The Dead End for Distributors
"Hot-selling products move, but the profit is as thin as paper. After a busy day, you find you haven't even covered your fuel costs."
"High-margin new products look good, but they just don't sell at the terminal. Stock piles up in the warehouse, and you still have to deliver displays, hire promoters, and run tastings. After all that effort, the rebates just barely cover the promotion costs."
This is the common situation distributors face: what sells well doesn't make money, and what makes money doesn't sell.
Why does this problem occur?
First, role misalignment.
Distributors deal with retailers, and their performance is measured by whether products are placed on shelves. But retailers serve consumers and focus on turnover and margins. The goals of the two are inconsistent: distributors want to push more SKUs to boost sales, while retailers want to cut SKUs for efficiency.
Second, information asymmetry.
Terminal stores have first-hand sales data and can change products or adjust prices at any time. Distributors, however, can only rely on experience to guess demand. If they guess wrong, they have to absorb the inventory themselves.
Third, market involution.
Suppliers, retailers, and platforms are all squeezing profit margins from the middle of the chain. Hot-selling products are being price-compressed by both brands and retail ends, leaving distributors only with channel commissions. As for high-margin niche products, consumers have limited interest, so distributors have to invest more manpower and costs to push them.
Fourth, capital occupation.
Many distributors achieve sales through credit sales and inventory pressure, which lengthens the overall payment cycle and delays rebate realization. Although profits look good, cash flow becomes increasingly tight.
In a nutshell: Distributors today are like hitting walls on two divergent paths—either they run fast but don't make money, or they have high margins but can't sell.
Retailers Hold the Dominant Position in Product Selection
The traditional inventory-pushing logic is failing.
In the past, distributors could make money by "buying shelf space, pushing inventory, and promoting products." But today, this business logic is systematically collapsing, not only because consumers have changed, but also because retailers have regained "product selection power" and "traffic dominance."
1. Shelf space no longer equals sales; the value of prime positions has significantly declined.
Since Carrefour entered China in 1995, the industry practice of "paying for shelf placement and buying end caps for promotion" has become the norm. The retail logic then was "whoever controls the shelf controls sales."
But this model is facing structural collapse. On one hand, consumer traffic is highly fragmented—Worldpanel consumer index shows that Chinese urban consumers use an average of more than 7.2 FMCG channels per year, including hypermarkets, convenience stores, e-commerce, instant retail, membership warehouse clubs, and group buying. On the other hand, consumer decisions are no longer limited to "buy what you see" but are driven by social media, search, live streaming, and platform recommendations.
The logic of "display equals sales" has been broken; shelves no longer hold decisive value. Retailers now measure shelf space by "product margin contribution" rather than "who pays first."
SKUs with slow turnover and poor rotation will be removed, even if they pay high listing fees.
2. Data-driven product selection: whoever has data has the dominant position in product selection.
POS, membership, app searches, delivery platforms... Retailers see "what is being bought, who is buying, and why" from tens of millions of transactions every day.
They use this massive data to write "product requirement documents" in reverse, directly telling brands: how many grams, what flavor, and what price range. Distributors' past "experience-based selection" suddenly appears weak—because without data, they have no say.
3. Capital collective procurement flattens price differences.
In the traditional model, distributors profited from the price difference between the brand's factory price and the terminal retail price, and used "buyout" to cash out for capital turnover. But as retailers move toward large-scale joint procurement and brands make national pricing transparent, the profit space left for distributors is being squeezed layer by layer.
Take chain supermarkets like Yonghui, Wumart, and China Resources Vanguard as examples: they use headquarters to centrally procure from brands, automatically allocate to warehouses, and distribute, achieving pricing power upfront and flattening the price difference gradients that brands originally reserved for multi-tier distribution channels. The intelligent pricing systems and large-warehouse direct distribution capabilities of instant retail platforms also make the regional distribution logic of "buy low, sell high" unsustainable.
The result is that bestsellers can be sold by everyone, but no one makes money.
4. Private labels and joint launches: new product promotion rights shift to retail.
Besides traditional SKUs, another important revenue source for distributors is helping brands "promote new products." But this revenue pillar is also being taken away by the retail end.
