Secondary distributors: FMCG manufacturers all want to flatten them Secondary distributors are the most unique group in the FMCG industry. They represent the smallest unit in any business model, perhaps slightly larger than a mom-and-pop store. The typical form is a husband-and-wife team, sometimes with a brother-in-law or father-in-law helping out. During peak seasons, they may hire a few people from their hometown village to assist with deliveries. Their service radius is usually within one to two kilometers, and they primarily use electric tricycles for delivery. However, many central cities ban tricycle deliveries, so they switch to small box trucks. In the eyes of distributors (经销商), secondary distributors are a mixed blessing. On the one hand, when they need to meet manufacturers' stocking requirements, only secondary distributors can take in hundreds of cases at once. On the other hand, secondary distributors have no loyalty; they only care about price and policies, and they actively seek out cross-regional sourcing (窜货). From the manufacturers' perspective, secondary distributors are brand killers. Once a best-selling product enters the secondary distribution channel, its flow and price become completely uncontrollable. The bigger the brand, the more chaotic the pricing at this level. Therefore, for years, every channel reform led by FMCG manufacturers has been a 'call to arms' against secondary distributors, who are always the target of suppression and flattening. With each reform, the old tune of 'secondary distributors are dying' is played again. But today, have secondary distributors disappeared? No! They are the most resilient group in the market. In the streets and alleys, it is indeed the secondary distributors who can quickly deliver consumer goods to the small shops closest to residential communities. Over the years, this group has seen new generations replace old ones. But in every city, a large number of secondary distributors remain active, and their numbers are not smaller than those of distributors directly cooperating with manufacturers. In fact, it is impossible to completely separate distributors from secondary distributors. Many distributors who directly serve retail terminals also distribute other products besides their agency brands to complete their product mix.

Secondary distributors: the indestructible cockroach of the FMCG industry Secondary distributors have the toughest vitality. Those who survive are people who believe only in their own hands, not fate. But why has this group persisted through all the changes? What irreplaceable value do they create? This group has never been the protagonist in the distribution chain, so this question has not received much attention or analysis from the marketing world. To answer this, we must first ask: why do small retail shops buy from secondary distributors? In their view, choosing a secondary distributor is the best procurement solution. Small shops have limited space and low sales volume, which means they must adopt a strategy of frequent small purchases and a wide variety of products. In other words, their core needs are: a full range of products, small quantities per item, good prices, and fast delivery. Can direct distribution by distributors solve their problems? No. Brand distributors typically represent one or a few brands. They may offer good prices, but with limited SKUs, small shops would have to buy larger quantities of a single brand to cover the distributor's service costs. Can current B2b platforms solve the shops' problems? At least the existing models struggle. First, consider price. Brand suppliers offer wholesale prices to platforms, sometimes even higher than wholesale. If platforms don't subsidize, can they offer better prices than secondary distributors? Hardly. Thus, we see that over the past six years, as B2b platforms have developed, most shop owners have accepted internet ordering, but they only order when there are subsidies or special prices; otherwise, they don't. More than 80% of their purchases still come from secondary distributors. As for delivery speed, platform warehouses are usually on the outskirts, and large trucks can only make one round trip per day. Secondary distributors are just one or two kilometers away from the shops. Who is faster and cheaper? Therefore, in the eyes of small shops, secondary distributors are the most attentive service providers. Goods arrive within half a day, sometimes within an hour. Most transactions are cash, but credit is available with a phone call. Prices for fast-moving products are transparent, and sometimes secondary distributors even sell at cost to build a price advantage image. Beyond these reasons, secondary distributors also have the lowest overall operating costs. They are typically individual industrial and commercial households operating as 'wholesale departments' or 'business departments.' The owner is the employee, working day and night without overtime pay or social insurance burdens, and with low tax rates.

Neither dead nor thriving: who will change the fate of secondary distributors? 1) Secondary distributors are not living well Are secondary distributors doing well now? To be honest, their business is the hardest and least profitable. The ceiling is very low. With traditional methods, the business radius is one kilometer, serving about a hundred small shops, with annual revenue capped at around 5 million yuan and profits of only 200,000 to 300,000 yuan—not much better than working for someone else. Moreover, in recent years, the spread of internet B2b platforms and frequent subsidies from community group buying have severely impacted their business, even if the market share is still small. As business becomes harder, more secondary distributors are leaving the industry. Unless they have no choice, most people don't want to stay in this business long-term. Some have upgraded to become brand distributors, while others have opened retail stores. Of course, as some leave, new ones enter. There are always people needing opportunities, and in cities, being a secondary distributor is one of the lowest barriers to entry.

