---
title: "Niulanshan Abolishes Wholesale to Directly Control Terminals Sparks Controversy! Is Abandoning Second-Tier Distributors Becoming a Trend for Major Distilleries?"
description: "Famous distilleries have always been closely watched for how they intensively cultivate key markets. Niulanshan, with sales of 4.648 billion yuan last year, has begun implementing a direct terminal control model in its home base of Beijing. This sudden policy to cut out wholesale and directly control terminals has caused dissatisfaction among several veteran major distributors and sparked industry discussion about the survival of second-tier distributors."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-07-19"
language: "en"
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markdown: "https://xinjignxiao.com/en/articles/niulanshan-abolishes-wholesale-to-directly-control-terminals-sparks-cont-3a7294e6.md"
original_source: "https://mp.weixin.qq.com/s/qnI31pCro340sIbxg62Dwg"
translation: "https://xinjignxiao.com/zh/articles/%E7%89%9B%E6%A0%8F%E5%B1%B1%E5%BA%9F%E9%99%A4%E6%89%B9%E5%8F%91%E7%9B%B4%E6%8E%A7%E7%BB%88%E7%AB%AF%E5%BC%95%E4%BA%89%E8%AE%AE-%E5%A4%A7%E9%85%92%E5%8E%82%E6%8A%9B%E5%BC%83%E4%BA%8C%E6%89%B9%E6%88%90%E8%B6%8B%E5%8A%BF-3a7294e6.md"
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---

# Niulanshan Abolishes Wholesale to Directly Control Terminals Sparks Controversy! Is Abandoning Second-Tier Distributors Becoming a Trend for Major Distilleries?

> Famous distilleries have always been closely watched for how they intensively cultivate key markets. Niulanshan, with sales of 4.648 billion yuan last year, has begun implementing a direct terminal control model in its home base of Beijing. This sudden policy to cut out wholesale and directly control terminals has caused dissatisfaction among several veteran major distributors and sparked industry discussion about the survival of second-tier distributors.

Famous distilleries have always been closely watched for how they intensively cultivate key markets. Niulanshan, with sales of 4.648 billion yuan last year, has also begun implementing a direct terminal control model in its home base of Beijing. As previously reported by Wine Industry Journal, Luzhou Laojiao implemented the "Jiutai" model of direct terminal control in Chengdu. Jiutai Company, leveraging Luzhou Laojiao's own channel resources, abandoned the previous multi-tier agency model and flattened the channel. Its downstream includes two types: distributors or terminals. If distributors, they are also required to directly control terminals and not use second-tier distributors. In 2015, Guojiao 1573 sales reached 220 million yuan, a surge of 6.5 times.

Wine Industry Journal recently exclusively learned that Niulanshan is attempting to cut out wholesale from its total distribution channels and directly control terminals. This sudden "feudal reduction" and "reorganization" policy has also caused dissatisfaction among several "veteran" major distributors of Niulanshan and sparked industry discussion about the survival of second-tier distributors.

**22 Major Products Cut Out Wholesale**

Yang Gang (pseudonym), a Niulanshan distributor in Beijing, introduced that starting in late June, Niulanshan orally communicated to Beijing's total distribution channels a notice for 22 major products, including Chenniang, Dajiu, and Bainianhong, to be allocated by region, abolish wholesale, and open up full-category marketing. According to this reform policy, the original 100-plus first-tier and second-tier distributors in the Beijing area were reduced to 23 (initially 15, recently increased by 8). Based on the principle of retaining only one operator per region, the more quality distributors among the eliminated first-tier and second-tier were assigned under these 23 operators by region. Starting from the operators, no more wholesale is allowed; they directly connect with terminals. The manufacturer limits the markup amount, and distributors provide warehousing space and deliver to terminals.

"This is making veterans do delivery!" Li Chong, a Beijing-area Niulanshan distributor affected by this policy, calculated a detailed account: when his responsibilities shift from product operations to logistics distribution and terminal maintenance, the costs of warehousing, logistics, rent, and labor are too high. Simply earning product price differences is thin profit. To try to retain some interests before the policy is finalized, several major distributors with sales above 10 million yuan have communicated with the manufacturer, but the results were unsatisfactory. However, the emotional attachment of operating Niulanshan for over a decade makes them feel conflicted.

Additionally, according to a Niulanshan major distributor with sales exceeding 100 million yuan, this reform mainly targets total distribution channels, leaving large catering and supermarket channels untouched. Lin Mei (pseudonym), who supplies terminals in urban Beijing, believes the manufacturer's adjustment is not about ignoring the wholesale market. Currently, e-commerce impact and market cross-dumping put great pressure on terminal stores, and terminal store rents are high. With poor market conditions, Lin Mei, who supplies small and medium supermarkets, has encountered situations where the other party buys on credit and eventually the boss runs away. She envies wholesalers who can do cash-on-delivery without worrying about after-sales service. Regarding this reform, she speculates: the manufacturer still hopes to work together to raise prices so everyone can make money.

Wine Industry Journal sought confirmation from Niulanshan Distillery. A management member of Niulanshan Distillery responded to Wine Industry Journal that the company is adjusting and improving some previous practices.

