The author recently visited distributors in Hebei and Shandong, with sales scales mostly between 10-100 million yuan, representing the main body of Chinese distributors. These distributors share common traits: years of business accumulation, local influence, single-category multi-brand operations. In terms of business models, most have brand manufacturers supporting sales personnel and marketing expenses, while distributors bear capital, warehousing, logistics functions, and some wholesale sales. From an operational perspective, these distributors' gross margins are generally low, typically between 7-13 points, with some categories reaching 15-16 points. This is very surprising. For distributors above 10 million yuan, operating costs are usually around 7-8%, rarely below this level. So if gross margins drop to 7-8 points, they are basically at breakeven. Once external conditions fluctuate, a distributor's monthly income could be equivalent to working for nothing. This may be the common gross margin situation for distributors with sales between 10-30 million yuan in China! -01- Why is this? Delving deeper, besides the distributors' own reasons, I think a large part is the consequence of manufacturers overstepping their bounds! Why do I say that? The Chinese market is vast, not just in area and population, but also in depth. From first to sixth-tier markets, there are about 13 million retail outlets. Such a large number of outlets must rely on distributor distribution for effective coverage. This is why distributors exist widely in China. However, relying solely on distributor distribution is unrealistic. On one hand, Chinese distributors have varying operational capabilities and levels; on the other, some markets are too large geographically and require fine management. Therefore, division of labor between manufacturers and distributors, working together on the market, is a mainstream distribution method. In terms of division of labor, different categories and brands have different forms. Brands like Yili, Mengniu, and Shuanghui mainly rely on distributors for distribution. For beverage categories like 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, and distributors handle warehousing and delivery; in low-tier markets, brands allocate one to several sales reps based on population and outlet density to assist distributors in supplementary sales, and leverage distributor and wholesaler distribution networks to cover low-tier counties, towns, and rural markets. This is a very effective market management tool and one of the key reasons KO, Kangtong (Kangshifu and Uni-President) achieved great success in the Chinese market over the past two decades. But the drawback of this model is that manufacturers have to do most things themselves, making management very complex. Moreover, this model cultivates a group of "giant baby" distributors who have hands and feet but no brains, only responsible for delivery, not market development! These distributors have high annual sales, but they only know how to pay and ship. They lack basic management capabilities in personnel, finance, warehousing, and logistics, let alone independent market operations. When manufacturers approach them for cooperation, their first question is often: "What support will you give us?" Of course, from the distributor's perspective, it's understandable. If manufacturers can cover expenses, provide personnel, and have city managers manage the market, distributors only need to pay, ship, collect payments, and settle accounts. Who wouldn't be happy? Although they don't earn much, it's just effort without worry. How great! Ten years ago, Liu Xinhua, then general manager of Uni-President, once said: "The nanny-style and aggressive channel model of first-line FMCG manufacturers will inevitably fall into a huge crisis in ten years." 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 phase of stagnation or decline. The per-capita efficiency of sales staff is appallingly low; many salespeople sell goods for a month but may not even earn back their own salary. In recent years, companies have dared not raise prices or大规模裁员 to maintain product competitiveness, leaving many unable to increase basic salaries. Some companies haven't raised basic salaries in ten years! But think about it: from 2009 to 2019, how much did a bowl of拉面 (noodles) increase in price? The demographic dividend is declining, and intensified competition leads to shrinking marginal profits. If channel models are not changed and individual combat skills are not improved, per-capita output cannot increase, and eventually all brands adopting this approach will fall into this labor cost trap. The lack of salary increases has led to a severe outflow of FMCG talent. Although brands have good management and training systems and promotion mechanisms, when they cannot offer competitive compensation to frontline sales reps and promotions are slow, frontline staff will prioritize external job opportunities if better treatment and environments exist. A frontline sales rep once complained to me that working in express delivery, food delivery, or ride-hailing earns more than his current job. At mid-to-senior levels, the turnover problem is even more prominent. Recently, I chatted with a friend at P&G. Of the seven or eight friends I know at P&G, all left within less than a year, moving to IT and internet industries. This shocked me. Even a company like P&G cannot retain excellent talent. Think about it: how long can capable and ambitious people stay in the FMCG industry? **-02- Today's Chinese market can no longer be marketed with inefficient, labor-intensive methods! We see that many companies' channel structures and organizational models have remained unchanged for over a decade, even more than ten years! The only change is the addition of an e-commerce 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! Therefore, continuing to use the distribution model built under the theoretical system of 20 years ago to support today's market is definitely wrong. But how should we adjust? Several changes in the Chinese market:

