How Should FMCG Distributors Transform?

Recently, discussions about distributor transformation have been frequent. This is indeed an urgent topic, but how to transform requires an in-depth, systematic, and comprehensive analysis of distributor enterprises, their business models, and the market environment they face.

I. Classification and Analysis of Current Distributors

Currently, FMCG distributors can be classified into the following categories with different characteristics:

By enterprise scale:

Large distributor enterprises: annual sales over 500 million yuan.
Medium-sized distributor enterprises: annual sales between 100 million and 500 million yuan.
Small distributor enterprises: annual sales between 20 million and 100 million yuan.
Small and micro distributors: annual sales below 20 million yuan.

Large distributor enterprises: Generally transformed from traditional wholesale enterprises. There are few such enterprises. Relatively speaking, they have strong self-organization capabilities, with complete business teams, logistics systems, and organizational structures. They have relatively complete internal and external terminal network systems. Their self-development ability is relatively strong, with lower dependence on a single manufacturer. They have certain risk resistance and self-reform capabilities. However, some enterprises may have heavy rigidity, lacking flexibility and rapid response capabilities.

Medium-sized distributor enterprises: Most have developed step by step from small scale, some from cross-industry development of parent companies. These enterprises have generally gone through a development cycle, gradually maturing, with basic business and logistics capabilities, gradually forming self-correction and self-development abilities. They also have certain risk resistance.

Small distributor enterprises: These are numerous and currently the main force in FMCG distribution channels, undertaking distribution tasks in certain market areas. Most are family-run. Teams are usually around 50 people, with basic organizational structures and customer networks in target markets. They have high dependence on brand manufacturers, varying business capabilities, and weak risk resistance. Their development, market development, and management capabilities vary greatly.

Small and micro distributors: Mostly scattered in "liquor streets" or "food streets," in wholesale markets of various sizes, either family-run or with front store and back warehouse, often husband-and-wife teams with one or two employees. They are usually third or fourth-tier distributors of major brands or mainly deal in generic brands, barely surviving.

By business scope:

Multi-brand comprehensive operation: Mostly large or medium-sized enterprises, generally representing multiple categories and brands, capable of providing one-stop services to terminals.
Single-brand exclusive operation: Either mandated by the brand manufacturer (e.g., P&G, Liby require exclusive distribution), or due to limited capabilities of small or micro distributors.

By role: Distributors can be divided into first, second, third, and fourth tiers. Manufacturers usually only deal with first-tier wholesalers, who then distribute through levels to cover multiple markets.

By dependence on manufacturers: There are high-dependence and low-dependence distributors. Generally, all distributors have strong dependence on manufacturers, which is determined by their business model. Their business development largely or entirely depends on the manufacturer's market allocation, product strength, pricing, promotion, distribution policies, and support. Large brands have stronger dependence, and small distributors have stronger dependence on manufacturers.

By enterprise advantages: Different distributors have different advantages due to various reasons and efforts.

Terminal advantages: Some large, medium, or even small distributors have transformed into terminal retail, developing their own chain retail networks, some with regional brand competitiveness.
Capital advantages: Due to the business model, capital is crucial. Some distributors have good capital conditions.
Logistics advantages: Some focus on core advantages, especially in logistics, with strong distribution, timely replenishment, and coverage capabilities.
Team advantages: Some have strong business teams, market development capabilities, close customer relationships, and strong execution.
Management advantages: Some have complete management systems, good management capabilities, high operational efficiency, high informatization, and good cost control.

From the above, distributors of different scales, business methods, and enterprises face different transformation pressures and need to choose different transformation directions.

II. Necessity of Transformation from the Business Model and New Environment

The distributor business model is to obtain agency rights from manufacturers, take goods, and sell to terminal retail enterprises. This model inherently has high dependence on manufacturers and severe constraints from terminal markets. It determines that distributors cannot fully control the two core resources of goods and terminals, and must rely on more diligent business operations and logistics coverage to achieve development and performance.

This model had high commercial value in times of commodity shortage and product/brand dominance. During that period, obtaining agency rights, especially for brand manufacturers, meant gaining product resource advantages. But in times of severe overcapacity and consumer dominance, its commercial value has severely declined, even becoming a source of losses.

