Hello friends. As we meet through this letter, I am Yuan Lai from New Distribution. With February ending and the New Year celebrations over, our lives and businesses have fully entered 2024. Looking back at 2023, I believe it was a "painful" year for distributors. We had hoped that with the end of the pandemic, business would see its golden moment and rapid growth, but unexpectedly, the pressure was even greater. What will 2024 hold for distributor businesses? I posed this question to Mr. Zou Wenbiao, co-founder of Zhoupu Data (known in the industry as Dean Zou). His answer surprised me: "Distributors will fare much better in 2024 than in 2023." Why such optimism? In 2024, Distributor Businesses Will Be More Stable Dean Zou's explanation is that people feel the worst when their illusions are shattered. From 2020 to 2022, due to objective environmental constraints, business was highly uncertain, with ups and downs. In 2023, when the pandemic ended, distributors' confidence in business was exceptionally high, but as the year unfolded, reality did not meet expectations, and business kept declining. Throughout 2023, distributors were digesting this sentiment. After accepting the decline, distributors will not have such high expectations and illusions in 2024. To put it in another perspective, if we were in a war era, how would people react? They wouldn't react much. People feel the worst when the shell lands. After three months of war, people accept reality. If it's going to be war, so be it; they eat, drink, and their mindset becomes calmer. The collective mindset of all people is today's market sentiment. The same applies to distributor businesses. At the end of 2022, when the pandemic ended, distributor bosses easily fell into an optimistic illusion, expecting to return to pre-pandemic days, or even make up for the three lost years. But after half a year of work, they realized the past was gone. Over three years, both China's macro economy and consumer conditions have changed. Trying to simply return to the past using old methods, they found the market did not respond positively, and business did not rebound as expected, naturally leading to low spirits. As 2024 arrives, a new year, distributor bosses naturally feel more at peace. Without unrealistic fantasies, they accept the new status quo, spend time solving real problems, and build new competitive advantages, rather than pinning their business hopes on a favorable external environment. No longer expecting market dividends to bring sustained growth, they take control of their destiny (competitive advantage) into their own hands, redefine their business, and embark on controllable and steady growth. This is Dean Zou's fundamental insight into distributor business in 2024. Beyond this, during the two-hour exchange with Dean Zou, we also discussed topics such as distributor operational efficiency, the stage of digitalization, and scale. Distributor Operational Efficiency: Personnel Efficiency and Payment Cycles Having served 40,000 distributors with an annual GMV of 400 billion yuan, as a distributor business system service provider, how does Zhoupu Data understand and evaluate distributor operational efficiency from a third-party perspective? Dean Zou used two indicators: one is personnel efficiency, and the other is payment cycle. Personnel efficiency is divided into sales personnel efficiency (number of salespeople / total revenue) and overall personnel efficiency (number of employees / total revenue). Sales personnel efficiency looks at the front end, the level of frontline sales. Overall personnel efficiency looks at the whole, combining frontline sales and backend management. The payment cycle indicator assesses capital utilization efficiency. If business is large but achieved through heavy capital occupation, it is relatively unhealthy. Moreover, from a management perspective, the payment cycle can interfere with judgments on personnel efficiency. If a distributor's payment cycle is out of control, all personnel efficiency assessments will be distorted, preventing management from correctly evaluating the current situation and continuously improving personnel efficiency. Let's focus on personnel efficiency. For most distributors today, the largest production factor is still people—relying on people to sell and deliver goods. If we break it down further, behind personnel efficiency is the effective working time of a salesperson. Assume a salesperson works 8 hours a day, with an average of 15 minutes per store. During that time, the salesperson needs to perform five actions: shelf restocking, order writing, new product explanation, policy promotion, and customer relationship building... Distributor bosses need to evaluate which actions are effective and which are not. If an action is effective, can it be extended? If ineffective, can it be reduced or solved through tools? If the 15 minutes in-store are all spent on shelf restocking, new product explanation, and policy promotion, reducing or eliminating order writing, wouldn't that yield higher personnel efficiency than peers? Similarly, for salespeople visiting stores daily, some stores may not need replenishment yet. Based on historical order cycles, a bi-weekly visit might suffice instead of weekly, freeing up time for stores that generate more volume. Segment stores into monthly, bi-weekly, or weekly visits. For backend warehouse picking, evaluate picker efficiency using order picking volume / walking steps, setting aside personnel motivation. The key behind high or low picking volume in 8 hours is warehouse slot management and picking processes. For finer consideration, even consider peak and off-peak hours within a day, and how to plan to smooth peaks and fill valleys to achieve overall highest efficiency. Dean Zou mentioned, why do we now emphasize personnel efficiency and payment cycles for the distributor community? Because more and more distributor businesses are gradually becoming independent business entities, rather than "appendages" of brand owners. At the first Distributor Conference co-hosted by Zhoupu and New Distribution last year, Dean Zou emphasized that distributor bosses should think independently and long-term like entrepreneurs, rather than relying on manufacturer resources and past experience for passive management. In fact, distributors have often been accustomed to giving up operational leadership, with brand manufacturers taking the lead. Distributor bosses spend too much time on cooperation and negotiation with brand