---
title: "Japan's Three Distribution Revolutions and China's Three Distribution Revolutions"
description: "The concept of \"distribution revolution\" was first proposed by Japanese scholar Shuji Hayashi in the 1960s. He used it to describe the transformation of the distribution industry through modernization, efficiency improvements, and business model innovations, involving systematic changes in Japan's wholesale and retail sectors. This article systematically reviews Japan's four stages and three revolutions in distribution, and applies the same framework to analyze China's current FMCG market, which is transitioning from a manufacturer-dominated to a retailer-dominated market."
author: "戚特"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2025-02-09"
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# Japan's Three Distribution Revolutions and China's Three Distribution Revolutions

> The concept of "distribution revolution" was first proposed by Japanese scholar Shuji Hayashi in the 1960s. He used it to describe the transformation of the distribution industry through modernization, efficiency improvements, and business model innovations, involving systematic changes in Japan's wholesale and retail sectors. This article systematically reviews Japan's four stages and three revolutions in distribution, and applies the same framework to analyze China's current FMCG market, which is transitioning from a manufacturer-dominated to a retailer-dominated market.

The concept of "**distribution revolution**" was first proposed by Japanese scholar Shuji Hayashi in the 1960s. While studying the development of Japan's postwar retail and distribution systems, he introduced this concept to describe the transformation of the distribution industry through modernization, efficiency improvements, and business model innovations, involving systematic changes in Japan's wholesale and retail sectors.
Recently, I have been systematically researching and organizing the commercial retail industry revolutions in Japanese history. Overall, the changes can be divided into four stages, corresponding to three revolutions. **The four stages are:**
> 1. Wholesaler-dominated market
> 2. Brand manufacturer-dominated market
> 3. Retailer-dominated market
> 4. Consumer-dominated market

**The three revolutions are:**
> 1. The "First Distribution Revolution" transitioning from a wholesaler-dominated market to a brand manufacturer-dominated market.
> 2. The "Second Distribution Revolution" transitioning from a brand manufacturer-dominated market to a retailer-dominated market.
> 3. The "Third Distribution Revolution" transitioning from a retailer-dominated market to a consumer-dominated market.

After decades of development, Japan's modern distribution industry has undergone three transformations and entered the fourth stage, the consumer-dominated market. **Its basic characteristics are:**
> 1. Manufacturers—wholesalers/distributors—retailers—consumers form a stable, healthy, collaborative, and orderly ecosystem.
> 2. Manufacturers—wholesalers/distributors—retailers work together synergistically to serve consumers comprehensively.
> 3. The downstream retail industry is diversified with strong consumer insight capabilities, and at the product level, there is a PB (private brand) capability where retailers play an important role, without products being solely price-oriented.

Currently, China's FMCG market is in a stage of distribution transformation, and its path is highly similar to Japan's. I believe China's distribution transformation is currently in the second stage, gradually transitioning from a brand manufacturer-dominated market to a retailer-dominated market. After completing the second stage, it will proceed to the third stage. To help everyone better understand my framework, let me first explain Japan's three revolutions.

**Japan's First Distribution Revolution**
The background of the first revolution was Japan's rapid postwar economic growth, which greatly liberated productivity and demand, leading to revolutions on both the production and consumption sides.

**1. Production Revolution—Formation of mass production systems.** During the economic takeoff, the economy formed a production-oriented structure, with economies of scale from mass production as a key direction for industrial upgrading. In the 1950s, Japan established standardized, specification-based mass production systems.

**2. Consumption Revolution—Due to economic takeoff, consumers entered an era of mass consumption.** However, the rapid growth on the production and consumption sides was met with weakness in the intermediate distribution sector.

**The weaknesses in Japan's FMCG distribution sector were:**
> 1. Fragmentation, with family-run small stores as the mainstream retail format;
> 2. Too many distribution layers, with long intermediate chains; apart from a few powerful distributors, most were small second-tier and third-tier wholesalers;
> 3. Formation of a wholesaler-dominated distribution channel system.

The wholesaler-dominated distribution system meant that large wholesalers occupied the intermediate position between production and sales, playing a role in regulating production and retail, and having price control. Production, distribution, and consumption were in a dumbbell-shaped state, and the existing distribution channels could not meet the needs of mass production and mass consumption. In other words, at this stage, products from many manufacturers needed more effective channels to reach consumers, and products needed increased display space across social retail channels, while consumers' strong consumption demand could quickly absorb these produced goods. Therefore, the hallmark of Japan's first distribution revolution was the modernization of the distribution industry. The叠加 of consumer demand and manufacturer demand rapidly promoted intermediate channels, filling the shortcomings in the original links. Thus, the entire social distribution chain gradually shifted from wholesaler-dominated to producer-dominated. This producer-dominated structure also exhibited certain characteristics.

