Click to read the original text for details "In the next 5-10 years, 70%-80% of small and medium-sized enterprises will be eliminated", this was a previous prediction about market trends. Looking back, in the field of commercial circulation, we find that this statement is becoming a reality. In the past two years, changes in the commercial circulation field have been rapid. Traditional distributors are gradually being eliminated as they face increasingly complex environments. Especially under the influence of new retail, it is evident that many small distributors and wholesalers are being eroded step by step and disappearing from the market. Correspondingly, another change is that large distributors are gradually rising. While small and medium distributors are being squeezed and eroded, large distributors are becoming bigger and stronger. Even many brand owners have begun to support large distributors. Why is the trend towards large distributors becoming more obvious? Why do brand owners support large distributors? What is the value of the large distributor model? Today, the author will sort out the value points of the large distributor model. 01****Current Forms of Distributors Distributors do not exist as isolated entities; they are born from China's specific history, geographical environment, changes in the retail industry, and the combined effects of brand category characteristics and competitive factors. China has a market of 1.3 billion people. Such a vast and complex market makes it impossible for products to cover all consumers directly from producers. Distributors are a key link connecting producers and consumers. Their value lies in creating information, facilitating transactions, and reducing transaction costs. In the past 30 years, the business model of commercial circulation in China has formed a relatively mature system. Different city levels, regions, economies, and industries exhibit different distributor business models, management models, and scales. Broadly, they can be divided into four types: Brand Large Distributor Model: This involves representing a brand across multiple cities and regions, or being particularly large in the local market, providing localized operational services for the brand. For example, P&G has only about 80 distributors nationwide. Category Large Distributor Model: Focus on a specific category, represent multiple brands within that category, and operate deeply. By combining products and brands, they gain more bargaining power upstream and downstream, becoming localized suppliers for that category. A typical example is Chengdu's Rongcheng Yigou. Distributor Model: For categories requiring deep distribution, the manufacturer controls the terminals and needs a large number of manufacturer personnel to operate. Distributors merely act as delivery agents, and their autonomous management rights are weakened. Examples include Coca-Cola's 101 distributors and Master Kong's distributors. Wholesaler Model: Represent a few brands but with a rich variety of products, mostly sourced from other distributors, enabling one-stop supply to small shops. This was the main model in the early commercial circulation field. 02****The Future Trend is the Large Distributor Model Today's market environment has undergone significant changes. Retail has moved from a single scenario to multiple scenarios. In the past, retail scenarios were basically two types: traditional offline circulation and KA supermarkets. But with the emergence of e-commerce and the explosion of new retail, retail scenarios have become diversified. Three retail scenarios—traditional retail, e-commerce, and social retail—combined with various channels, give rise to new scenarios, models, and play styles, with each single channel having small volume. This places new demands on organizations. In this context, distributors with single functions in the past can no longer adapt to the diversified channel model. The reason is that in the past, retail channels were relatively concentrated, being single-model, ultra-large-scale channels. Brand marketing business types were also relatively simple, with single functions, like large formations fighting with a single branch. This model certainly cannot adapt to the current diversified and multi-dimensional channels. In such an environment, traditional distributors must match more capabilities to survive, doing business with faster speed, lower costs, larger scale, higher efficiency, and better experience. In this process, distributors who do well will naturally become large distributors, while those who cannot adapt will be eliminated. Additionally, among the four types of distributors, the two largest in number—distributors and wholesalers—waste time on a large amount of low-level repetitive work. Their work is very complex but cannot generate creative premiums, resulting in low profits. This causes small distributors to fall into involution, unable to undertake large-scale reforms or explore new business capabilities. On one hand, they cannot afford to retain talent, leading to severe staff turnover. On the other hand, management cannot upgrade; the company is too small, and the platform is insufficient to retain excellent talent. Eventually, the entire company falls into a vicious cycle, with diminishing marginal effects until it is eliminated. Based on these two changes, it is clear that the large distributor model is inevitable in the next stage of commercial circulation development. First, large distributors have a complete organizational structure. Traditional distributors typically have three departments: sales, warehousing and logistics, and finance, with capabilities limited to selling goods. Large distributors, however, not only have these basic functions but also possess more functions such as digital decision-making, channel operations, marketing planning, and market trend control, with a more complete organizational structure that is not limited to selling. Because of this, when channels change, distributors can respond and adjust promptly based on the local retail format, being the first to contact, cooperate, operate, and promote, among a series of actions. Second, large distributors have the ability to overcome involution. The essence of the large distributor model is the organization's self-adaptation to the environment. Only a large pond can raise big fish. Large distributors have large market capacity and sales bases, with sufficient sales growth space and profits, enabling them to cultivate more new business models. This allows large distributors in local regional markets to have sufficient conditions to operate multiple retail scenarios, with high autonomy in operating large regional markets. For example, they can build their own B2B platforms. In terms of organizational structure and scale, large distributors have formed their own management systems and possess strong anti-risk capabilities. Therefore, large distributors can form a virtuous cycle in the operation of the entire business system, thereby avoiding involution. While quickly responding to retail environment changes, they can make the commercial business bigger. 03****What Should Brand Owners Do? Since it has been determined that the large distributor model is the future trend, what should brand owners do in the face of this trend? To sum up in one sentence: In the future, brand owners should support large distributors and complete functional division of labor. Based on the diversification of channels, brand owners should learn to make trade-offs, focusing on the big and letting go of the small. For example, KA supermarkets, convenience stores, and national online platforms—these channels that can directly connect with headquarters and generate huge sales—should be key focuses for brand owners, possibly through direct operation. However, some local regional fragmented channels can rely on excellent large distributors to achieve comprehensive coverage of multiple channels. For example, O2O home delivery or circulation small shops and small and medium supermarkets. These dispersed traffic sources have too high direct operation costs for brand owners, so they can be fully delegated to regional large distributors. They have sufficient operational capabilities to better promote sales and distribution at the terminal, achieving better results than brand owners doing it themselves. On the other hand, the general trend of social division of labor is that professionals do professional work. For brand owners, not everything needs to be done by themselves. If they do everything themselves and have the final say, it becomes very tiring and difficult. Terminal coverage and terminal sales management require a large investment of personnel and resources, with very high costs. As upstream players, the core value of brand owners is not to do sales but to excel in product development, brand building, and standardization of marketing management. Large distributors, as platforms, have value in using professional operational skills and good customer relationships to help brand owners quickly open local markets and seize market share. Simply put, brand owners and distributors have clear functional divisions: brand owners specialize in products, and distributors specialize in sales. Each has their own expertise, and only professionals can do professional work. Of course, some categories are not suitable for this approach, such as beer and beverages. For these, any sales point that can sell goods can be an effective terminal, and comprehensive distribution indeed requires deep distribution. In conclusion: In the past two years, manufacturers have also been undergoing digital transformation, such as PepsiCo Foods' "Ruhu Tian e" project, which uses an asset-light model for digital construction to empower their distributors. In the process of manufacturers exploring digital transformation, distributors must embrace it first, try it first, and quickly follow up with changes. While learning new methods and models, they can also reap the benefits of corporate transformation. The evolution of "large distributorization" will definitely have a window period. Distributors, especially small ones, as the subjects of this trend, must leverage the digital transformation of brand owners to quickly improve their business methods and iterate rapidly. 【Guo Zhihai, Head of Sales for Greater China at Mondelez】Pay tribute to channel partners, meet in Chengdu, August 31 - September 2, 2022 (7th) China FMCG Channel Innovation Conference. -END-