---
title: "New Distribution Yuan Lai: The Era of Enclosing Land is Coming, Distributors Are No Longer Doing Incremental Business, But Grabbing Other Distributors' Existing Business!"
description: "The 2020 (3rd) China FMCG Conference, hosted by New Distribution, was grandly held from August 24-26 at Shanghai Fuyue Hotel, attracting 3,000 industry practitioners including distributors, manufacturers, and internet companies from across the country. The following is the speech content of Mr. Yuan Lai, chief editor of New Distribution, at the parallel forum 'FMCG Digital Distribution Masterclass', organized and published for readers. New Distribution was established in 2016, and since its inception, we have been observing the FMCG industry..."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-08-26"
language: "en"
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# New Distribution Yuan Lai: The Era of Enclosing Land is Coming, Distributors Are No Longer Doing Incremental Business, But Grabbing Other Distributors' Existing Business!

> The 2020 (3rd) China FMCG Conference, hosted by New Distribution, was grandly held from August 24-26 at Shanghai Fuyue Hotel, attracting 3,000 industry practitioners including distributors, manufacturers, and internet companies from across the country. The following is the speech content of Mr. Yuan Lai, chief editor of New Distribution, at the parallel forum 'FMCG Digital Distribution Masterclass', organized and published for readers. New Distribution was established in 2016, and since its inception, we have been observing the FMCG industry...

The 2020 (3rd) China FMCG Conference, hosted by New Distribution, was grandly held from August 24-26 at Shanghai Fuyue Hotel! This grand event attracted 3,000 industry practitioners including distributors, manufacturers, and internet companies from all over the country, with a full house and unprecedented scale.
The following is the speech content of Mr. Yuan Lai, chief editor of New Distribution, at the parallel forum "FMCG Digital Distribution Masterclass", organized and published for readers.
New Distribution was established in 2016. Since its inception, we have been observing changes in the FMCG trading field for three years. Therefore, we have our own understanding of the changes, trends, and business in the trading field. Today, on behalf of New Distribution, I will share our understanding of the FMCG trading field, hoping to bring some thoughts to the distributor friends present.
▲New Distribution Chief Editor Yuan Lai
**-01-****Trends in Distributor Business Development**
First, let me pour cold water on all distributor friends: **Distributors, as the intermediate link in the entire FMCG industry, provide three functions: goods handling, goods shelf placement, and goods recommendation. Although the value of distributors is irreplaceable, the size and quantity of business are often not under their control.**
I often hear distributor friends say that the intermediate link suffers from both ends. Because many times, the fate is determined by the upstream industry, downstream retail, and midstream supply chain enterprises.
For this "Digital Distribution Masterclass", I invited Hongye Hengda, Rongcheng Yigou, Suichujian Supply Chain, Jintong Food, Zhicheng Food, and Bajie Trading. Their annual sales range from 50 million to 500 million yuan, and their businesses are doing well with considerable scale. But you should know that **in China's FMCG trading field, among approximately 800,000 distributors, those with annual sales below 20 million yuan account for at least 80%.**
This is the reality. Most distributors' businesses are not particularly large, and the core reason is not that they don't want to grow or lack the ability, but that the upstream and downstream industries determine they cannot grow.
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First, let's look at the industry. The FMCG field can be roughly divided into more than a dozen categories. Due to space limitations, I only list the mainstream 7 categories. Within these 7 categories, there are hundreds of subcategories.
Each enterprise in each subcategory chooses its own distribution model based on its business strategy, industry capacity, and industry competition. There are deep distribution direct control, deep distribution joint operation, shallow distribution, retail direct operation, trade wholesale, etc.
For example, if you are in beverages, even if you are very capable and wealthy, it is often difficult to exceed 100 million yuan in sales. It's not your problem, but the industry you are in determines that upstream enterprises do not allow you to do business exceeding that scale. For example, if you are in daily chemicals, turnover is relatively lower, and deep distribution is not possible. Upstream enterprises will proactively give you multiple regions for cross-regional operation, making it unlikely for your business to be small. Of course, whether you make money is another matter.
Therefore, **for most distributors, the size of the region and the scale of business you can do often depend on the track you choose. Choosing beverages means you are destined not to grow big; choosing daily chemicals means your business cannot be small.**
In the past, this was an intermediate link completely controlled by brand owners.
