Any industry transformation is both a cruel elimination and an opportunity for metamorphosis. It is precisely because times are tough that companies are forced to think about transformation and change. Those with the ability and courage to change can be reborn. Even better is to be prepared for danger in times of peace, proactively stepping out of the comfort zone before a crisis hits and laying out plans in advance, which makes survival in the big waves more likely.
In this era of endless new models, a host of new ideas emerge daily, all aimed at altering or even subverting traditional industry structures and models. The core goal is to use every trick to: control resources, seize customers, and reduce intermediate links.
Whether traditional brand owners, manufacturers, or newly emerged platform companies, all carry the banner of the internet, striving to leverage new technologies to change the original step-by-step, clearly divided, and well-defined industrial chain. The first link identified as changeable is the distribution channel.
01 Past Glory
The distribution model of the past decades, even centuries, has been proven to be the industrial model that best leverages social resources to drive economic development, and it is a vital part of the brand owner's value chain. Distributors fully utilized their regional advantages to solve four major problems for brand owners: commercial flow, logistics, capital flow, and information flow, enabling brand owners to focus resources on new product development, brand marketing, and production.
The relationship between brand owners and distributors is not only a business relationship but also a mutually dependent partnership, supporting each other in times of need.
Under this traditional model, as long as distributors did the following things well from the start, they could basically secure their market position and happily count their money:
Find influential quality brands and categories, and obtain regional agency rights;
Master the regional sales network relationships, including large supermarkets, secondary distributors, and scattered small retail stores;
Master regional warehousing and logistics resources;
Have sufficient working capital and good loan credit.
02 Today's Predicament
But now, these advantages are being weakened, replaced, and even subverted. Distributors have had a very tough time in the last 3-5 years, and many small-scale ones have disappeared due to their inability to withstand environmental changes.
Distributors often complain:
- New entrants such as B2B platforms and regional urban distribution logistics providers are squeezing their living space.
- Under the control of brand owners, their voice is getting weaker.
- Costs are rising, profits are thin, and team capabilities are outdated.
In reality, the complaints in points 2 and 3 are long-term issues of the enterprises themselves. They were not prominent when times were good, but now with the interference of new models and new entrants, their advantages are gone, and disadvantages are exposed.
So from another perspective, any industry transformation is both a cruel elimination and an opportunity for metamorphosis. It is precisely because times are tough that companies are forced to think about transformation and change. Those with the ability and courage to change can be reborn. Even better is to be prepared for danger in times of peace, proactively stepping out of the comfort zone before a crisis hits and laying out plans in advance, which makes survival in the big waves more likely.
03 The Path of Transformation
Smart bosses have extremely keen market senses and know that the general trend is irreversible. Only by following the trend and leveraging momentum can they achieve a multiplier effect.
Distributors can consider different transformation paths and methods based on their region, position in the value chain, and scale. From internal to external, from basic to high-end, there are three areas of change:
- Lean operations management
- Upgraded cooperation models
- Business model transformation
Change 1: Lean Operations Management
This is a change point that all distributors, regardless of size, should strengthen. The original extensive "one hand in, one hand out" trading method relied more on geographical advantages and interpersonal relationships. But now, more scientific and lean management methods need to be introduced, especially for several core links in the business chain.
For example:
Conduct refined financial analysis of the product categories distributed, evaluate the actual performance of categories from a profitability perspective, and propose optimized category mix recommendations;
Like retailers, make more precise and agile sales plans, rolling forecasts, and purchase-sales coordination;
Digitize the entire supply chain to improve information transparency, achieve traceability, and optimize inventory and logistics;
Strengthen the regional distribution brand, actively promote and publicize the self-owned distribution brand;
Collaborate with retail terminals to obtain consumer information and attempt data collection and digital analysis of end consumer groups.
The above changes are the self-cultivation and improvement of distributors, aimed at building stronger decision-making, operational, control, and negotiation capabilities. The direct results of these efforts can improve cost pressures, especially labor and logistics costs, and enable distributors to secure a more favorable category structure and increase gross margins.
Change 2: Upgraded Cooperation Models
Some capable distributors can consider changing their cooperation models. When their operational capabilities are improved and they have stronger bargaining power, distributors can proactively propose new cooperation points to upstream brand owners and downstream retailers.