Currently, the FMCG market has fully entered a consumer-dominant period. The distributor model built on product dominance has exposed its inherent defects: lack of control over goods and terminals, being squeezed from both ends; lack of market information from production and retail, leading to high passivity; sales and profit performance entirely constrained by manufacturer policies and terminal support.

Therefore, in the current drastically changed FMCG market, discussions based on traditional distributor business model changes are worthless. What is needed is thorough reform, reconstructing a new FMCG distribution model for the consumer-dominant era. Even some e-commerce platforms that have digitized traditional distributor models are unlikely to grow large due to inherent model defects.

Distributors face many new environmental issues:

New market environment issues:

FMCG is shifting from product/brand dominance to consumer dominance: market pull of products and brands weakens, consumer choice strengthens. Brand influence built on traditional marketing (advertising, channels, displays) weakens. Products and brands become more abundant.
Extremely rich product market: overall, products are abundant, even severely over-supplied. But there are serious structural issues: standard and formatted products are over-supplied, while personalized products based on consumer needs and new functional demands are not fully explored or met.
Changing consumer market: current consumer market shows three-stage iteration in demand: meeting basic needs, emphasizing quality, and focusing on experience. This applies to both groups and individuals.
In this environment, consumer needs are more complex, demands broader, and methods more diverse. Consumers not only want to buy products, but also quality assurance, and more focus on personal experience during consumption.
Product market changes: deep development of products directly affects merchants. Specifically:
- Deep development by product function: with consumption upgrades, products extend in function.
- Deep development by product attributes: with market differentiation, products extend in flavors and packaging.
- Deep development by consumption habits: consumer concepts, habits, and methods change, sometimes disruptively. For example, health trends boost dried fruit sales, expanding product groups; leisure foods shift from snacks to staple foods, becoming large categories.
- Deep development by consumption methods: new consumption methods trigger new demands and products. For example, sports, fitness, and outdoor activities create demand for food and supplies.
- Deep development in packaging by consumption methods: different consumption methods require different packaging. For example, Three Squirrels and Bestore use small packages to meet different consumer groups' needs.
The challenge for merchants: which products, functions, and packaging to use to meet consumer needs in specific scenarios is a complex consumption iteration, not just simple demand analysis. It requires appropriate consumption scenarios to prompt and explore consumption.
New market environment means distributors cannot rely solely on traditional distribution, display, and promotion, nor hope for hit products. They must organize products suitable for current market needs, using "thousand stores, thousand faces" to replace "thousand stores, one face" and "thousand stores, same products."

New issues from manufacturers and terminals:

In the macro environment, manufacturers and terminal retailers are all in trouble and transformation. Traditional production and marketing models, and traditional chain retail models, face serious problems and need thorough reform.
This transformation is painful and difficult, especially for old enterprises' mindset changes. Some industry leaders even claim e-commerce disrupts the real economy, which is outdated.
At the State Council executive meeting on January 4, Premier Li Keqiang emphasized: "New drivers and traditional drivers are inseparable! The new economy and new drivers not only spawn new technologies and business forms, but also promote the transformation and upgrading of traditional industries, bringing them to life." He reminded attendees to correctly understand the connotation of the "real economy": it is relative to the "virtual economy," not just manufacturing, but covering primary, secondary, and tertiary industries. "Online stores are 'new economy,' but they directly drive sales for physical factories; express delivery, as a representative of the 'new economy,' also stimulates consumption and production. These typical new economy industries are actually 'productive services,' serving the real economy and are part of it."
Li Keqiang warned that history has seen revolutionary changes where "circulation drives production." Walmart and other supermarkets changed retail procurement, directly ordering large quantities at low prices from manufacturers, greatly boosting the real economy. Now, many online stores order directly from factories, customizing production, also driving manufacturing.
In the current environment, chain retail enterprises have increasingly inefficient management. Headquarters far from stores but with power; procurement departments far from store markets; category management far from customer needs; operations departments detached from stores. Every business decision requires repeated coordination among headquarters, procurement, category, and operations. Planning a promotion takes one to two months.
Any business model changes in practice. For example, the rural "household responsibility system" that played an important role in reform and opening up has now moved toward large-scale agriculture. More critically, the retail environment has fundamentally changed, especially in employment, information dissemination, and technology. Any business model will see diminishing marginal returns, problems exposed, negative value amplified, eventually leading to serious model crisis.
Currently, such chain retail management efficiency and unclear responsibilities are severely inadequate for current retail operations. Thorough reform is necessary. The chain operation model characterized by centralized management and specialized division of labor is at a time when thorough reform is imperative: especially when performance declines, responsibilities cannot be distinguished, and everyone feels powerless. This model is severely unsuitable for enterprise management.
Currently, the entire FMCG industry, from manufacturers to terminals, has not truly begun transformation. In the future, the industry will face major changes, new models will emerge, and enterprises that fail to transform will be eliminated.