Now look at downstream retail:
If you observe carefully, you will find that consumer shopping channels are getting closer. The earliest channels were supply and marketing cooperatives, farmers' markets, department stores, and large supermarkets. Later, small convenience stores appeared on streets, and 100-200 square meter community fresh supermarkets appeared around residential areas.
Now, with this year's epidemic, consumers can buy any daily necessities through community group buying, home delivery e-commerce, etc., without leaving home.
These are the changes you can clearly perceive around you. Let me give two sets of data: First, taking Hunan Bubugao chain stores as an example, this year's home delivery business accounted for more than 20% of sales; Walmart also publicly stated that overall O2O channel sales increased 4.4 times compared to last year's Spring Festival, with orders from Walmart's home delivery mini-program increasing 15.2 times.
I say this to tell you that the retail environment around us is undergoing tremendous changes. Without the epidemic, many distributor friends might not even know what community group buying is. Previously, we could sell through 3 channels: KA supermarkets, community supermarkets, and traditional small stores. But now we need to sell through 10 channels; retail channels have increased.
From a regional market perspective, there are now 10 channels to sell goods, but each market is different. The retail format in Shanghai is completely different from that in Anhui.
For example, Miss Fresh, represented by "front-warehouse O2O", mainly operates in East China and South China; Dingdong Maicai mainly in Jiangsu, Zhejiang, and Shanghai; Pumu Supermarket mainly in South China and Fujian. Community group buying is mature in Hunan, such as Xingyou Xuanxuan. Of course, in addition, home delivery e-commerce extended by chain stores varies by region.
**In first-tier cities, new retail formats are mature; in second- and third-tier cities, new retail is rapidly expanding; in fourth- and fifth-tier cities, new retail may just be budding.**
This is the real market environment we face. China has more than 2,000 county-level cities, each with vastly different market environments, not to mention local consumption habits and market competition factors.
**The channels for selling goods are getting closer and more numerous.** Each channel corresponds to different consumer needs and consumption scenarios. Different needs mean different products, with different specifications, packaging, and flavors. Channel segmentation inevitably corresponds to product segmentation.
**Facing diverse markets, diverse channels, and diverse consumption, the traditional single business model can no longer support the business development of brand owners and distributors. For brand owners to efficiently match the diverse and multi-dimensional broad market, returning the local market to local distributors is the best choice.**
**In summary, the fragmentation of retail formats requires distributors to change their role and functions, from past capital providers to distributors, coverage providers, and operators. In the past, our capability was to compete for physical shelf space, but in the future, it is not only physical shelves but also the competition for consumer attention in online O2O new retail, and we need to have both capabilities.**
This is the change in downstream retail formats. Now let's look at the midstream supply chain.
**The essence of the supply chain is cost and efficiency. Why do our FMCG companies use small distributors? Because small distributors have lower costs: tricycle delivery, no tax payment, and a warehouse that can shelter from wind and rain is enough. This is low cost and high efficiency brought by "reduced configuration".**
**But in the future, I believe it will definitely be through formalized trading companies, professional warehousing, and large-scale product distribution, achieving low cost and efficiency through "scale".**
Although the current industry situation does not want distributors to grow big, under the combined effect of retail format fragmentation, mature infrastructure, and intensive social division of labor, large distributors are the ultimate form.
**Distributors will enter the era of enclosing land, but if they want to grow, they need to pay attention to methods. Frankly speaking, the distributors who are doing well now are essentially not doing incremental market business, but grabbing the existing business of other distributors.**
**In recent years, business has been difficult, and it is said that online e-commerce disrupts prices and takes away sales. But for most FMCG categories, the business taken away by online is minimal. Essentially, it's not online taking your business, but neighboring distributors taking your business.**
Therefore, New Distribution predicts that **in the future, competition in the local commercial circulation field will no longer be between manufacturers and distributors, nor between brands, but between distributors and distributors.**
Returning to individual distributors, in terms of future distributor forms, New Distribution has divided them into three mainstream forms: brand distributors, category distributors, and channel distributors. Others, through transformation or cross-border moves, such as third-party urban distribution companies or OEM private label, are no longer considered distributors.
Regarding the specific definition of each distributor, New Distribution also provides specific definitions. You can match yourself accordingly.
