Recently, I conducted research in several county markets with populations of 600,000 to 900,000 in Henan, Hubei, and Guangxi, and found that distributors with annual sales of around 10-15 million are almost all encountering growth bottlenecks. Sales declined to varying degrees in 2014 and 2015, and some veteran distributors have even seen consecutive declines for years. Through research, market visits, and entering enterprises to communicate with distributors, I found commonalities among distributors facing growth bottlenecks:

  1. Team: Around 10 people, with five or six salespeople and five or six vehicles; the rest are drivers. Core backbone staff are mostly relatives. Salaries are not high, but relatively stable.
  2. Internal Management: Mostly the wife keeps the books, with few having independent financial accounting personnel. Basically, no financial or inventory management software is used; the whole family is involved. There is a warehouse keeper, but accounts are often unclear, and warehouse management is chaotic.
  3. Products: They represent one or two main brands plus three to five small brands. Individual brands typically have annual sales between 3-5 million, with no growth for years, and in the past two years, main brands have started to decline.
  4. Team Management: Basically, no morning meetings; performance pay is base salary plus commission. Base salary is very low, and commission varies by product category. Some sales teams use POS terminals, and a few use manufacturer terminals for terminal management, but most still rely on handwritten orders.
  5. Capital and Revenue: Annual profits are not high but relatively stable. Most funds come from early accumulation, with low debt ratios and little financial pressure.
  6. Bosses: Mostly over 35, with low education but rich social experience and good local connections. They feel their management is adequate and believe the sales of their represented brands have reached the market limit, making further growth difficult.
  7. Downstream Wholesale: Long-term cooperative relationships with good customer relations; sales mostly rely on promotions or ordering meetings.

Analysis:

1. High output per vehicle, but shipments are mainly volume products, with high-margin products accounting for a low proportion. 2. Bosses socialize a lot, rarely go to the market, and dare not go because once they do, a pile of problems emerges. 3. Basically, they rely on selling goods to support the business; if products rise, they rise, if products fail, they fail. 4. A pile of expired goods in the warehouse, a pile of customer complaints, and business performance is mixed. 5. No market management, no terminal action. Employees lack motivation, and bosses lack direction. 6. Cannot add people or vehicles; if added, sales don't increase, management fails, and sales don't grow. 7. Annual income is relatively high locally, so they are considered successful, leading to insufficient motivation for development.

The reasons for the above phenomena are mainly that food and beverage distributors mostly started from scratch, relying on a rapidly growing product to reach this scale. Bosses have low education, lack professional marketing and enterprise management experience, and operations basically follow the early entrepreneurial system with little change, adding people where needed. Achieving 10-15 million with the existing model is already commendable. Distributors are aware that the current model cannot support higher sales scales and that change and professionalization are needed.

It's not that distributors don't want to develop; some have tried introducing sales POS systems, hiring accountants, adding inventory management software, setting standard rules, and strengthening sales team management. However, these actions still cannot solve the team and sales bottleneck. They know they are not professional and that systematic change is needed, but making money is hard, risk tolerance is low, and they dare not change easily. Like frogs in warm water, they know it's not working but have to wait for death...

Conclusion: In the next three years, China's economy will continue to decline, operating costs will rise, and the internet's impact on traditional industries is huge. Soon, some distributors will start to see losses and cliff-like sales declines. 10-15 million is the growth ceiling for food and beverage distributors. Distributors at this scale are like rowing against the current in a turbulent, winding river—if they don't advance, they retreat!

Suggestions for distributors in this situation:

Either transform or reform. Transformation is not deeply discussed here. Most distributors have deep feelings for the distribution business that made them wealthy, and if the business isn't too difficult, they won't easily change industries. This article offers some reform suggestions for distributors in this situation, hoping to help those with the above problems:

Distributors with ambition to develop should reform their enterprises slowly rather than quickly, with fewer projects and improvements rather than more. They can make internal adjustments in stages and with plans. Generally, adjustments are divided into the following stages:

First Stage:

Sort out the financial accounting system: Hire independent financial accounting personnel, implement standard financial and inventory management systems, clarify accounts, monitor accounts receivable, manage goods properly, form standardized and institutionalized financial information support forms, and make decisions based on financial data for purchasing and sales.

Second Stage:

Change market terminal performance: Add people and vehicles, use software for scientific route management of terminals, and build a flexible market service system based on actual market conditions.

Change team performance evaluation system: Transform salespeople's functions from selling goods to selling services. The core is no longer just selling but doing actions that make consumers buy. Around this functional change, adjust the salary assessment system. On the basis of the original base salary plus commission, add multiple assessment indicators such as outlet development, terminal visualization, category distribution, and shelf display. Use sales terminal systems to effectively manage salespeople.

Change management model: Select or hire excellent people as supervisors to assist the boss in team management. Institutionalize all processes, change target tracking from monthly to daily. Use computers, projectors, and other tools to increase management visualization, and use sales software to increase sales/monitoring efficiency. Quantify terminal service content to be standardized, trackable, and easy to execute.

After completing the above, operating costs for distributors will generally rise sharply, mainly due to increased operating costs, increased personnel and vehicles, and no significant profit growth. At this time, many distributors will not be able to sustain it. The core issue is that the purpose of reform is not to adjust the organizational structure based on existing sales. This is foundational work for future sales growth.

Third Stage:

Change product structure: Use the financial system to analyze and evaluate the input-output ratio of products (capital investment, turnover rate, profit rate), make product combinations based on the characteristics of main products, and appropriately increase main agency product categories.

Establish a budget system: Distributors can make development budgets based on their own financial strength and development goals. For example, in fiscal year 2016, how much sales and profit increase should be achieved on the existing basis? Can my existing products support this increase? How many more outlets, vehicles, and personnel are needed? Should I add brands? Can the existing organizational structure support this goal? All resources should be adjusted and supported internally around the budget system.

After sorting out finances, changing performance evaluation, and doing budget management well, once the three major systems are in place, distributors' sales growth can be effectively planned and developed according to actual budget indicators. Although distributor enterprises are small, if they want to develop, they need all the necessary functions. Of course, the core of all this is talent. Distributors' temples are small, and it's generally difficult to retain excellent marketing and management talent. This requires distributors to rapidly improve their own quality and management level.

If sales before 15 million relied on selling goods, then above 15 million, it must be about seeking benefits from management. Here, I provide a 38,000-word rules and management process template from a trading company with annual sales of around 50 million. Interested friends can reply "Rules and Regulations" to download.

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