**1. Manufacturers extended their reach downstream to gain control.** Japanese manufacturers adopted a distribution serialization organizational form. Distribution serialization refers to forming a controllable retail system to prioritize selling their own products. For example, in home appliances, automobiles, and cosmetics, Japan formed integrated manufacturer-retailer organizational structures.

**2. The distribution system began to integrate.** The second-tier wholesale system was significantly cut, with first-tier and second-tier wholesalers integrating, and some small terminals formed voluntary chain organizational forms. Voluntary chains mean each store operates independently with separate personnel, finance, and product ownership, and free entry, but they form alliances and binding in product procurement and logistics distribution systems.

**3. Trading practices more favorable to manufacturers were formed.** Examples include manufacturer-suggested prices and rebate systems.

**Japan's Second Distribution Revolution**
According to our framework, the second distribution revolution transitioned from a brand manufacturer-dominated market to a retailer-dominated market. It was born during the mature stage of economic development, after Japan's bubble economy burst, leading to a prolonged period of deflation and low growth.

**Consumer society also showed two characteristics:**
> 1. Japan experienced a structural shift from mass consumption to class-based consumption.
> 2. Consumers' price awareness significantly increased, with greater emphasis on value for money, and consumption attitudes became more rational.

As a result, the discourse power over products shifted from manufacturers to retailers. The most typical feature was the emergence of numerous "price-destroying" retail enterprises. On one hand, declining demand collapsed the original retail cost structure; on the other hand, low-price strategies catered to many consumers' psychological demands for low prices during economic downturns and uncertain future expectations.

**These Japanese "price destroyers" had the following characteristics:**
> 1. Low-price sales, sustained over time, i.e., "everyday low prices."
> 2. Systematic product procurement, with some using overseas low-cost supply chains.
> 3. Diversified formats, including discount stores, 100-yen shops, cheap imported goods chains, and warehouse discount stores.

Japan's Economic Planning Agency mentioned in its "Price Survey Report" that since the 1990s, the price decline in Japan was not deflation due to reduced effective demand, but a new phenomenon of **"price destruction."** Factors contributing to this included consumers' rational return during economic downturns, the introduction of low-cost overseas products, and the self-revolution of traditional retail price systems in competition with discount stores. The emergence of these new discount retail channels destroyed the price system and also undermined the trading practices that had favored manufacturers. At the same time, the original distribution system was further impacted, or rather, the wholesaler-dominated market further declined. The distribution channel of producer—distributor—retailer—consumer became producer—retailer—consumer, forming a new distribution structure in Japan's distribution system and excluding some distributors' roles. Thus, for the first time in Japan, downstream retailers could confront brand owners, leading to a retailer-dominated market.

**Japan's Third Distribution Revolution**
Overall, research clearly shows that the entire distribution revolution chain gradually moves downstream, ultimately toward a consumer-dominated market. Because only sellers hold the initiative in the "distribution revolution," and any distribution revolution is triggered by changes in consumer demand; without such changes, distribution enterprises would have no pressure or motivation to reform. **Consumers are the starting point and driving force of the distribution revolution; the "distribution revolution" must serve consumers, and the distribution industry is an industry that creates consumer demand.**

Thus, entering the third distribution revolution, transitioning from a retailer-dominated market to a consumer-dominated market, we say that in a retail-dominated market, although consumer sovereignty has begun to return and consumers have access to many low-priced, cost-effective products, many needs remain unmet. At the same time, the ecosystem among suppliers, distributors, brands, manufacturers, retailers, and consumers is not entirely healthy. For example, consumers need good value-for-money products, not low-priced items without quality assurance or even food safety issues. To form a new orderly ecosystem, only suppliers, distributors, brands, manufacturers, and retailers can form a new ecological synergy to serve consumers.

