---
title: "If the Funds Were Not Tied Up, Would Distributors Still Be Willing to Do Business?"
description: "If the business of distribution is not profitable, would you still be willing to do it? An outsider might think, \"Nonsense, who would do a business that doesn't make money?\" But in reality, many distributors work hard all year and still don't make a profit. Have you noticed that fewer and fewer people are entering the distribution industry, with almost no fresh blood, and those remaining are mostly \"old hands\" who have been through the market's ups and downs? Once upon a time, around 2000, a large number of people flooded into the distribution business, hoping to make a fortune. However..."
author: "周群"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-07-04"
language: "en"
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---

# If the Funds Were Not Tied Up, Would Distributors Still Be Willing to Do Business?

> If the business of distribution is not profitable, would you still be willing to do it? An outsider might think, "Nonsense, who would do a business that doesn't make money?" But in reality, many distributors work hard all year and still don't make a profit. Have you noticed that fewer and fewer people are entering the distribution industry, with almost no fresh blood, and those remaining are mostly "old hands" who have been through the market's ups and downs? Once upon a time, around 2000, a large number of people flooded into the distribution business, hoping to make a fortune. However...

**If the distribution business is not profitable, would you still be willing to do it?** An outsider might think, "Nonsense, who would do a business that doesn't make money?" But in reality, many distributors work hard all year and still don't make a profit. **Have you noticed that fewer and fewer people are entering the distribution industry, with almost no fresh blood, and those remaining are mostly "old hands" who have been through the market's ups and downs?** Once upon a time, around 2000, a large number of people flooded into the distribution business, hoping to make a fortune. However, with the intensification of market competition, the distribution business has become increasingly difficult, and fewer people are sticking with it. **Indeed, the entry barrier for the distribution industry is relatively low, but it's not easy to succeed!** You have to deal with manufacturers, select products, and purchase. You also have to manage employees, delivery, after-sales service, and daily company chores. You have to worry about all sorts of problems, big and small. During holidays, you're extremely busy, and a customer's phone call means you have to get to work, with no fixed rest time. You wish you could be in several places at once! During the day, you're exhausted, and at night, you have to look at a pile of data tables. It can be said that the distributor's effort and reward are not proportional. **Facing such a distribution business, if you had the chance to get back the operating funds tied up in your business, would you still be willing to do it?**

**-01-**
**No, I wouldn't. It's really tiring!**
Distributor Chen Hua (pseudonym) is an agent for a first-tier beverage brand in Zhejiang. He has been in the distribution business for over 20 years, with annual sales of over 50 million yuan and annual operating funds of nearly 10 million yuan. Recently, I happened to discuss this topic with Chen Hua.

"Mr. Chen, you've been a distributor for nearly 20 years, investing tens of millions of yuan each year. Is it worth it?"

Chen Hua paused for a moment and said slowly, "Let's not talk about whether it's worth it. Let me give you some data. My current beverage business is about 30 million yuan, with a gross margin of only 7-8 points a year. That's considered good operation. If the year is bad, like bad weather or chaotic manufacturer policies, it might drop to 5-6 points. **It can be said that first-tier brands, including beverages, dairy drinks, beer, and even daily chemicals, are hard to make money from. Even with fine management, you're just earning some hard-earned money, which is completely disproportionate to your investment.**"

"Mr. Chen, you mainly focus on traditional channels. In the past two years, online channels have been booming, and many distributors are developing online as a new growth point. Since offline is not profitable, have you considered trying online?"

"Regarding developing online, I've certainly weighed it and made some attempts, but the results didn't meet expectations. **For the beverage industry, the main channel is still the general circulation channel. As can be seen from the data, 90% of beverage products come from circulation channels, and other channels are just icing on the cake or supplementary.** **On the other hand, it's hard for distributors to do online with first-tier brands. First, the region is locked, and the manufacturer won't let you. Second, whether it's the price system, profit system, or manufacturer requirements, you can't do C-end platforms like Taobao or Tmall.** If it's a pure ordering platform, like B2B platforms such as Retail Link, New Distribution, or Yijiupi, you can do it, but I don't recommend it. **The platform's bargaining power is too high. There's basically no one in the industry who is optimistic about cooperating with such platforms. Over 90% of distributors cooperate with platforms under performance pressure. If offline distribution is smooth, few would be willing to cooperate with them.** In 2016, I cooperated with a platform. After three years, my feeling was that the platform only takes and gives nothing back to distributors.

To be honest, the platform is only useful for small shops, like one-stop shopping and price comparison. But for the mid-to-upstream, it's very chicken ribs. To pursue traffic, they only make distributors offer lower prices than other suppliers, but they can't give anything back to distributors. **As for volume, it's not significant. Without the platform, consumers would still buy. The platform just uses price advantages to grab existing market share, not create more premium.**"

I couldn't help asking, "If you had the chance to get your operating funds out of the distribution business, would you still be willing to do it?"

Chen Hua was silent for a while, then said, "**I probably wouldn't do it again. This line of work is too tiring. You worry like you're selling drugs, and you only earn a little hard-earned money.** Previously, I discussed a similar issue with a distributor friend. His scale was similar to mine. At that time, he was about to become an agent for a first-tier water beverage. He invested several million of his own money and borrowed 4 million from outside at 2% monthly interest. With 10 million in funds to do a 30 million business, and half of the funds paying high interest, do you think that's a good deal?"

"Since you think the distribution business is not worth it, why are you still doing it?" I asked in confusion.