New issues from e-commerce development:

While C-end e-commerce develops rapidly, B-end is also growing. If C-end directly impacts terminal retail, B-end directly impacts distributors, robbing them, as B-end e-commerce has aimed to replace traditional distributor models since its inception.
Although B-end platforms vary in quality, it cannot be denied that internet-based e-commerce will achieve better market monetization with high efficiency.

New issues in enterprise self-management:

In the internet environment, traditional management models face transformation, especially in hierarchical structures, centralized management, and passive employee execution.
Distributor enterprises commonly face declining management efficiency, rising costs, and increasing employee turnover. These reflect the urgency of operational mechanism reform.
Haier has set an example for traditional enterprise organizational reform. After years of effort, Haier has transformed from a traditional manufacturing enterprise into a new organizational enterprise in the internet era. To create an internet enterprise, Haier made disruptive explorations in strategy, organization, employees, users, compensation, and management, creating a dynamic cycle system to accelerate internet transformation.
- Strategy: establish a user-centered co-creation and win-win ecosystem, achieving win-win value for all stakeholders.
- Organization: transform from traditional self-closed to open internet nodes, overturning hierarchy into a networked organization. Employees shift from employees and executors to entrepreneurs and dynamic partners, aiming to build a community best experience ecosystem to meet personalized user needs.
- Compensation: change from "enterprise pays" to "user pays," driving employees to become true entrepreneurs, creating value for users while realizing self-value.
- Management innovation: explore non-linear management to achieve self-evolving goals.
From the above analysis, distributor transformation is urgent. But transformation is not just one aspect; it requires systematic and comprehensive transformation of all aspects of the enterprise to adapt to the new internet environment.

III. Transformation Directions for Distributor Enterprises

Distributor transformation must thoroughly change past business models, gradually reduce high dependence on manufacturers, adapt to new consumer and product market changes, adapt to the internet era, and improve enterprise operation levels, efficiency, and quality. Achieve a thorough transformation.

Transformation requires specific analysis. Distributors of different scales, market environments, and advantages must combine their own realities, conduct systematic analysis, and choose the most suitable transformation path.

Based on analysis of current consumption market and environmental changes, the following suggestions are proposed for specific distributor business transformation:

Develop personalized products and take a differentiated path:

"Thousand stores, thousand faces" will replace "thousand stores, one face" and "thousand stores, same products." Stronger consumer demand for differentiated products will drive terminal retail enterprises to transform.
In this context, consumers will propose more personalized needs, and terminals will use personalization, especially product personalization, as an important means to enhance competitiveness.
Distributor enterprises must closely combine consumption and terminal trends, promptly change business strategies, and take a valuable business transformation path. Such transformation will gradually reduce dependence on manufacturers and form their own business advantages.
Currently, especially focus on developing personalized products around new consumer demand changes and deep product market development, such as health, tourism, sports, leisure, fashion, etc. Reshape personalized product advantages.