The hallmark of the third distribution revolution is **the formation of new collaborative strategic relationships between retailers and manufacturers.** In the 1990s, the concept of "**協働**" (collaboration) emerged. Large retailers led the construction of "strategic collaboration" between suppliers and manufacturers, including production-sales alliances and production-supply-sales alliances. Retailers and manufacturers cooperated in "製販同盟" (production-sales alliance) or "制販連携" (production-sales collaboration); if wholesalers and logistics also participated, it became a production-supply-sales alliance. In the past, Japanese manufacturers and large-scale retailers generally did not conduct direct transactions, but as market structures changed, manufacturers had to seek change. Against the backdrop of oversupply and homogeneous competition, consumers became more discerning, not only needing low-priced "goods." Therefore, manufacturers and distribution enterprises, to better satisfy consumers with more stringent requirements for price and quality, achieved efficient transactions, broke through conflicts of interest, transformed into new cooperative relationships, and established true competitive advantages through synergy. In the past, when consumers had strong brand awareness, private brands were not recognized. But after the 1990s, as large retail enterprises grew, consumer trust in retailers gradually increased. In this context, retailers were not satisfied with the monopoly power of manufacturer brands and began to increase the development of private brands, extensively developing low-priced PB products in daily necessities, food, clothing, home appliances, and many other fields. Toshifumi Suzuki of Ito-Yokado keenly proposed **"to shift from simple price reductions to exploring more new consumer needs."** After in-depth research on Japanese consumer psychology, Suzuki raised the banner of "Made in Japan" to revitalize domestic brands, and the subsequent achievements of 7-Eleven are well known. Undoubtedly, **today's Chinese retail industry also needs the emergence of a "Suzuki Toshifumi"-like figure.**

Similarly, in this context, retailers and distributors formed new collaborative strategic relationships: on one hand, distributors transformed into "retail support systems" with wholesale service functions, shifting from serving manufacturers to serving retailers. Distributors must understand consumer awareness, behavior, and satisfaction before retailers, and research and develop solutions to provide to retailers—this is the best form of retail support. On the other hand, new collaborative organizations for distribution enterprises were built internally, including collaboration within the same industry and also breaking traditional boundaries to collaborate across different industries, forming cross-format organizational models.

After sorting out the three transformations, we can summarize the characteristics of the three transformations here.

**China's Three Distribution Revolutions**
Returning to China, using the above framework, we can clearly see that China's FMCG market also has four stages and three revolutions. **Currently, China is in the second distribution revolution, gradually transitioning from the second stage to the third stage.**

**1. Wholesaler-dominated market**
After reform and opening up, China's commercial economy was liberated from the planned economy's state monopoly over purchase and distribution. In a state of commodity scarcity, the dominant force was the commercial wholesale sector with commodity distribution rights. Thus, state-owned trading companies and large wholesale centers became the dominant market forces.

**2. Manufacturer-dominated market**
Similar to Japan's economy, after reform and opening up, China quickly entered a stage of large-scale productivity release. Foreign FMCG companies entered China to invest and set up factories. While productivity was released, consumer demand was also massively released, and brands needed to solve the problem of how to reach consumers on a large scale. Thus, we saw the establishment of deep distribution systems, the rise of modern channels like supermarkets, and the vigorous development of e-commerce in China. As mentioned earlier, at this stage of commodity economic development, both productivity and demand grew significantly, but there was a lack of channels to reach consumers, and China also needed many channels to "display" these products. Therefore, e-commerce, supermarkets, and community commerce emerged simultaneously, especially the concept of unlimited shelves in e-commerce, which perfectly met these needs.

**3. Retailer-dominated market**
After 2020, China's economic development gradually entered a mature stage, with declining total social demand and oversupply. China's distribution industry also saw many "price destroyers," with low prices beginning to impact the original pricing system. Manufacturers went from resisting to doubting to embracing "price-destroying" channels, and the discourse power and status between the two shifted. At the same time, the market also showed a chaotic state, such as: manufacturers engaging in involution, distributors' space being squeezed, products一味 low-priced, and consumers not getting truly quality goods. Currently, we can clearly see that **according to the framework of three distribution revolutions, China's entire commercial distribution industry is in the process of transitioning from a manufacturer-dominated market to a retailer-dominated market.** However, in the future, with the construction of a new order, China's FMCG industry will also usher in new distribution changes and enter a new stage. That is, **further evolving from a retailer-dominated market to a consumer-dominated market, and thereby building a new "production-supply-sales" relationship.** In this stage, manufacturers and retailers will combine capabilities to provide consumers with "quality and cost-effective" products. Distributors will also combine capabilities with retailers, becoming suppliers with retail support capabilities. Retailers, as the bridgehead closest to consumers, continuously gain insights into consumer needs. **The common original intention of "production-supply-sales" is to serve every consumer well, and in this process, "production-supply-sales" will form a new healthy ecosystem and stable alliance.**

Currently, China's FMCG market is at a critical juncture of the third distribution revolution. What changes will brand owners, retailers, and distributors undergo respectively? How should they respond to these changes?

**March 17-19, the 10th China FMCG Innovation Conference will be held in Chengdu, and the 4th China FMCG Hard Discount Conference will be held concurrently. It will bring together many FMCG brand executives, retailers, distributors, etc., for in-depth dialogue and discussion on the conflicts and opportunities under the distribution revolution.**

**【New Order·Symbiosis】**
**The 10th China FMCG Innovation Conference**
**Time: March 17-19, 2025**
**Location: Chengdu, China**


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