  • 1. Consumer demand is shifting from mass to segmented and niche;
  • 2. Channels are evolving from single-dimensional to three-dimensional (heaven, earth, human) channels;
  • 3. The methods of cognition, transaction, and delivery have fundamentally changed;
  • 4. Consumers' tendency to embrace the new and discard the old is accelerating significantly, and product life cycles are getting shorter;
  • 5. The logic of traffic has changed, and communication methods have been completely restructured. At the same time, several aspects of the Chinese market remain unchanged:
  • 1. Consumer loyalty is still low; random and impulsive consumption remain the mainstream for food and beverages;
    1. Mainstream consumers still need to purchase pre-packaged food and beverages from traditional outlets;
    1. 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 change significantly. Based on changes and constants, we have several consensus points:
  • 1. For brands, companies must continuously innovate to meet consumers' increasingly demanding tastes. The number of SKUs must increase;
  • 2. Companies must reach consumers in different transaction scenarios, meaning we need to add more sales models;
  • 3. New tricks, new plays, new promotional methods, and new promotional tools must all be applied;
  • 4. Companies need 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, the deep distribution model can no longer solve problems. Additionally, overly fragmented channels lead to dispersed resources and difficulty in coordination. This requires companies to innovate and restructure their organizations to support the new market environment. In this regard, P&G has taken the lead among FMCG peers. In early November this year, P&G issued an internal notice changing the name of its channel function department from Distribution Management Department to Distribution Cooperation 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. Why is P&G doing this? Why change the relationship with distributors and retailers from being managed to being partners? We all know P&G used to rely on large distributors for distribution. But given today's situation, P&G believes that merely relying 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: online + offline, which could not integrate local traffic for marketing. From a channel perspective, distributors manage large stores themselves, small stores rely on wholesalers, and the problem of cross-regional selling is severe. I believe P&G also wants to go deeper into lower-tier markets, but relying on the wholesale model in the past would quickly break the price system. The channel profit distribution was insufficient, making deeper management of distributors impossible, let alone going down. The core issue is that changes in distribution models come from changes in traffic logic. In the past, P&G's overly simplistic distribution model could not do local marketing well. Only by turning downstream distributors into true partners, empowering them, and enhancing their market position and voice, so they can proactively respond to market changes, is the real purpose of P&G's channel reform. Similarly, whether it's household chemicals or food and beverages, local traffic such as social, group buying, O2O, and Moments traffic cannot be effectively organized and utilized if it still relies on the existing distributor system. Only by returning the market distribution function to distributors, empowering and arming them with digital tools, improving their operational capabilities and efficiency, and freeing up manufacturers to focus on new traffic logic to rebuild new distribution organizations and marketing systems, is the core of brands giving the market back to distributors. There are many ways to organize new marketing systems. Many companies have their own organizational methods. Nongfu Spring has adjusted very successfully in the past two years. Recently, the operation of a middle platform (中台) has been put on the agenda by many companies. To adapt to diverse channels and changing consumers, companies have redesigned their organizational structures. New Distribution has also contributed many viewpoints on this topic. There are many articles on the internet about this, 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 joint operations (online-offline integrated marketing);

  3. Business units should be specialized, and the large resources mobilized by a single business unit need the middle platform to assist in completion. Only when these three business logics hold 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 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 brands;

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 quantity or height of human waves or tactics. Next, we'll see which companies take this step first. | Founder of New Distribution FMCG industry channel expert, author of over 400,000 words of FMCG industry research articles For communication, you can add WeChat by long-pressing. When adding, please indicate your company, position, and name. If you provide a tip, you will be paid 400-2000 yuan after it is adopted.