Change sales methods:

The traditional simple buying and selling relationship between distributors and terminals, and traditional cooperation methods based on display, promotion, and distribution, are no longer suitable for current business development. Distributor enterprises must strengthen relationships with terminals and provide more complete services.
The simple buying and selling relationship between traditional distributors and retailers inevitably leads to fragile and unstable relationships. In such a competitive environment, with more market impacts and more choices for terminal procurement channels, such relationships cannot sustain healthy development. It is necessary to combine enterprise and market realities, adopt effective means to strengthen links between distributors and terminals. Among these, improving service to terminal retail stores is crucial. Distributors should provide more effective solutions based on the real problems retail stores face. In the future, market coverage scale, and the closeness of links between enterprises and terminals/small stores, will become core competitiveness. Especially the closeness of links is most critical. Some enterprises with certain market scale but lacking close links with small stores, stable market networks, and high sales output capabilities will be severely impacted and lose competitive advantage.
How to form close links with small stores, stable customer networks, and high-output network systems? The key is to grasp the core needs of terminals and small stores, effectively solve their core operational needs, help them improve operational capabilities, and ultimately form high correlation, trust, and dependence.

Develop omni-channel:

Developing omni-channel is a major issue for all enterprises in the current environment. For distributors, omni-channel is not just order digitalization, but fully omni-channeling business scope from product organization to sales channels.
Internet development has truly made all enterprises borderless, including resources, management, and development. Distributors can use the internet to integrate more operational resources, including product resources, obtain more management resources, achieve service outsourcing, and achieve greater borderless development.
But in reality, there is a gap between enterprises and borderless thinking: resource integration and acquisition, especially product resources, are still limited to traditional fields, regional markets, and traditional manufacturers, still trapped in traditional business thinking.
Currently, on one hand, "thousand stores, same products" means enterprises cannot find good products to meet terminal needs; on the other hand, the internet has huge product resources. According to reports, there are up to 10 million Taobao stores. The internet has enormous resources, including product and service resources. Therefore, enterprises must break traditional supply chain thinking and reconstruct new supply chains based on the internet era.
In the internet era, enterprises that fight alone find it hard to develop. They must be good at greater alliances and more resource integration. Break traditional supply chain integration concepts, not just efficiency improvement, but thorough resource integration. Enterprises need to reconstruct supply chains with a broader scope and more open thinking.
Reconstructing internet-based supply chains will enable enterprises to obtain more resources, make operations more dynamic, more distinctive, and take a truly personalized and differentiated development path.

Strengthen the body and improve new enterprise management capabilities:

Currently, from manufacturing to terminal retail, enterprises face comprehensive organizational reform. Traditional enterprises' failure to respond to market changes, consumption changes, and internal changes is increasingly prominent. Distributor enterprises have many management problems due to inherent issues. Now, they must combine new environmental changes, comprehensively reform enterprise organization and management, strengthen themselves, and improve management capabilities.
Main adjustments should include:
- Decentralization: Decentralization is an important direction for all organizational reform, including military reform, in the current social environment. For distributors, decentralization mainly means establishing a terminal-customer-centered organizational positioning, thoroughly strengthening sales teams' operational rights, clarifying their main operational responsibilities, comprehensively improving their autonomous operation capabilities, and gradually turning each sales team into an autonomous, self-financing, self-managing operational entity.
- Inverted triangle processes: Based on the current consumer-centered and customer-centered positioning, comprehensively reform enterprise processes, from product-centered and manufacturer-centered business and processes to consumer rapid response and customer demand-centered process reconstruction. Improve rapid response capabilities to market, consumers, and customers.
The reform of distributor enterprise organizational mechanisms is a complex systematic project involving major changes in all aspects. Currently, the Amoeba model and e-commerce enterprise reform are worth learning from:
- Amoeba and small group reform: The core is to divide enterprise operations into several small operating units based on customers or brands. These small units can self-organize, select their own leaders, operate autonomously within the organization, and be responsible for their own profits and losses. The enterprise creates a relatively relaxed operating environment and good conditions for each group. Each group is actually an innovative and dynamic maker organization.

Senior Economist Industry God Retail Innovation Consultant; Former General Manager of large domestic chain supermarkets and convenience store enterprises; Expert of the Ministry of Commerce's Wan Cun Qian Xiang Market Project; Adjunct Professor at Shandong Vocational College of Economics and Trade; Senior Consultant of Lianshang New Retail Advisory Group;

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