohao began to demand more profit sharing from the manufacturer, so Aosang started to look for new agents and build its own wholesale channels.
03 Agents Kicked Away by Manufacturers
In 2016, the widely publicized "Donggu Throat-Slitting Incident" once again brought the sensitive manufacturer-distributor relationship into the public eye.
Guangdong enterprise "Donggu" suddenly canceled the agency rights of condiment agent "Yanling Yixiang" for the Henan region. The agent tearfully accused the manufacturer of "throat-slitting."
The distributor claimed to have been an agent for Donggu soy sauce for 13 years, with annual sales of over 30 million yuan, and Donggu accounted for 90% of its product structure, but in 2016, the agency was suddenly canceled. For the agent, this was like cutting off the firewood from under the cauldron.
This is also the biggest fear of all agents and distributors: the peach tree they planted is picked by someone else in the end. And since the goods are in the manufacturer's hands, once the relationship breaks, the agent faces the immediate problem of having no goods to sell.
The owner of Yanling Yixiang accused Donggu of restricting shipments to him in order to revoke his Henan regional agency. This artificially caused the sales target for the Henan region to be unfulfilled on time.
Panicked secondary agents began to source directly from Donggu, and the original Henan regional general agent faced the crisis of company dissolution.
Why did Donggu suddenly break the original balance between manufacturer and distributor and establish a new regional agency company? Simply to gain full control in a mature region and gradually take back the once-delegated operational rights.
04 Conflicts Between Manufacturers and Distributors
1. Change in Interest Structure When a product first enters a market, to cultivate the market and increase sales, the manufacturer initially maximizes the delegation of operational rights.
When the market matures, to prevent problems, the manufacturer often wants to control the market. Thus, manufacturers and distributors can share hardship but not prosperity; the outbreak period of conflicts is often after the market reaches a certain scale.
2. Unclear Expense Allocation Manufacturers provide some support for distributors' promotional plans in their regions, but often only a framework without quantified standards. When expenses are settled, mutual distrust between the two sides can amplify conflicts.
When manufacturer support cannot cover promotional costs and returns are mediocre, distributors may reduce or stop promotions altogether. Over time, competing products will replace their own.
3. Unfulfilled Promises When establishing cooperation, both sides make promises and guarantees regarding payment, cross-regional sales, profit rebates, distribution, etc. These issues can easily become the trigger for conflicts in the fragile manufacturer-distributor relationship.
05 How to Optimize Manufacturer-Distributor Relationships
Manufacturers use distributors to sell products to maximize sales; distributors gain more profit by representing manufacturers' products; the two are interdependent.
At the same time, both sides often oppose and game each other for their own interests. How to optimize the relationship so that this friend-and-rival game does not get out of control?
Multi-Distributor System In 2004, a group of heavyweight distributors nationwide voluntarily chose to give up Haitian, which served as a wake-up call for Haitian's future channel management.
Haitian does not set up a general distributor in each regional market; there are at least two distributors. The purpose is for Haitian to firmly grasp the initiative.
This way, losing one distributor does not mean losing the entire market. Of course, this system is proactive and beneficial for the manufacturer; the multi-distributor system creates a horse-racing effect among distributors. This method allows Haitian to achieve multi-level product coverage at the lowest cost.
Joint Sales Company by Manufacturer and Distributor
To make the manufacturer-distributor relationship closer and prevent either side from kicking the other away, it is common in the industry for both sides to jointly establish a sales company.
This way, manufacturers and distributors, who originally had different interests, can share benefits and risks. Gree Electric, for example, makes core distributors owners of the company by giving up shares or participating in joint sales companies.
Small Channels Are Easier to Manage and Less Likely to Collapse
After achieving certain results, large agents know that the enterprise cannot do without them; their vast sales network gives them the capital to compete with the manufacturer.
Some manufacturers, concerned about this, tend to break large channels into smaller ones, and then further refine them, achieving seamless market connection. This way, they don't have to worry about the market being controlled by one person.
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