owners. Maintaining good relationships, asking for more policies, and securing more investment have become important factors in doing business well. The remaining time is mostly occupied by core customers like supermarket purchasing relationships, leaving little time for thinking about their own business models, exploring business forms, and building organizations. Yet the latter are truly the key to long-term competitive advantage. But when the market enters stock competition, in a local market, competition between brands is essentially competition in efficiency among local peer distributors. If a distributor has high personnel efficiency and operational efficiency, they can grab more existing business locally, thereby gaining a significant competitive advantage. Distributor Digitalization Is Just Beginning Digitalization has always been a core lever for improving distributor operational efficiency. What stage is it at now? Dean Zou's answer: Just beginning. Using Zhoupu Data's served distributors as a sample, the online payment rate for business is less than 3%. From this perspective, a large number of distributors still handle financial accounts offline. Although using the online payment rate indicator is "unfair" because there are also corporate payments and payment fee rates to consider, What it illustrates is that offline reconciliation still requires a lot of time from internal staff, and distributors almost never consider the hidden costs of offline reconciliation involving finance and sales personnel time. Looking at another dimension of distributor digitalization, Dean Zou used the "online order activation rate" as an indicator: among the 40,000 distributors, the activation rate for online ordering platforms is less than 30%, and of those who activated this feature, less than one-third actually transact online. Therefore, from handwritten orders to online ordering to online operations (online payment closed loop), distributor digitalization has only just completed the first step: order digitalization, i.e., digitalization of core operational processes. This is the objective reality. But in recent years, both the proportion of online orders and online operations have grown very fast, with 100% or even 200% growth. This also indirectly shows that distributors are paying increasing attention to digital operations. Distributor bosses' operational perspectives are shifting from solely focusing on upstream manufacturer policies and customer relationships to becoming independent business entities, focusing on their own internal business capabilities and efficiency. Business Growth Comes from Squeezing Out Competitors Zhoupu Data has been established for 8 years and has served many distributors. Dean Zou admitted: "In the early days, Zhoupu Data served distributors without picking clients, from 3-5 person teams to 100-person scale distributors. But after 8 years, we found that the mortality rate for 1-5 person distributors is extremely high, especially during the 3 years of the pandemic. A large number of 3-5 person distributor groups chose to 'commit suicide.' With annual revenue of a few million yuan, even if there is a profit of tens of thousands, it's better to deliver food; they closed down." On the contrary, during the pandemic, the more head distributors almost all grew to some extent. Why? Because the more head distributors are more likely to access resources, such as being designated supply units with ample goods. This is not because consumer demand was stronger, but because competition was less. Before 2020, the market relied on demand growth; from 2020 to 2022, it relied on reduced competition due to the pandemic; from 2023 onwards, it relies on business refinement and eliminating competitors. Dean Zou said that the overall market capacity will not change much (distributors should abandon the illusion of total demand growth). Distributor business is a zero-sum game; efficiency kills inefficiency. But distributors don't need to be too pessimistic. During the process of market rebalancing starting in 2023, a large number of distributor players have already begun to exit, and this is just the beginning. If the number of players halves, the remaining efficient distributors will live very comfortably. Why will the number of players halve? Because the main theme of distributor business going forward is: building significant competitive advantages based on the local market. Competition is not with manufacturers or retailers, but with local peers. Inefficient distributors have no reason to survive in the era of stock competition; choosing to give up and exit is the optimal solution for inefficient players. Final Thoughts Due to space limitations, my exchange with Dean Zou covered much more. To help more distributors understand the current direction of business development, on March 14-16, New Distribution, together with Zhoupu Data, will organize the Second China FMCG Distributor Conference. At the event, Zhoupu Data will also hold a closed-door seminar themed "Next-Generation Distributors." We hope that at a time when distributors strongly feel changes, we can point out some directions for all FMCG distributor partners, set up a lighthouse, and at least ensure that the direction is not blurred or confusing. The Second China FMCG Distributor Conference is not only an ideological feast of knowledge, cases, and methods, but also a conference that leads the future development of distributor businesses! From March 14-16, 2024, the Ninth China FMCG Innovation Conference, the Second China FMCG Hard Discount Conference, and the Second China FMCG Distributor Conference will be grandly held in Chengdu. This conference is hosted by New Distribution, co-hosted by Ande Smart Link and Yonyou Digitalization; the Second China FMCG Distributor Conference is co-hosted by Zhoupu Data; the 2024 Supply Chain Digitalization Innovation Summit is co-hosted by Yonyou Group. During the three-day conference, centered on the theme "Supply Chain Revolution," there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, over ten sub-forums and closed-door exchange sessions, and the first major debut of the [Extreme Supply Chain] Brand Factory Direct Procurement Fair. Together with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country, we will meet in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and solutions in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a conference worth attending! For conference business cooperation, please contact: 🔺Scan code for ticket consultation🔺