This is the best of times, and the worst of times. — Dickens The entire FMCG industry is in extreme pain, but the darkest hour has not yet arrived! It is no exaggeration to say that with the deep advancement of retail discounting, in the next 3-5 years, three mountains will continue to crush a large number of distributors, with the proportion even exceeding 50%. What are the three mountains?

  1. Large discount systems cooperate directly with manufacturers, bypassing distributors (at most retaining the distributor's credit function), depriving them of business;
  2. Traditional retail systems themselves suffer severe sales declines, poor sell-through, and increasingly severe payment delays for distributors, as well as compressed business space due to price-matching discount systems;
  3. Brand owners, driven by growth anxiety, continue to push inventory onto distributors, but terminal sell-through cannot be improved, leaving a pile of short-dated inventory to handle. (Note: For ease of explanation, in this article we collectively refer to retail systems other than discount retail as traditional retail systems.) Let's do a simple calculation. Previously, according to industry practice, for food and grocery categories, the markup rate for the circulation + retail link was about 2x, with the gross margin left for the circulation link basically maintained at 15-20%. Now this multiple has been driven down to 1.3x (discount companies give the majority to franchise terminals, keeping only 8-10% gross margin for themselves). If traditional retail systems want their product assortments to remain equally competitive at the terminal, then at least the circulation link must also achieve the same gross margin efficiency as discount companies, which is a hard 50% cut, losing half the business. (Note: More exaggeratedly, some traditional retail systems want to match the prices of discount systems, but they cannot offer equally friendly payment terms, and even retain fees.) This does not yet consider the business that brand-direct channel cooperation deprives distributors of. The curtain has risen on retail discounting in China. Unlike the past, this retail change will have far greater impact than any previous one. There are two distinct features different from the past: 1. The era of stock competition, 2. The game rules of the entire "brand-distributor-retail" chain in the FMCG industry are changing!! Retail terminals are not only competing with each other, but also beginning to penetrate upstream, competing with brand owners and distributors. But in terms of impact, distributors are the group most affected by this change. Although discount retail is nominally retail discounting, its essence is the extreme compression and efficiency maximization of the circulation link. What is weakened to the greatest extent is the function of the circulation system in the FMCG industry. And this system is precisely built and maintained by millions of distributor practitioners. This is also why many distributors find business increasingly difficult and are almost unable to hold on. The game rules of the circulation link are changing: the inefficient old system is collapsing, and the efficient new order is being established. But frankly, this trend, which most distributors see as a predicament, is seen as an opportunity by a very few. Not all distributors are struggling. Many large distributors around us, after transformation, have seen their business scale grow significantly against the trend. When game rules change, those who fail to adapt are eliminated, while those familiar with the rules always reap great rewards. Under the trend of hard discount in FMCG, there is an opportunity to create a new batch of super-large distributors. In the past two years, large distributors with business growth have basically done several things:
  4. Transform customer service, finding truly high-quality retail partners under the new order;
  5. Form supply chain alliances/platforms, focusing on their own strong product assortments and combining them with others' strong assortments;
  6. Transform and develop wholesale-retail models, with the ability to export supply chain capabilities regionally. (Note: Some distributors with keen senses joined the wave of opening snack discount and supermarket discount stores early, successfully transforming into franchisees. Due to their change in identity, they are temporarily excluded from our discussion.) Even when other distributors in the same region can no longer hold on and free up business space, they can take over that business. Let's elaborate on the internal logic. First, this wave of retail discounting started at the retail end, which means that distributors' customers, the retail end, have undergone some obvious changes. Taking KA systems and BC supermarkets as examples, traffic had already been partially diverted online, and under the continuous interception of this wave of discount retail, they will only become more dismal. This is undoubtedly painful for partners. Retail is a thin-margin industry. If traffic declines, there is a risk of breaking through the original store model. To transfer risk, it is likely that more fees and capital costs will be transferred to distributors. At the light end, payment terms are extended, occupying funds; at the heavy end, it directly becomes bad debt, with impairment losses. For distributors, the return on investment is decreasing, which is undoubtedly