---
title: "How to Build Distribution Channels in the New Market Environment?"
description: "This article discusses the key factors affecting Chinese distributors, such as changes in manufacturer channel models, the rise of supermarkets, competition, channel diversification, and online shopping. It outlines three successful models in the FMCG industry and provides seven practical steps for distributors to build effective distribution channels, including efficiency, value chain aggregation, risk control, and more."
author: "李临春"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-09-26"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/how-to-build-distribution-channels-in-the-new-market-environment-93d21389/"
markdown: "https://xinjignxiao.com/en/articles/how-to-build-distribution-channels-in-the-new-market-environment-93d21389.md"
original_source: "https://mp.weixin.qq.com/s/DLCbhpMBhj1ny72RApry_w"
translation: "https://xinjignxiao.com/zh/articles/%E6%96%B0%E5%B8%82%E5%9C%BA%E7%8E%AF%E5%A2%83%E4%B8%8B-%E5%A6%82%E4%BD%95%E5%BB%BA%E8%AE%BE%E5%88%86%E9%94%80%E6%B8%A0%E9%81%93-93d21389.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/how-to-build-distribution-channels-in-the-new-market-environment-93d21389/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# How to Build Distribution Channels in the New Market Environment?

> This article discusses the key factors affecting Chinese distributors, such as changes in manufacturer channel models, the rise of supermarkets, competition, channel diversification, and online shopping. It outlines three successful models in the FMCG industry and provides seven practical steps for distributors to build effective distribution channels, including efficiency, value chain aggregation, risk control, and more.

**Click the blue text above to follow "FMCG Distributor Professional Consulting" for more marketing and distributor internal management content.**

Currently, the main factors affecting the development of Chinese distributors include changes in manufacturer channel models, the rise of supermarkets, the rise of competing products, channel diversification, and the rise of online shopping. So, how can distributors build distribution channels well in the new market environment?

**Three Successful Models in FMCG**

Currently, there are three successful models in the FMCG industry: channel sinking represented by Wahaha, channel segmentation represented by Wong Lo Kat, and brand segmentation represented by P&G. The biggest feature of Wahaha's channel sinking is that products are everywhere; their core concept is that wherever there are people, there is sales. The core of the channel segmentation model represented by Wong Lo Kat is to broaden channels, with five channels advancing simultaneously, expanding points and coverage at the same time.

These five channels include four secondary channels: catering, supermarket, nightlife, and special channels, and one tertiary channel: wholesale and grocery. The third model is P&G's globally renowned brand segmentation model. As early as 2003, P&G had 13 brands with over $1 billion in sales, and by 2008, this number had reached 24. Due to diminishing marginal effects, it is difficult for a single product to exceed 30% market share (over 25.4% is considered monopoly); however, surveys of the shampoo market in Chinese cities show that the top three brands are all P&G products, with a combined market share exceeding 70%.

**Seven Points to Achieve Distribution Channels**

To become bigger and stronger, a distributor must first learn to strengthen (leverage efficiency), learn to divide work (aggregate development), learn to control (reduce risk), and learn to compromise (seize opportunities). Only by mastering these four points can distributors achieve better development under the pressure from manufacturers and terminals. Specifically, they should achieve the following seven points: efficiency creates vitality, aggregate value chain, control risk, seize hidden sales, distributor logistics, warehouse management trends, and database marketing.

These seven points are like the seven swords in Liang Yusheng's novels, playing their roles in the continuous development of distributors and achieving their distribution channels. How should these seven points be implemented? Li Linchun gave detailed explanations.

**1. Efficiency Creates Vitality**

For distributors, efficiency is vitality. The capital turnover rate determines whether a distributor can grow, especially for food distributors whose profit per turnover is only 3% to 5%. As FMCG distributors, only when the capital turnover rate is greater than or equal to 10 times per year can they ensure profitability in daily operations. The characteristic of the food industry is that each capital turnover yields only a small profit, requiring distributors to shorten the turnover cycle, increase the capital turnover rate, and maximize profits by increasing the number of turnovers.

**2. Aggregate Value Chain**

The core idea of aggregating the value chain is to improve system efficiency. By distributing and demanding efficiency from channels, the efficiency of the company system is enhanced. Distribution is essentially using external resources to complete the sales process, and distribution management is about solving efficiency problems. Establishing appropriate distribution channels can effectively reduce the risk of hoarding. Demanding efficiency from channels is easier said than done. For a long time, channel efforts have remained a major feature of the FMCG industry. "Strike first, lay out reasonably, and avoid hand-to-hand combat as much as possible" is the guideline for companies to exert channel efforts, and it is also the unalterable principle for distributors to develop new channels.

To exert channel efforts, it is necessary to reasonably build a distributor network, which is beneficial for the development of distributors. A distributor should generally establish more than five sub-distributors, each covering a population of 30,000 to 50,000. At the same time, ensure that the monthly sales of sub-distributors are generally 1.5 to 3 million yuan, because only then will sub-distributors have loyalty and be easy to manage in daily work. Treat all sub-distributors equally and avoid one dominating. Quantity guarantees sales; only by ensuring the number of sub-distributors can product sales be guaranteed.