"To be honest, I'm still in the distribution business now. **The reason is simple: first, as you said, the funds are tied up, and it's not easy to pull them out; second, I'm currently trying to build a regional self-owned FMCG brand, which is still in its infancy. I need these agency brands to support it and open up network channels.** As for why I'm moving towards this self-owned brand direction? I feel many peers have a mindset misconception: they think it's natural to deposit hundreds of thousands with brand owners, but when it comes to investing in their own team or doing something themselves, they feel pain even for tens of thousands. My thinking is exactly the opposite. I believe we should focus on what we want to do, so I'm moving towards a self-owned brand.

First, with my own brand, I have full autonomy in pricing, unlike before when I was restricted by manufacturers. Second, the risk is low and profit is high. My current first-tier brand business is 30 million in scale, but I invest 5-6 million and end up earning only about 1 million. But with my own product, I might invest only 500-600 thousand for a few million in scale, and the profit is similar to what I earn from agency for first-tier brands, with less risk and less fatigue."

"Without brand influence, won't your own brand be hard to sell?" I asked in confusion.

Chen Hua smiled, "Now that I'm still young, if I have an idea, I'll do it. Besides, I'm positioning it as a regional brand. It doesn't need to be known by everyone, and I don't plan to scale up like internet-famous brands such as Genki Forest. As long as you have a good eye for product selection, it won't be worse than agency for first-tier brands."

**-02-**
**Although I haven't been in it long, I really love this business!**
Distributor Leng Jun (pseudonym) is a condiment distributor in Jiangxi. He has been in the distribution business for just over six years, which is not long, but this year's sales are expected to exceed 100 million yuan, with operating funds of over 10 million yuan.

"I've learned about your business before. Your gross margin is still quite high now, and your company has been developing rapidly in recent years. But the overall environment for the distribution business is indeed deteriorating. In this situation, what are your views on the distribution business?"

Leng Jun smiled and said, "Let me share my views. I'm still quite confident in the distribution business. The most important thing in this business is cash flow. In this regard, I'm quite conservative. I've always kept reserve funds at about 1.5 times the operating funds, so even if the business expands, I can ensure the funds keep up."

"You are optimistic about your current distribution business. If you had the chance to get back your operating funds and start over, you would still choose this business, right?"

Leng Jun thought for a moment and said, "To be honest, I haven't thought about this question. I haven't been in the trading company for long, but I'm already very familiar with this industry. I have a good relationship with upstream manufacturers. In the end, I have feelings for this business. If I had to choose again, I think I would still do it. Although the overall environment for distribution is not good now, the overall risk of this business is still relatively low. Whether it's management or sales, everything is controllable. And I've invested so much energy and passion into this, I can't bear to let it go. So, even if the return on investment decreases in the future, I might still do it."

These words touched me deeply. "I've also come into contact with some condiment distributors before. For example, those who represent first-tier brands like Haitian basically have no say, low profits, and heavy sales tasks from the manufacturer. Moreover, the manufacturer doesn't value you because the brand is big and there are many people behind you wanting to be agents. Those who represent non-first-tier brands lack competitiveness, especially at the terminal. Compared with absolute leaders like Haitian, they can't get good displays and shelf space, making sales difficult.

Compared with these distributors, what do you think are your advantages? Why are you confident you can do well?"

"I think my advantages are mainly in the following aspects. In product selection, I won't choose the number one brand in a sub-category. Some people may not understand, but I think this way: such brands may be easy to sell, but distributors for them have no say and low profit margins. Even if you succeed, it's meaningless.

With second-tier brands, there's not as much pressure. You just need to improve your overall operational level, and the relationship with the manufacturer is easier to handle. For example, last year our company took on Duoli oil. Doing oil requires high capital. Before that, I talked with Arawana and Luhua, but in the end, I chose Duoli. First, the brand doesn't have high requirements for distributors; second, the brand doesn't put too much sales pressure on distributors. **In operations, do fine management and use digital tools when necessary.** Why? When brand competitiveness is slightly weaker, you have to rely on fine operations to make up for it. Originally, I could sell 1 million, but through operations, I can sell 2 million. When you grow, the manufacturer is satisfied, and the result is a win-win. **In decision-making, dare to grasp the trend.** A couple of days ago, I saw New Distribution report on Meituan and Didi entering community group buying. In fact, when community group buying first emerged in 2018, the community group buying in Nanchang didn't sell condiments yet. I took the initiative to guide them to list condiments, and the results proved I was right; the response was very good.

In my view, online is not a scourge. Distributors should view it rationally. Before doing it, you must investigate and verify. If your organizational capabilities can keep up, do it; if not, be cautious and don't blindly follow. If you can do online well, it's like having an extra channel. Brand owners will respect you more and tilt policies in your favor." Leng Jun smiled and added, "These are just my personal views."

**Final Thoughts:**
Back to the topic: if it weren't for the funds, would you still do this business? I think for many distributors, the answer might be "no." The distribution business, born in the early 1990s, has gone through 30 years of baptism and no longer has any dividends.

Although the distribution business won't lose money, it's inevitable that we've entered an era of meager profits. At this point, every distributor should think: if you continue the current state, what's the next step? Will you wait for death and endure, or explore new methods and ideas? You can continue the business, but you need new approaches.

**Finally, if it were you, and you got back the funds you invested, what choice would you make? Continue or find another way out? Welcome to leave a message in the comment section, and let's discuss together.**


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