Sam's Club's private label Member's Mark, 7-Eleven's Seven Premium, Hema's Daily Fresh, and Tmall Supermarket's co-developed products (like milk coffee and breakfast cereal) all break the classic path of brand launching new products, distributor distributing, and retail displaying. These products come with built-in traffic, channels, and pricing power, eliminating the need for distributors to do market education.
Especially after retailers deeply participate in product selection, early testing, and even marketing material production, the launch period for new products is significantly shortened, and marginal profits are extremely high. Distributors are completely excluded from this path.
Five Forms of Future Supply Chains
When retailers take the dominant position in product selection, the entire channel is reshuffled: some chains are thickened, some are cut, and new branches keep emerging.
In the next decade, it is likely that the industry will switch between and interpenetrate the following five forms. To thrive, distributors must first understand these five forms.
1. Retail platforms building their own supply chains
Core features: Self-built DCs, cold chains, and processing centers, combined with private labels or joint launches, to connect production, logistics, and sales.
Typical players: Sam's Club, Xiaoxiang Supermarket, Hema NB, etc.
Capability barriers: Heavy assets, high data density, global or national procurement bargaining power.
Signal for distributors: Unless you can provide "last 10 kilometers" extreme delivery or localized small-batch quick response, there is almost no opportunity.
2. LKA alliance collective procurement supply chains
Core features: Dozens or even hundreds of small and medium chains, mom-and-pop stores, and convenience networks form a purchasing and sales alliance, sharing contracts, warehousing, and information systems.
Typical players: City-level LKAs like Zhenshimei and Ant Business Alliance.
Capability barriers: Governance systems, digital middle platforms, and profit distribution rules.
Signal for distributors: If you are a regional leader, consider being the alliance leader; if your scale is limited, joining an alliance gives you better bargaining power than going it alone.
3. Convenience chain supply chains
Core features: Standardized business manuals, unified SKU pools, centralized distribution, and franchise stores only responsible for sales and service.
Typical players: Meiyijia, Jiapin Yunshi, Xiaoxiang Zhanggui, etc.
Capability barriers: Brand trust, IT training systems, and refined operational SOPs.
Signal for distributors: If you want to control the "secondary product selection power" of stores without fully redoing retail, this is a cost-effective "semi-self-operated" path.
4. Category service supply chains
Core features: Focus on high-professional-threshold categories like alcoholic beverages, functional foods, and pet supplies, providing one-stop services from R&D advice, compliance testing, and sales promotion plans to terminal displays.
Typical players: Hefei Bangwei, Zhengzhou Dapeng Trading.
Capability barriers: Deep industry know-how, flexible supply chains, and brand planning capabilities.
Signal for distributors: Don't aim for breadth but depth. As long as you make retailers unable to replace your expertise, you can steadily earn service premiums.
5. Regional small-scale agent wholesale supply chains
Core features: Deep cultivation of county, township, or urban blind spots, focusing on small batches, high frequency, and instant replenishment, with some also handling urban or last-mile distribution.
Typical players: Provincial and municipal wholesale linkage warehouses, micro-warehouse quick-replenishment teams.
Capability barriers: High-density delivery routes, driver networks, and inventory prediction systems.
Signal for distributors: When platform direct-operated chains focus on central cities and shrink delivery radius, this "capillary" remains a profit pool, but efficiency requirements are extremely high.
Summary:
Regardless of the form, there is a common point: the supply chain is no longer about "whoever controls the goods has the say," but "whoever controls the data decides the product selection logic."
Procurement decisions are no longer based on relationships and experience but on traffic and sales velocity. The way for distributors to break through is to insert themselves into the retailer's data loop and become an irreplaceable link.
Ultimately, to survive, distributors must possess at least one of the following four core capabilities:
Terminal control (self-operated or franchise stores)
Scale bargaining power (alliances or joint warehousing)
Deep professional capability (category services)
Extreme efficiency (regional quick replenishment)
Three Future Development Paths for Distributors
The current channel structure has changed dramatically, and product pricing power is concentrating at the retail end. If you cannot participate in the upstream decision of "who sells what," no matter how big your warehouse or how deep your channels, you are essentially just a "porter" for someone else's supply chain.
