Click to read the original article for details Recently, I visited some distributors in Hebei and Shandong, with sales scales basically ranging from 10-20 million to 100 million RMB. This is the main body of distributors in China today. These distributors share common characteristics: years of business accumulation, local influence, and single-category, multi-brand operations. In terms of business models, most have brand manufacturers supporting sales personnel and marketing expenses, while distributors bear the functions of capital, warehousing and logistics, as well as some wholesale business sales. From an operational perspective, these distributors generally have low gross margins, basically ranging from 7-8% to 12-13%, with some categories reaching 15-16%. This surprised me greatly. For distributors with sales over 10 million, operating costs are generally around 7-8%, and few are below this expense point. So if a distributor's gross margin drops to 7-8%, they are basically at the breakeven line. Once the external environment changes, it's likely that a distributor's monthly income is equivalent to working for nothing. This may be the common status of operating gross margins for distributors with sales between 10 million and 30 million in China! Why is this? Digging deeper, on one hand, it's due to the distributors themselves, but I think a large part is the consequence of manufacturers overstepping their bounds! Why do I say that? The Chinese market is particularly large, not just in area and population, but also in depth. From first-tier to sixth-tier markets, there are approximately 13 million terminal outlets. Such a vast number of outlets must rely on distributor distribution to achieve effective coverage. This is also the reason why distributors can exist widely in China. However, relying solely on distributor distribution is unrealistic. On one hand, Chinese distributors have uneven operational capabilities and levels. On the other hand, some markets are too large geographically and require refined management. Therefore, a division of labor between manufacturers and distributors, working together to develop the market, is a relatively mainstream distribution method. In terms of division of labor alone, different categories and brands have different forms. Brands like Yili, Mengniu, and Shuanghui mainly rely on distributors for distribution. For beverage categories represented by Coca-Cola, Master Kong, Uni-President, Want Want, and Nongfu Spring, in high-tier markets, they generally adopt a model where brand sales representatives directly manage terminals, while distributors handle warehousing and delivery. In low-tier markets, brand manufacturers will allocate one to several sales representatives per market based on population and outlet density to assist distributors in supplementary sales, and leverage the distribution networks of distributors and wholesalers to achieve coverage of low-tier counties, townships, and rural markets. This is a very effective market management tool and one of the important reasons why KO, Kangshifu, and Uni-President have achieved great success in the Chinese market over the past two decades. However, the drawback of this model is that manufacturers have to do most things themselves, making management very complex. Moreover, this model has cultivated a group of "giant baby" distributors who have hands and feet but no brains, only responsible for delivery, not market development! These distributors have very high annual sales, but they only know how to make payments and ship goods. They lack basic management capabilities for their own personnel, finance, warehousing, and logistics, let alone independent market operations. When manufacturers seek cooperation, their first question is often: "What support do you manufacturers provide?" Of course, from the distributor's perspective, it's understandable. If manufacturers can cover expenses, provide personnel, and have city managers manage the market, why wouldn't distributors just handle payments, shipments, and settlements? Although they don't earn much, it's only laborious, not worrisome. How great is that! Ten years ago, Liu Xinhua, then General Manager of Uni-President, once said: "The nanny-style and aggressive channel model of frontline FMCG manufacturers will inevitably fall into a huge crisis ten years later." Today, this has indeed come true. In the past, labor costs could be absorbed by growing sales, but in the past two years, most food and beverage categories have entered a channel of stagnation and decline. The per-capita efficiency of sales personnel has dropped to appalling levels. Many salespeople may not even earn back their own salary after a month of selling. In recent years, to maintain product competitiveness in the market, companies dare not raise prices or大规模 lay off staff, leaving many companies unable to increase basic salaries for employees. Some companies haven't raised basic salaries in ten years! But think about it: from 2009 to now, how much has a bowl of ramen increased? The demographic dividend is declining, and intensified competition leads to declining marginal profits. If channel models are not changed and individual combat skills are not improved, per-capita output will remain low, and eventually all brand manufacturers adopting this approach will fall into this cost trap of manpower. The lack of salary increases has led to a severe outflow of FMCG talent. Although brand manufacturers have good management and training systems and excellent promotion mechanisms for employees, when they cannot provide better compensation and benefits for frontline sales representatives and promotions are slow, frontline staff will prioritize external job opportunities once better treatment and employment environments appear. A frontline sales representative once complained to me that his income from working in express delivery, food delivery, or ride-hailing was higher than his current salary. Today's Chinese market can no longer be marketed through inefficient, heavy manpower investment! We see that many companies' channel structures and organizational models have not changed significantly for over a decade, or even more than ten years! The only change is the addition of an e-commerce department or new retail department. But