---
title: "How Big Is the Impact of Social Security Reform on the FMCG Industry?"
description: "Starting from January 1, 2019, all social security taxes will be uniformly collected by the tax authorities, signaling a new harsh winter for FMCG companies and trading firms. On August 27, the State Taxation Administration issued the latest notice that from 2019, social security will be uniformly collected by the tax authorities, and the handover of social security premiums and the first batch of non-tax revenue collection responsibilities must be completed by December 10 this year. The news has caused a stir online. In short, in the past, most companies paid social security at the minimum standard rate, and it was uniformly collected by the human resources and social security departments. This time, the shift to tax authorities will directly affect social security payments."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-09-09"
language: "en"
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# How Big Is the Impact of Social Security Reform on the FMCG Industry?

> Starting from January 1, 2019, all social security taxes will be uniformly collected by the tax authorities, signaling a new harsh winter for FMCG companies and trading firms. On August 27, the State Taxation Administration issued the latest notice that from 2019, social security will be uniformly collected by the tax authorities, and the handover of social security premiums and the first batch of non-tax revenue collection responsibilities must be completed by December 10 this year. The news has caused a stir online. In short, in the past, most companies paid social security at the minimum standard rate, and it was uniformly collected by the human resources and social security departments. This time, the shift to tax authorities will directly affect social security payments.

**Starting from January 1, 2019, all social security taxes will be uniformly collected by the tax authorities, signaling a new harsh winter for FMCG companies and trading firms.**
On August 27, the State Taxation Administration issued the latest notice that from 2019, social security will be uniformly collected by the tax authorities, and the handover of social security premiums and the first batch of non-tax revenue collection responsibilities must be completed by December 10 this year.
The news has caused a stir online. In short, in the past, most companies paid social security at the minimum standard rate, and it was uniformly collected by the human resources and social security departments. This time, the shift to tax authorities will directly affect social security payments. First, it will increase the social security contribution rate (as tax authorities are more familiar with companies' revenue situations); second, it will expand social security coverage (as tax authorities have stronger collection efforts and management capabilities). The reform of social security collection will ultimately mean companies have to pay more, and labor costs will further increase.
**I. How Does the Social Security Collection Reform Affect Distributors?**
Regarding the social security collection reform, New Distribution also interviewed several distributors, and most distributors responded: "**The impact is not significant; we all pay less tax.**"
The reason, as an anonymous distributor told New Distribution, is that "for small and micro enterprises like ours, most people don't pay social security. Only some 'office workers' are required to pay, and we only pay for them. Our company has over 30 people, but fewer than 10 pay social security, and they pay at the local minimum standard. Additionally, some frontline sales staff have weak awareness of social security; even if they know about it, some will voluntarily request not to pay social security and instead receive cash subsidies. So basically, there's little impact."
From a positive perspective, this round of social security collection reform seems to have relatively little impact on FMCG trading. A beverage distributor from a certain region told New Distribution, "Why is the impact small? Many in our industry are still individual businesses, and individual businesses don't even pay taxes. I remember once the tax authorities inspected a local comprehensive wholesale market, and some distributors with annual sales of hundreds of millions were still individual businesses. This phenomenon is very common. For distributors, there is already a tax black hole; without taxes, it's even less likely for social security to be collected."
If social security were actually paid based on actual personal income, for an employee with a monthly income of 10,000 yuan, the company would have to pay nearly 4,000 yuan, invisibly increasing labor costs by almost 30%. This is unbearable for any labor-intensive enterprise.
Therefore, from the current FMCG trading system perspective, the social security reform seems to have minimal positive financial impact on distributors. But what about upstream manufacturers?
**02 Social Security Collection Reform Intensifies Layoffs at Upstream Manufacturers**
An industry insider told New Distribution that from a short-term and positive perspective, the implementation of this measure seems to have little impact on distributors, but from another angle, it has a significant impact, especially on distributors of first-tier brands that rely on deep distribution.
Why? In recent years, there have been constant layoffs at first-tier FMCG companies. Some simply lay off employees directly and don't fill vacant positions; others subtly shift to distributor employment, subsidizing personnel wages in the form of fees and goods.