2)佟立群: The industrial value of secondary distributors is underestimated This group is naturally entrepreneurial—tough, pragmatic, and service-oriented. Shouldn't they have a better business future? Could there be a new model designed with secondary distributors as the core? 佟立群 is a serial entrepreneur in the internet field and the founder of the '佟掌柜' secondary distributor alliance platform. He previously founded '蓝信', a secure mobile office platform, which was acquired by a listed company in 2020 as its core product. To date, 蓝信 serves over 8,000 large enterprises and government agencies, with more than 10 million users. Perhaps only an outsider not constrained by industry experience can see a different truth. In 2016,佟立群 began to engage with the FMCG industry, extending his focus from government and enterprise clients to FMCG. After studying both distributors and wholesalers, he developed a completely different understanding from industry insiders. 佟立群 believes that the secondary distribution link is the only circulation segment in the FMCG industry whose value is severely underestimated. First, terminals are closest to customers, and secondary distributors are closest to terminal shops. More than 80% of goods in terminal shops are supplied by secondary distributors. Isn't that value significant enough? Second, can the FMCG industry find a group more hardworking, more capable, more service-oriented, and more entrepreneurial than secondary distributors? Based on these two initial judgments,佟立群 and his team followed secondary distributors to visit small shops, conduct market research, and analyze business processes, thinking about how this group could break through the current business ceiling. In 2020,佟立群 founded the internet platform '佟掌柜'; in August 2021, after five iterations, the '佟掌柜' system, with secondary distributors at its core, was successfully launched; in September 2021, it began pilot operations in Jinshui District, Zhengzhou.

Can a business model centered on secondary distributors change their fate? 佟立群 believes that the biggest strengths of secondary distributors are their proximity to customers, good service, natural supply chain advantages, and their entrepreneurial spirit—they can endure the hardest work and are self-driven. However, he also identifies several problems:

  1. Lack of organization and rule awareness. As individual entrepreneurs, many secondary distributors lack a sense of rules, acting solely on their own will, which is a major criticism from brand owners.
  2. No digital capabilities. They manage everything in a haphazard way, only able to serve customers within a one-kilometer radius. Even if there are opportunities farther away, they can't handle them. Thus, in competition with B2b platforms, despite having many product and service advantages, they are at a disadvantage. To address the first point,佟立群 plans to establish an organization to recruit and select potential secondary distributors who are willing to develop, learn, and follow rules. The mission is to train and support outstanding secondary distributors in the way brand owners do, giving them an organization to rely on and rules to follow. In佟立群's words, "Secondary distributors are a group that can endure hardship and fight. Once they have organization and learn rule awareness, they will be a force in the market that cannot be ignored." To address the second point,佟立群 uses the '佟掌柜' system to empower secondary distributors. He deploys technical teams to install the system for partner secondary distributors, train them to operate it proficiently, and digitize all inventory, mall products, and terminal data. But that alone is not enough. Why should secondary distributors cooperate with '佟掌柜' and follow its rules?佟立群 focuses on the core point: helping them break through the 5 million yuan scale ceiling. According to佟立群's market research in Jinshui District, Zhengzhou, within a one-kilometer radius, a secondary distributor typically serves fewer than 100 small shops. But if the radius expands to three kilometers, there are about 1,000 shops. Under the traditional model, it is almost impossible to cover and serve 1,000 shops. '佟掌柜' approach: secondary distributors' products are listed on the mall, and '佟掌柜' terminal task force completes app coverage and order acquisition. Secondary distributors only need to ensure two things: first, their supply prices remain as competitive as before; second, all orders must be delivered within half a day. '佟掌柜' divides areas into grids with a three-kilometer radius, and products are categorized into nine major categories (food, beverages, alcohol, condiments, daily chemicals, etc.). For each major category, only one secondary distributor is selected as a strategic partner within the same grid. In other words, under the '佟掌柜' cooperation model, secondary distributors focus on strengthening their supply chain capabilities and delivery power, expanding their service radius from one to three kilometers, and serving from 100 to 1,000 shops. Order acquisition and mall operations are handled by the '佟掌柜' operations team, and the vast majority of sales profits go to the secondary distributors. In佟立群's design, an excellent secondary distributor, if focused on delivery services and empowered by the system, can fully serve 1,000 small shops within a three-kilometer radius. Driving secondary distributors with business growth and profit increases, and transforming them with system empowerment and specialized delivery—this is the core of佟立群's '佟掌柜' business model. FMCG B2b platforms generally fall into two types: direct operation and matching. The biggest challenge for direct operation is unknown profitability; for matching, it's ensuring user service. For '佟掌柜', the biggest challenge is whether secondary distributors are willing to accept changes from system adoption to rule compliance. The answer lies in whether '佟掌柜' can truly bring fate-changing business growth. The '佟掌柜' system began pilot operations in Jinshui District, Zhengzhou, on September 15, 2021. Within a month, over 800 shops in the grid downloaded the app, daily order value grew from a few hundred yuan to over 20,000 yuan, and average daily orders exceeded 50. This means that in just over a month of operation, '佟掌柜' brought the partner secondary distributor an annual sales increase of over 6 million yuan, while their original business was less than 5 million yuan per year. Because the pilot brought such huge growth and benefits, the partner secondary distributor naturally agreed to operate according to '佟掌柜' requirements and rules. According to佟立群's calculations, in a three-kilometer radius grid, if strategic partners for all nine categories are in place, a single grid can generate over 50 million yuan in scale. Zhengzhou city can plan 30 such grids, meaning that if '佟掌柜' matures in Zhengzhou, it could capture a city market of 1.5 billion yuan. And if expanded nationwide? That would be a market worth trillions! Today, China's total retail sales of consumer goods have exceeded 39 trillion yuan, of which 40% are FMCG products. Over 80% of FMCG sales occur offline, and nearly half of those goods are supplied by secondary distributors. This is a market exceeding 6 trillion yuan—a track wider and longer than any dream.