a slow death process. Rather than waiting for death, it is better to find another way out. Change your thinking and look for new retail customers to try cooperation and service. At this juncture, what kind of partners are relatively guaranteed? Simply put, they are systems that have transformed in line with the discount trend but do not have the ability to coordinate product assortments. Taking the snack track as an example, for most distributors, systems like 很忙系 (Henmangxi) and 万辰系 (Wanchenxi) that have the ability to directly dialogue with manufacturers are definitely not cooperation partners. Instead, those systems with fewer than 200 or even 100 stores, which cannot obtain the same low prices, will have strong demands for distributors with category breadth and advantages. Through batch SKU cooperation, purchasing as a whole package from distributors can obtain relatively competitive supply prices. The scale of a single customer service for distributors will also be considerable. But each distributor is limited by their original resource accumulation, and their product assortment advantages always have limitations. In the era of stock competition, to outcompete peers, you can only rely on advantageous product assortments, after all, retail customers are increasingly price-sensitive. As for how to overcome the problem of disadvantageous product assortments, the best approach is to avoid them and seek cooperation with distributors who have differentiated advantages (for example, snack food distributors cooperating with peers in beauty, daily chemicals, or beverages). This kind of strong-strong combination (some call it an alliance, some a platform) has two obvious benefits:
  7. Reuse retail customer resources, share service systems, and make incremental additions on the original business basis;
  8. Better solve the problem of coordinating retail customers' product assortments, thereby helping optimize gross margin structure and improve store models. Customers seeking survival and better development can bring larger-scale business. The business flywheel built by distribution business For distributors, the direct impact of this business scale is that their original product assortment advantages become increasingly obvious, ultimately helping more retail customers better solve their product assortment problems. The more customers, the more obvious the product assortment advantage; the more obvious the advantage, the more customers can be helped. Barriers are built, and the business flywheel begins to spin. Of course, serving customers is not the only path. When the product assortment composition is sufficiently complete, distributors themselves venturing into retail business is not entirely without opportunity. This gives rise to the integration of distribution and retail. The logic for such innovative attempts is also very simple. For distributors, if the warehouse location is relatively reasonable relative to surrounding consumers, and since the daily operation and maintenance of the warehouse is a fixed cost anyway, it is better to find ways to make incremental additions on the original basis. On the basis of the original warehousing plan, design the flow of categories and divide inbound and outbound, supplement category gaps through cooperative supply chain platforms/alliances, and open to C-end. As long as the price is advantageous, it can definitely attract local consumers with stocking needs. It may even attract many surrounding mom-and-pop stores to come and purchase proactively. Such wholesale-retail store formats have obvious benefits for distributors, and there are already many successful operation cases nationwide. Of course, the above are just some changes observed by the author among distributors under the trend of hard discount in FMCG. I believe more innovations and iterations are happening. This is not the first retail transformation in China, nor will it be the last. The development and change trends of the FMCG industry are waves of the times, not shifting with individual will. Be a good trendsetter of the times, and the distribution business still has great potential. Under this wave, the 2024 6th China FMCG Conference, themed "Crossing the Shrinking Era," came into being. It will also host the 3rd China FMCG Hard Discount Conference and the 3rd China FMCG Distributor Conference, to be held grandly in Shanghai from August 20-22, 2024. At this conference, we will focus on a top guest matrix of leading Chinese FMCG brands, authoritatively interpret market trends, professionally analyze industry status, provide precise business docking and cooperation opportunities, help enterprises accurately grasp market pulse, formulate effective response strategies, and achieve resource sharing and coordinated development. At the same time, we will invite leading national retail platforms to thoroughly explain hard discount retail competition models from multiple perspectives, interpret long-term trends and opportunities through practical cases, help enterprises find key opportunities, and achieve hard growth across cycles. Gathering 500+ outstanding distributors from across the country, we will comprehensively interpret distribution business from enterprise growth paths, challenges and opportunities, operational practices, etc., helping distributors expand their survival radius and solidify their business product assortments!** 🔺Scan code for ticket consultation🔺 Recommended reading