1. Upgrading cooperation with upstream brand owners is relatively more difficult.
Brand owners have their own plans and calculations, but if a high-quality distributor that controls stable sales in a region proactively proposes a mutually beneficial point, brand owners will naturally consider it. Especially:
Proactive marketing – Distributors are used to passive thinking and over-reliance on brand owners, which only narrows their path; distributors can take the initiative to do marketing instead of waiting for brand owners to assign tasks.
Participating in sales planning – Distributors provide more authoritative sales forecasts, which brand owners crave, avoiding the helpless scenario where both sides blame each other for poor sales and forced inventory.
Joint development of new products – If distributors can effectively grasp cutting-edge consumer data and have some research on new products, such information is very valuable to brand owners. In fact, a distributor who studies and thinks continuously is entirely capable of having considerable design capabilities in certain categories, perhaps even better than brand owners.
Technical interoperability – Brand owners' IT capabilities often outpace distributors, especially under the internet wave; many brand owners have opened "online" channels to directly reach end consumers. If distributors' technology can interconnect with brand owners, making business information transparent across the entire chain, brand owners would be very pleased.
Of course, from a business perspective, distributors should also protect some core data. This requires case-by-case analysis to balance win-win cooperation, trust, the contradiction between the big picture and the small picture, and the exchange of interests.
2. Upgrading cooperation with retailers. This is the area where distributors are most impacted, but also where they have the most initiative.
Distributors must first break through their original role as mere suppliers and shelf stockers, and instead think of more ways to serve retailers, especially small retailers. Currently, B2B platforms represented by Lingshoutong are directly supporting small retail stores. The 6-7 million retail outlets nationwide are coveted channel resources, not only as deep end-sales touchpoints but also as carriers for many O2O models.
Therefore, for distributors who have long-term cooperative relationships with these retail outlets, the most uncomfortable thing is the interference from B2B platforms, as retail outlets can easily be attracted to those platforms. At best, distributors degenerate into logistics service providers; at worst, they completely lose these terminals. Because even without distributors, small retail stores can purchase good brand products on the platforms, have third-party logistics companies deliver to the store, and even the platform can help bring traffic and more business.
However, distributors need not be overly anxious. B2B platforms are not invincible; their shortcomings are obvious:
First, to compete for store resources, they subsidize products. Most B2B platforms rely on burning money to sustain operations. Once the capital chain breaks, bankruptcy is a matter of minutes.
Second, these platform companies have strong internet genes, which also means they lack experience and patience in physical operations. The distribution network built over the years has intricate interests and relationships that cannot be instantly penetrated and sorted out by dozens or hundreds of platform personnel. Traditional distribution channels still have certain barriers that can resist the impact of B2B to some extent.
So, while B2B platforms are still undergoing their own reshuffling and survival of the fittest, distributors have enough time and space to rebuild relationships with small retailers, transforming into "supporters and partners," empowering retail stores with comprehensive guidance from product selection, purchasing, display, inventory to traffic generation, interaction, after-sales, and capital. At the same time, leveraging their own technical capabilities, they can assist stores in implementing new retail models.
Perhaps some distributors will say: "I am just a supplier of some goods to this store; how can I manage so many things?" This is a breakthrough in thinking. Why not be a "partial goods supplier + retail operation supporter + new technology provider"? Distributors should care about what stores need and lack, and find ways to "fill the gaps," helping them make profits and live well. Then the bond will be very strong, not easily replaced by any platform.
Change 3: Business Model Transformation
Business model transformation may require major changes and a complete overhaul. Therefore, larger and stronger distributors can consider leveraging their regional advantages and management capabilities to transform their original single distribution model, seize more core control points in the value chain, and walk a path not taken before.
This article initially proposes three types of transformation directions. Of course, there will certainly be more models that can be boldly conceived and innovated.
Model 1: Build a regional B2B platform with oneself at the core
Since internet companies are trying to get involved in distribution through B2B platforms, why don't distributors build their own B2B platform covering at least their region?
Distributors themselves or a coalition of several distributors can build a vertical B2B platform focusing on certain brands or categories, inviting small stores to connect via mobile terminals. On the platform, there can be products distributed by themselves or by multiple distributors, allowing stores to choose goods, with each distributor responsible for logistics and delivery.