Greater imagination: Can secondary distributors become the 'last mile' infrastructure? 佟立群 believes that the most severely underestimated value of secondary distributors is not their distribution value, but their 'last mile' infrastructure value—a huge contribution to society. The 'last mile' is one of the core reasons why China's logistics costs as a share of GDP are much higher than in the US. Due to historical construction reasons, China's last-mile facilities have long been rudimentary, inefficient, and costly. The last-mile problem is not just about cost and efficiency; it also causes serious social issues, such as urban traffic congestion that has reached unbearable levels. For a better future, solving the last-mile problem is a must for Chinese society. It's easy to say but hard to do. The express delivery industry, driven by e-commerce, has basically solved the efficiency problem for some goods, but at the cost of higher expenses and more transfer points. Moreover, express delivery can only handle small items, not large ones. Secondary distributors operate in the supply chain of urban terminal shops, which from a certain perspective is the solution closest to consumers. The categories they handle are FMCG products with the lowest value and the most bulky and heavy volumes. They deliver a 10kg item with a gross profit of only 2 yuan, and they still make money. If delivered by express or food delivery, the cost would be at least 15 yuan. No one can squeeze milk from a stone better than secondary distributors. Their service requirements are mostly same-day delivery, some next-day, with delivery times between 3-12 hours—faster than express, slower than food delivery. From a cost perspective, secondary distributors can beat any other business model; from an efficiency perspective, they are not inferior and even have room for optimization. Most importantly, the number of secondary distributors is large enough, and their network is wide enough. What佟立群 truly values is the potential of this group as commercial infrastructure for the 'last mile' in cities. Using an intelligent commercial SaaS platform, partnering with regional secondary distributors to establish 'chain wholesale organizations' and build a national urban end-to-end integrated supply chain network—this is the business positioning of佟掌柜. Isn't this also one of the best solutions to China's 'last mile' problem? The single-grid model in Zhengzhou has been initially validated, but that's just the first small step in佟立群's business dream. However, the success of the single-grid model proves several points: 1. Secondary distributors can be transformed; they can become a disciplined and rule-aware force. 2. Only huge incremental business and benefits can continuously drive their evolution. 3. Good products, good prices, and good service are the necessary and sufficient conditions for small shops to accept internet ordering. 4. Secondary distributors have enormous value to brand owners, and the industry should re-examine and re-evaluate them. As the service link closest to terminal customers, they deserve sufficient attention from brand owners. 佟立群, who entered the FMCG industry from the mobile internet field, has discovered the long-overlooked and misunderstood value of secondary distributors from a cross-industry perspective. If his reform succeeds, it will not only change the fate of China's 1 million secondary distributors but also, to some extent, rewrite the channel rules for brand owners' market operations.

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