For distributors, the key is to reclaim the "product selection power"—a critical variable. And "product selection power" often lies in positions close to terminals, users, and data.
Based on this, there are three viable paths: self-built terminals, alliance collective procurement, and category deepening.
1. Self-built terminals
Strategic logic: Transform from distributor to retailer, extending forward and controlling the shelf. Move the warehouse to the front, hang your own store sign, and shift from "selling goods" to "selling scenarios, experiences, and conversions."
Form options: Convenience stores, warehouse membership stores, community discount stores, and integrated front-warehouse stores. The core is the trinity of "goods rights + pricing rights + scene control."
Key advantages: Margins are retained at the front end, no longer giving way to other channels; user data is accumulated in-house, allowing reverse optimization of purchasing decisions through POS and membership systems; and it avoids dependence on brand-side fee negotiations, reducing hidden costs like end-cap fees and listing fees.
Challenges: Retail operations are heavy on management and details—SKU management, traffic flow design, and staff training are all difficult; cash flow requirements are high, and room for trial and error is small. If expansion pace gets out of control, risks amplify quickly.
Suitable profile: Distributors with certain capital reserves, high penetration in regional markets, and expertise in refined store operations.
2. Alliance collective procurement
Strategic logic: Become the integrator of "small B." Package scattered mom-and-pop stores, front-warehouse networks, and regional micro-distributors into a centralized purchasing and sales entity.
Operational methods: Unified SKU pool, unified pricing system, shared warehousing and distribution, achieving contract collective procurement, system co-building, and payment term coordination.
Key advantages: Centralized procurement amplifies scale advantages, quickly forming "purchase floor prices"; reduces unit logistics and warehousing costs, and increases regional coverage density.
Challenges: Alliance management requires high standards; rule design (such as rebate distribution and payment term control) must be highly refined; it is susceptible to "one-man rule" or "exit risks," requiring governance mechanisms upfront.
Suitable profile: Distributors with broad resources, deep networks, and institutional thinking and coordination skills.
3. Category deepening
Strategic logic: Narrow the category, deepen services. Focus on niche categories with high technical barriers, rapid consumption upgrades, and insufficient retailer knowledge, and become a "professional service provider."
Typical categories: Snack foods, daily chemicals, condiments, etc.
Key advantages: Use sales promotion plans, training guidance, terminal displays, and compliance services as handles to form service premiums; deeply bind key retail customers, improving channel stickiness and negotiation power; compared to "moving goods," inventory pressure is lower and capital turnover is faster.
Challenges: Extremely high demands on the team—they must understand supply chains and testing standards, as well as sales and terminal execution; brand incubation capabilities are also required, as many projects need hand-holding support from 0 to 1.
Suitable profile: Distributors with brand operation and category operation experience.
These three directions have different paths but the same goal: to reclaim "product selection power" and reprice your own value in the new landscape.
From August 19-21, 2025, the "2025 7th China FMCG Conference" with the theme "New Demand, New Supply," along with the 5th China FMCG Retail Innovation Conference and the 5th China FMCG Distributor Conference, will be grandly held in Shanghai.
"New Distribution" has surveyed nearly 500 distributors and will release the "2025 China FMCG Distributor Operating Conditions Survey Report" and the in-depth case collection "Ten Growth Case Models for FMCG Distributors" at the conference, to see which distributors are growing and which are being eliminated this year, why, and where operational focus should be placed, helping distributors find direction amid chaos.
At the same time, we have invited benchmark cases of distributors transforming in different directions, including representatives from regional B2b, retail channel operators, and regional category operators, to discuss how distributors should go, transform, and win in the market environment of new demand and new supply.
In addition, a "Regional B2b Platform & Key Brand Cooperation Seminar" will be held. It will bring together 40+ regional B2b platform owners to explore incremental opportunities in the sinking market covering 200,000 small stores; release and interpret the "Regional B2b Cooperation Guide" on-site; and build a bridge for dialogue between regional B2b platforms and key brand leaders, with research and exchange, one-click connection, and on-site supply-demand matching!
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