Through this model, distributors can at least confidently say to brand owners: "In this region, I have the same advantages as those platforms, and I also have market familiarity and terminal control that they cannot replicate."
The difficulties of this model are:
If the product categories are not rich enough, the platform's selection range is small, making it hard to succeed;
If allying with multiple distributors, many agreements need to be reached in advance to avoid product conflicts, ensure fair information display and trading rules, and reasonable profit distribution.
Model 2: Leverage logistics advantages to build regional shared warehousing and achieve unified warehousing and distribution
Another major "opponent" impacting distributors is logistics providers. These logistics providers control a large amount of warehousing and transportation resources, originally providing third-party services to distributors. But after the rise of B2B platforms, these logistics providers found a way to transform:
Some regional warehousing and distribution companies have started doing the work originally done by distributors. They hold investment conferences, release APP ordering and payment tools, attract small stores to order on their online platforms, provide venues for distributors to set up booths, and offer convenient logistics services for distributors in the warehouse, thereby attracting more distributors to join the platform and put goods in their warehouses for unified warehousing and distribution. In the future, such logistics companies may go further to attract brand owners.
Therefore, capable distributors might consider maximizing their existing warehousing resources, actively attracting various small distributors to share their warehousing resources. This not only prevents the "cross-border invasion" of the aforementioned "ambitious" logistics providers but also improves asset utilization and increases service income. From the perspective of the entire supply chain, it can greatly improve logistics efficiency, reduce transportation costs for small retailers, and simplify receiving operations.
The difficulty of this model is also to dispel the concerns of other small distributors, ensure the safety of stored goods, and ensure fairness in resource allocation, protecting the interests of small distributors.
Model 3: Move upstream in industry and downstream in channels
In the first two models, distributors remain between brand owners and retailers, enriching their originally single role. The third model requires playing new roles.
1) Move upstream in industry:
Some distributors have long been thinking about upstream matters. Based on years of experience in certain categories, they independently innovate new categories, control raw material bases, find processing plants for cooperative production, and create their own brands, transforming from channel merchants to "brand owners + channel merchants." This is entirely feasible for distributors with long-term operations, independent R&D capabilities, and capital operation capabilities.
2) Move downstream in channels:
Distributors can consider going downstream, not only doing wholesale but also retail. With the consent of brand owners and maintaining the interests of all parties, they can open offline stores in some regions or online malls, directly facing consumers.
To make such a transformation, distributors must quickly build retail experience and expand the products, brands, and categories they represent, even cross-category operations. For example, while operating fruits, they can also operate juice drinks.
Building regional platforms, building shared warehousing, and breaking through in industry and channels—these three business model transformations are all aimed at helping distributors gain greater market voice, reduce intermediate links, increase profits, and seek income beyond distribution margins. On the other hand, they also enable distributors to build barriers ahead of others, so they are not caught off guard when "opponents" invade. Of course, as the model becomes more complex, attention should be paid to preventing non-compliant phenomena such as cross-regional sales and order skimming.
04 Breaking the Cocoon into a Butterfly
The above three paths of change (lean operations management, upgraded cooperation models, and business model transformation) vary in complexity and impact. Some are simple, some complex; some have limited and controllable impact, while others require significant resources and major changes. Therefore, very detailed and rational planning is needed. When capabilities are not yet sufficient, it is not advisable to undergo major transformations that could be disruptive. At the strategic level, enterprises need an overall plan, a roadmap, and a control tower, clarifying the goals and action plans for each stage, identifying responsible persons, and establishing mechanisms for promotion, supervision, and assessment.
The time window is limited. Distributors with certain strength and bosses unwilling to be eliminated or live in frustration should mobilize their teams, utilize capable people, or invite external forces to jointly plan the transformation path. Weaker distributors can either cooperate with large distributors and become part of their layout, or firmly grasp the winning factors and achieve optimal performance in their niche to attract good institutions to invest. In short, they must not remain motionless and wait to be cheaply swallowed up and eliminated.
Open your mind, break conventions, transformation is painful, but as long as you tear a small opening in the right field and take a small step, you can ride the wind and carve out a new world!
Source: UANSER Consulting (ID: UANSER)
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