Click to read the original text for details Recently, I visited some distributors in person, toured each distributor's market, and had in-depth communications with them. Overall, I felt that almost every distributor is living in extreme anxiety, with sadness revealed in their words and deeds. Indeed, the impact of the epidemic at the beginning of the year caused many distributors to lose the first pot of gold of the year, and some even fell into debt. After the epidemic was brought under control, normalized epidemic prevention forced the economy to further decline. Traditional FMCG distributors officially started work at the end of March. In April and May, the market recovered and sales gradually increased, but in June, there was an obvious weakness. The weakness came from the product sell-through in April and May, which did not usher in revenge spending, but instead faced the embarrassing situation of an overall decline in consumer spending power. Secondly, in recent years, due to the impact of new e-commerce and new retail, the living space for distributors has become increasingly narrow. So what challenges do traditional FMCG distributors face? What paths lie ahead? How should they proceed? Today, I will share my cognitive views with you. -01- Five Urgent Challenges for Distributors Regarding Positioning, Development, and Management Challenge 1: Decentralization FMCG is a labor-intensive industry. As labor costs rise, profits cannot be too high. Channel profits cannot support a multi-layered distributor network. With intensifying competition, once brand owners achieve large scale, provincial agents, prefecture-level city agents, and other distributors face the issue of regional segmentation. This is an industry law, and the law is irreversible. Challenge 2: Flattening The channel value chain includes distributors, sub-distributors, wholesalers, and finally the terminal. Channel profits are insufficient to support a multi-layered distribution network. If profits are low, terminals will naturally not actively promote products. To win at the terminal and truly sell products to consumers, brand owners need to shorten the channel value chain and increase terminal enthusiasm. The flattening of sales channels has become a development trend and will continue. Therefore, distributors must adapt to brand owners shortening the value chain and initiating the flattening process. Challenge 3: Scaling The ultimate goal of flattening is scaling. The areas served by distributors are getting smaller, channel outlets are limited, and the sources of sales and profits are limited to limited service outlets and the SKUs sold at individual outlets. The prelude to big fish eating small fish, fast fish eating slow fish, has thus begun. Regional super merchants will rise with the trend, operating with multiple brands, multiple categories, and scale. Challenge 4: Market Share Being Eroded or Even Swallowed Although e-commerce has entered a period of slow growth, its volume is already considerable. Moreover, it is still in a growth stage, just slower than the previous ultra-high-speed growth. Logistics companies have also begun to transform, using their supply chain convenience to seize market share. Challenge 5: Increased Accounts Receivable Traditional retail is gradually becoming more convenient. Chain convenience stores show a trend of low base and high growth. Traditional mom-and-pop stores are gradually disappearing, and cash-on-delivery transactions are becoming fewer. Distributors face increasing financial pressure. -02- What Paths Can Distributors Take in the Future After the Challenges? 1. Surrender in the FMCG industry and transfer investment to other fields. Zhao Bo, founder of New Distribution, often says: "Money earned by luck will definitely be lost through ability." Indeed, in the past decade or so, with demographic dividends, economic dividends, category dividends, and many other factors, many distributors made a fortune through low-threshold FMCG products. At the same time, they relaxed their learning and improvement requirements. Facing sudden changes, they feel inadequate and have operational difficulties. At this time, if they are not trapped, they can quickly divest and transfer to other familiar fields. 2. Transform into e-commerce. Many trading companies have chosen this path, especially during the rise of e-commerce in the past few years. Not a few distributors transformed. After several years of sedimentation, the waves have washed out the sand, and the battlefield is littered with corpses. Of course, a few distributors seized the opportunity and successfully transformed. Here, I advise all distributors: if you don't have the diamond, don't take on the porcelain work. Transforming to e-commerce requires sufficient knowledge, capital, and operational capability. Do not follow the crowd blindly. 3. Pure logistics providers. If the market is divided into 1-5 level business districts, then distributors in level 1 and level 2 business districts are most suitable to become logistics providers. These markets are battlegrounds for strong brands, which almost always deploy heavy troops. What is needed is only the distributor's connections, capital, warehousing, and logistics. As long as the service is improved, even with lower profits, they can accompany the brand owner for a long time. 4. Category operators. Some categories have low industrial concentration and strong product substitutability, such as leisure food, condiments, ingredients, stationery, and office supplies. For these categories, only category integration can form influence on terminals. In the future, the number of distributors will decrease. The remaining distributors will tend to operate integrated categories, that is, form category trusteeship for terminals, where all products in a certain category are supplied by the distributor. Distributors must shift from studying products to studying categories. Once category trusteeship is achieved, they must achieve: sales growth and profit growth. Category trusteeship is a new trend. B2B is doing this, and many distributors are also doing this. 5. Supply chain operators. Under the impact of the omni-channel new retail model, distributors face pressure to transform and develop. The exclusive agency model under the traditional distribution system determines that most distributors represent a single brand, resulting in high distribution costs and low efficiency for retail stores. A single distributor generally represents limited products, has rough warehouse management, and mostly adopts single-product distribution. To meet the supply needs of retail stores, they often adopt a small-batch, high-frequency supply model, leading to uneconomical distribution operations, high costs, and low efficiency. Against the backdrop of social consumption upgrading and industrial chain transformation, the traditional agency model of distributors cannot promote business scale and intensive development, can no longer meet market demand, and faces the need for transformation, development, integration, and upgrading. This is also a major opportunity for distributor transformation, as well as a huge challenge. First, distributor transformation must overcome two major difficulties:
1. Improvement of the supply chain system; 2. Construction of a professional talent team. These two are the core elements affecting the circulation service capability and customer experience of FMCG, and are also the pain points that the industry needs to focus on solving. The improvement of the supply chain system will focus on the professional and systematic development of the FMCG distribution logistics system, especially the improvement of the FMCG city distribution logistics service system, which is the core of the core. Second, traditional retail small stores will choose B2B platforms as new purchasing channels. Essentially, there are four main reasons: 1. Rich product variety; 2. Reliable quality; 3. Timely delivery; 4. Competitive prices. These four aspects reflect the difference in supply chain management capabilities between B2B platforms and traditional distribution channels. 6. Regional service providers. Regional service providers are different from pure logistics providers. They not only provide simple distribution services but also include customer relationship establishment, product maintenance, after-sales service, etc. They sell channel services and exchange extreme customer relationships plus services for compensation. It should be noted: the higher the service quality, the higher the threshold, and the stronger the irreplaceability. As long as it is irreplaceable, it means sustainable profitability. This is also the mode with the smallest transformation amplitude and the highest safety for distributors. 7. Brand operators. Through joint development with manufacturers, OEM development (contract manufacturing), self-investment in acquiring small factories for development, and other forms, they become brand operators. This requires extremely high operational capability. Transformation requirements: possess complete marketing system capabilities, brand planning and promotion capabilities, strong financial strength, mature talent and management mechanisms, and certain channel resources. Final Thoughts: Some "pseudo-experts" view distributor businesses and say: if you don't transform, you wait to die; if you transform, you are seeking death. In short, it's death. This is too pessimistic. They have never been distributors and cannot appreciate the subtleties of business. Every distributor is worthy of respect. It is not easy to build a business. They not only create GDP but also solve the employment problem for a considerable number of people. But according to the current development trend of FMCG, distributor transformation is both a challenge and an opportunity. Every major change always creates a group of super merchants. I hope distributor friends can rationally evaluate their comprehensive strength and make the most suitable transformation decisions for their own development.