**3. Control Risk**

If improving efficiency and aggregating the value chain are to make distributors earn more money, then controlling risk can relieve distributors of worries and achieve better development. Li Linchun also gave his suggestions on how to control risk.

First, control inventory. Many distributors struggle to find the right balance: too much inventory risks a sudden market change, while too little risks stockouts when the market improves. For products with high market share, distributor inventory should be less than or equal to 1 times monthly sales, and secondary wholesalers and retail terminals should be less than or equal to 1.5 times monthly sales. For newly launched products with high growth potential, distributor inventory should be less than or equal to 1.5 times monthly sales, and secondary wholesalers and retail terminals should be less than or equal to 2.5 times monthly sales.

Second, in the process of changing market conditions, distributors must master certain skills to face market changes. When distributor inventory is too large and sub-distributor inventory is insufficient, appropriate channel promotion policies should be adopted to divert inventory. When using this method, note that promotion policies must be supported by volume; otherwise, they will fail. When distributor inventory is small and sub-distributor inventory is large, prices can be appropriately raised or promotions stopped to let sub-distributors unload inventory. When both distributor and sub-distributor inventories are large and terminal sales are slow, it is recommended that manufacturers initiate consumer pull programs.

In addition to the above two methods, distributors can also control risk by aggregating by brand. As a relatively weak group, distributors should gradually develop brand awareness to compensate for product portfolio deficiencies. Integrate several distribution channels; even for products from the same manufacturer, consider establishing them by category and bring in as many sub-distributors as possible. Through integration, reflect value, upgrade management advantages, monopolize local competition, and concentrate efforts to strengthen local markets in the shortest time.

**4. Seize Hidden Sales**

In daily operations, distributors focus mainly on traditional channels such as supermarkets and circulation. However, as competition in these channels intensifies, how can distributors develop new channels?

◆ Case 1: In 2003, Wahaha cooperated with Fuzhou Qingdao Brewery. One bottle of water was sealed into each case of beer, with a daily usage of 10,000 cases of water. Subsequently, the distribution rate in grocery stores and catering outlets rose rapidly; these were their weak links at the time, which secondary wholesalers could not achieve.

◆ Case 2: Cooperation with Yongkang Wangli Group. Yongkang Wangli Group mainly engages in locks, security doors, electric vehicles, etc. The headquarters has about 2,000 employees. They need about 2,000 cases of summer cooling beverages annually, and the staff canteen uses 20-30 cases per day.

◆ Case 3: Cooperation with Yongkang Sansong Garden Machinery Factory. The canteen of Sansong Garden Machinery Factory is contracted out, with about 200 people dining regularly. In 2010, at the Yongkang Spring Order Meeting, they ordered 2,000 cases of iced black tea and 1,000 cases of red-label water. Both the black tea and water are sold during meals; the boss wanted to stock Tetra Pak black tea to distribute with meals during the high-temperature season (in the form of high-temperature allowances). "The auxiliary sales effect of 'no-store' outside channels should not be underestimated; distributors must do this well."

**5. Distributor Logistics**

With the continuous development of transportation, logistics methods have undergone revolutionary changes. Currently, logistics costs account for 18% of commodity costs in China, so how to do logistics well is an important factor for distributors to control costs. "Use aggregate growth, avoid fighting alone; operate by brand, establish multiple distribution networks; make good use of factory direct delivery."

**6. Warehouse Management Trends**

Regarding how distributors can build their distribution channels well, warehouse management currently shows three characteristics: efficiency, accuracy, and low intensity. During the change, the functions of distributors have also transformed. Distributors are increasingly shifting to logistics, and the distribution role of sub-distributors is becoming more distinct. The advent of the online sales era calls for distribution units, but the organization process is relatively more important. Another new trend is the emergence of database marketing.

**7. Database Marketing**

The emergence of database marketing is to control terminals by controlling channels, ultimately achieving the goal of controlling consumers. The main feature of database marketing is precise dynamic management of products, establishing terminal databases and consumer databases. The establishment of terminal databases can strengthen the management of promotional items, sales tier management, and suitable product management. The management of consumer databases is to lock in consumers and achieve comprehensive control of market dynamics.

Source: Sugar, Tobacco, and Alcohol Weekly

--------------------------------------

**Like this article? Feel free to click the top right corner to share it to your Moments.**

About us:
WeChat Name: FMCG Distributor Professional Consulting Management
Account Introduction: 20 years of experience in FMCG distributor operations and management, professionally targeting distributor internal affairs:
We understand distributors better than manufacturers, and we understand internal management better than distributors. Senior marketing experts help your business develop.

> Learning and exchange QQ groups:
>
> Group 1: 344257092 (full) ** Group 2: **231512457**
> Click "Read the original" below to enter our micro-community for interaction and questions.


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671