△ Changes in employee numbers at a well-known FMCG company
In the past, layoffs were based on two factors: first, the overall environment of rising labor costs; second, the saturation of distribution density, where the marginal cost of personnel investment increases and the input-output ratio decreases. But this round of social security collection reform will passively force companies to continue expanding the scale and scope of layoffs.
When brand owners lay off employees, frontline sales staff are the first to be affected. In the past, distributors who acted as agents for first-tier brands relied on manufacturers' sales staff to complete terminal distribution, but that era will soon pass. Without manufacturers' sales staff for terminal visits, distributors of first-tier brands, whose core functions were payment collection, shipping, and logistics, will find life increasingly difficult.
In fact, some first-tier brand owners are already undergoing channel reforms toward "de-flattening and large distributor systems," and this policy will accelerate the implementation of the "de-flattening" strategy.
A distributor surnamed Zhang, with annual sales of hundreds of millions, told New Distribution that due to the social security collection reform, upstream manufacturers will clearly feel the pressure. The best way to release pressure is to lay off employees, and the impact of layoffs will eventually be transmitted to distributors. The pressure of "supporting people with single products" is already very high for manufacturers; with social security, costs rise, which will force manufacturers to transfer sales and promotion functions to distributors.
**Can distributors take over the sales and promotion functions transferred from frontline terminals? Can distributors who are used to "having everything done for them" adapt to this change?**
Zhang told New Distribution, "The chain reaction will bring about a transformation of distributor functions. Those who cannot transform will inevitably fall. If a large number don't die, there can't be major development in the distributor segment; certainly some will die. In the past, there were too many people dividing the cake; the era when you could be an agent just with money is over. In the future, if distributors don't know how to 'distribute,' what value do they have to survive?"
It is worth noting that from a side perspective, the implementation of this policy will inevitably deal a blow to distributors who previously relied on logistics and distribution to earn meager profits. **This wave of policy will also test whether distributors have the ability to take over the frontline market operations previously dominated by brand owners.**
**03 Distributor Response Strategies: Flattening, Scaling, and Categorization**
In the past, flattening was usually led by upstream manufacturers, who set up offices, sales offices, and branches, using a human-wave tactic to seize terminals and outpace competitors. Now, distributors should take over, proactively revolutionize second-tier distributors, flatten the network by sinking down, and gradually shift the focus from capital advance and logistics distribution to sales promotion, strengthening marketing capabilities.
A distributor told New Distribution, "Take a beverage distributor with sales of 30-40 million yuan as an example. The gross profit is roughly 2 million yuan. After deducting personnel expenses of about 800,000 yuan, plus warehousing costs, vehicle costs, capital costs, and other miscellaneous expenses, there is basically no room for tax payment. If calculated at the legal minimum tax rate of 0.8%, for 40 million in sales, you'd have to pay 320,000 yuan in taxes, and in the end, your net profit might be zero. It sounds good to say you're doing tens of millions in business, but in reality, if you comply with laws and regulations, after paying taxes, you'd have nothing left."
What if distributors focus on "selling"? The gross profit margin for agency products can basically reach 20%. Assuming a 40 million yuan scale, the gross profit would be 8 million yuan. With 300,000 yuan in taxes, there's no need for distributors to evade; they can pay normally without worrying about tax risks. "Only when distributors are well-fed and profitable can they become law-abiding taxpayers. Distributors don't want to do tens of millions in business and be as stingy as a miser, haggling with employees over every penny, or deducting a few cents from loaders..." a distributor confided to New Distribution.
The purpose of flattening is to improve distributors' sales promotion functions and further increase profitability. Additionally, from a sales perspective, as Teacher Wei Qing once expressed, sales are nothing more than two indicators: number of active customers * number of SKUs.
**The number of active customers actually requires distributors to scale up,** increasing network coverage and expanding distribution areas; only through scale effects can cost reduction be truly achieved. **The number of SKUs requires distributors to categorize their product lines,** and by expanding a certain category, they can achieve efficiency gains from a business perspective.
It is worth noting that the current trend of traditional distributor transformation and upgrading, whether it's doing unified warehousing and distribution or local B2B platforms, also aims to achieve cost reduction and efficiency improvement through flattening, scaling, and categorization.
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