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Overall, brand distributors are mostly in beverages, alcohol, and dairy; category distributors are mostly in snacks, condiments, daily chemicals, and general merchandise; channel distributors often combine multiple categories such as snacks, condiments, and daily chemicals.
Therefore, every local distributor needs to think: What kind of distributor do I want to be? What categories do you distribute, and what is the capacity and competition of that category? How many outlets do you cover, and can you cover more than 50% of the local outlets? How is your own business operation, including current scale and staffing?
Returning to the individual operation of distributors, regardless of the distribution direction or model you choose, the core of business growth is the "Five Forces": **Channel Force, Product Force, Operation Force, Execution Force, and Organization Force.**
**-02-****Distributor Business Growth Model**
These excellent distributors have shown different growth in the past two years. For example, the six distributor guests at the "Digital Distribution Masterclass" have seen sales growth of 4-5 times.
When we explore the reasons behind this, combined with discussions with other distributors, we are convinced that **these distributors who grew against the trend have all used digital tools to improve their business efficiency.**
Based on this insight and visits, New Distribution judges that in the future commercial circulation field, "digitalization" will be the core and only lever for sustained business growth for distributors.
**Of course, if we only talk about "digitalization", it has no value in itself. Only when "digitalization" empowers the "Five Forces" does it have real value. Digitalization is actually an accelerator.**
This is the first time New Distribution has proposed a business growth model for distributors. Why propose this model? In the past, I have met many distributors who like to ask: Business is getting harder year by year, what should I do? You have met so many excellent distributors, tell me, what should I do with my business?
I am helpless because such questions are difficult to answer. What you really want to know is whether this business can be done, whether there is any business that is easy to do, or how to do my current business better? I think many distributors want the first answer.
I use this model to tell all distributor friends: **The success or failure of any business is not caused by one or two factors. It's not that if you cover 2,000 outlets and represent P&G or Red Bull, you will definitely do well, nor is it that if you represent a second- or third-tier miscellaneous brand, you cannot do well.**
The success or failure of a business comes from multiple factors. If any aspect is not done well, the business cannot be good. So when you see others doing well, don't look at just one aspect. Instead, examine each of these five dimensions one by one.
**First, Channel Force.** How many stores do you cover? What types of stores are they? What is the store activity level?
**Second, Product Force.** What is the structure of the products you distribute? How do you distribute different products to different stores? How do you promote new products?
**Third, Operation Force.** Product display and placement, promotional activities, promotional personnel. Which stores should be invested in and which should not?
**Fourth, Execution Force.** Whether to invest is an operational choice, but whether it can be executed well depends on execution force.
**Fifth, Organization Force.** Different types of distributors choose different organizational models, such as partnership, dividend, and team leader systems.
Therefore, the success or failure of a distributor's business is determined by these five aspects, not a single issue. At the same time, I also want to say that **to do these "Five Forces" well, the core lever is digitalization. Only by empowering these five forces with digital tools can the business be done well.**
Click to view larger image
How to digitalize? First, stop simply equating digitalization with the financial level. Instead, truly implement digitalization at the business level.
Simply put, first you need to know how many outlets you cover, what types of outlets they are, and how many are active monthly; know the sales volume and gross profit of each product, which outlets they are sold to, and how many new products are sold; know how many outlets each salesperson serves, and the sales and gross profit contribution of each salesperson.
In one sentence, **the digitalization of outlets, products, and personnel is the basic requirement.**
How does digitalization specifically empower the Five Forces? I believe that **only data + standards = judgment. In fact, data itself cannot form a judgment; data plus standards can form a judgment. First set the "standard", then through analysis and comparison, find "good/bad"!**
What is a standard? Some might say that others do 100 million yuan in business with only 20 people, while I do 100 million yuan with 50 people, so I have too many people. Wrong! I believe that in the trading field, each distributor's actual business is different, and referring to so-called "industry standards" is often biased.
Of course, some standards can be referenced, such as one outlet per 400 people in the beverage distribution field, but this is only a reference value and has little value for daily specific business management. **The "standard" I refer to here is a comparison with your own past business, using "year-on-year/month-on-month" comparisons over time, which has real value.**
**Data itself has no value; it needs to be implemented in actual business scenarios, and only through comparison with the same period can judgments be made. Many times, distributors do not lack methods to solve problems, but lack the ability to define problems.**


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