is today's market still the market of 20 years ago? Companies haven't changed with the market. How terrifying is that! So, if we continue to use the distribution model built under the theoretical system of 20 years ago to support today's market, it's definitely wrong. But how should we adjust? The Chinese market has several changes: 1. Consumer demand is shifting from mass to segmented and niche; 2. Channels are changing from single-dimensional to three-dimensional networks of heaven, earth, and people; 3. The ways of cognition, transaction, and delivery have fundamentally changed; 4. Consumers' tendency to embrace the new and reject the old is significantly accelerating, and product life cycles are getting shorter; 5. The logic of traffic has changed, and communication methods have been completely reconstructed. At the same time, several aspects of the Chinese market remain unchanged: 1. Consumer loyalty is still very low; random and impulsive consumption remain the mainstream consumption patterns for food and beverages; 2. Mainstream consumers still need to purchase pre-packaged food and beverages from traditional outlets; 3. Traditional outlets have not disappeared on a large scale due to channel fragmentation; 4. In the coming years, the competitive landscape of mainstream brands and categories will not undergo significant changes. Based on what has changed and what hasn't, we can reach several consensus points: 1. For brand manufacturers, companies must continuously innovate to meet consumers' increasingly demanding tastes. The number of SKUs produced must keep increasing; 2. Companies must reach consumers in different transaction scenarios, which means we need to add more sales models; 3. New tricks, new plays, new promotional methods, and new promotional tools must all be applied one by one; 4. Companies need to use new information tools and highly integrated systems to improve the efficiency of the entire distribution system. Companies' costs are too high, and relying on their own human wave tactics is unsustainable. Based on the above four points, companies cannot solve problems through deep distribution models alone. At the same time, overly fragmented channels will lead to dispersed resources and difficulty in coordination. This requires companies to carry out a series of innovations and reconstructions in organization to support the new market environment. In this regard, P&G has taken the lead among FMCG peers. Internally, P&G has changed the name of its channel function department from Distribution Management Department to Distribution Partnership Business Unit. The internal logic behind this name change is: P&G is changing its channel partner relationship from management to partnership. In simple terms, P&G is reshaping its distribution model. We all know that P&G previously relied on large distributors for distribution. But given today's situation, P&G believes that relying solely on distributors is not enough; instead, it wants distributors to play a greater role. In the past, P&G's distribution system was a binary model of online + offline, which could not integrate local traffic for marketing. From a channel perspective, distributors handle large stores themselves, while small stores rely on wholesalers, leading to serious cross-regional selling issues. I believe P&G also wants to do channel下沉, but in the past, relying on the wholesale model, the price system would quickly be broken by wholesalers. The channel's profit distribution was insufficient to achieve deeper management of distributors, let alone下沉. The core issue is that changes in distribution models come from changes in traffic logic. In the past, P&G's overly single distribution model could not effectively do local marketing. Only by turning downstream distributors into true partners, empowering them, and enhancing their market position and voice, so they can more proactively respond to market changes, is the true purpose of P&G's channel reform. Similarly, whether in washing and chemical products or food and beverages, local traffic such as social, group buying, O2O, and Moments traffic cannot be effectively organized and utilized if still relying on the existing distributor system. Only when companies hand back the market distribution function to distributors, empower and arm distributors with digital tools, improve their operational capabilities and efficiency, and free up manufacturers' energy to rebuild new distribution organizations and marketing systems around new traffic logic, is this the core of brand manufacturers giving the market back to distributors. There are many ways to organize a new marketing system. Many companies have their own organizational methods. Nongfu Spring has adjusted very successfully in recent years, and recently, the middle-platform operation has also been put on the agenda by many companies. To adapt to diverse channels and changing consumers, companies have redesigned organizational structures. New Distribution has also contributed many insights on this topic. There are many articles on this topic on the internet, so I won't elaborate here. However, there are three prerequisites for establishing a business middle platform:
**1. Channels need three-dimensional coverage, and business and supply chain need strong support from the middle platform;****2. Front-end multi-business units need cross-business operations (online and offline integrated marketing);**3. Business units need to be specialized, and the large resources mobilized by a single business unit need the middle platform to assist in coordination. Only when these three business logics are established within the enterprise does the middle platform make sense. To summarize: **1. Labor costs are too high;****2. Traditional human wave tactics are too inefficient, with too low per-capita output;****3. The market still needs people to do the work;****4. Companies have more important things to do;****5. Distributors may do better than brand manufacturers;**6. We need to rebuild an organizational management system based on future marketing. The essence of competition is the confrontation between technology and productivity, not the question of who has more people or higher tactics. Next, let's see which companies take this step first. Are you "watching" me?