**Under the "Major Customer System," Broad Impact**

It is understood that Niulanshan, under a state-owned enterprise system, has always used a "major customer system" to avoid sales shortcomings. In selecting distributors, the approach mainly supports major distributors, with small distributors as supplements, and sales personnel cooperate with major distributors to do channel work. However, Niulanshan does not leave major distributors unchecked; the company maintains market order well, such as product segmentation to prevent cross-dumping, timely price support to extend product life cycles, and not overstocking to maintain reasonable channel profits.

A survey by Soochow Securities in early July showed that Niulanshan began large-scale operations in the Beijing market in 2005. The "Erguotou category + low-price strategy + rapid channel construction" led to rapid growth for Niulanshan, with the rapid channel construction involving early cooperation with major distributors to quickly fill blank regional markets. It is understood that Niulanshan still maintains good cooperation with major distributors such as Chuangyitang, Chaopi, Jingtang, Jingliu, and Shousen, each with sales revenue from Niulanshan exceeding 100 million yuan. GF Securities also indicated in a May survey that the top three distributors in Niulanshan's Beijing market (Chuangyitang, Chaopi, and Beijing Tongwei) together contributed nearly 50% of Beijing market revenue, the top five contributed about 60%, and distributors with over ten years of cooperation accounted for 70%-80% of sales.

Soochow Securities estimates that Chuangyitang alone accounts for over 30% of Beijing market revenue, and Chuangyitang's main business is wine wholesale. However, according to Yang Gang, Chuangyitang mainly deals in mid-to-high-end products and is less affected this time. But he stated that Chenniang, as a product accounting for over half of Niulanshan's sales, has been significantly affected for all major distributors except those like Jingtang that specialize in large catering and supermarkets. A major distributor in Chaoyang was even joked by the industry as being assigned an area "with mountains, water, and graves," meaning no terminal stores to work with.

Yang Gang revealed that although it was an oral notice, under the new policy, products have already been labeled, and the policy is basically finalized.

**Reform from Outside to Inside, Beijing Rent May Become a Constraint**

This adjustment has the greatest impact on distributors in the First Section, mainly in urban Beijing. According to Wine Industry Journal's investigation, Niulanshan's internal management divides the Beijing area into First Section and Second Section. The First Section refers to areas within the Fifth Ring Road plus Fangshan, Mentougou, Daxing, etc.; the Second Section refers to Shunyi, Huairou, Yanqing, Tongzhou, Changping, Miyun, and other surrounding areas. In the Second Section, for many years, recruitment was based on one major distributor per region, while the First Section had multiple general agents divided by channel and region. Li Chong said that currently, the First Section's execution is not as good as the Second Section, which might be why the manufacturer adopted the one-operator-per-region principle.

Not only the Second Section, which is mainly surrounding areas, but Niulanshan's markets outside Beijing have been highly flattened since the beginning of recruitment. According to Huang Qiuhai (pseudonym), an operator in another province, Niulanshan uses a model of registering dedicated companies with local major distributors outside Beijing. The province is divided into multiple regions, and a dedicated company is established with the major distributor in each region. This distributor acts as the local operator, can obtain naked-price products from the manufacturer, and the operator's team directly supplies and delivers to terminals, earning the price difference. Detailed operational matters are directly coordinated with the manufacturer's business staff in Beijing.

Furthermore, Niulanshan almost only stations one salesperson per province, i.e., the provincial business manager. According to Huang Qiuhai, distributors outside the province generally handle small operational matters directly with Niulanshan staff in Beijing, but based on local market demand, operators can apply to the manufacturer for advertising support, activity fees, etc. The specific verification and reimbursement are communicated with the one business manager stationed in the province.

Industry rumors say that in Jilin, Changchun, and other places, one salesperson under an operator can be responsible for over 800 terminals in a region. One agent and one driver per region, because the volume is large and profit margins are bigger, one salesperson can visit over 100 terminals a day and cover all terminals in a few days. After success in Jilin and Changchun, Niulanshan treated them as model markets and replicated them widely outside the province. Public data shows that in 2015, Niulanshan's sales in external markets surpassed Beijing for the first time, with good growth in Yinchuan, Xinjiang, etc. Hebei, as the largest province outside, including Zhangjiakou and other cities, has achieved sales exceeding 100 million yuan.

However, Yang Gang believes that the Jilin and Changchun model markets can be replicated outside the province but not in the Beijing home market. According to his analysis, in markets like Jilin and Changchun, when operations began in 2012, this direct terminal control model was already used. Distributors simply earn product price differences, and product terminal prices were relatively high when entering the market. In contrast, Beijing, as Niulanshan's home market, has transparent product prices and is inherently thin-profit. "A box of products outside the province dropping from 180 to 170 or 160 would be snapped up, but in Beijing, raising prices from 130 or 140 to 150 is hard to sell." Wine Industry Journal also learned from distributors in Shandong, Shanxi, and Jilin that the same product's retail price outside the province is indeed higher than within the province. For example, Chenniang, the best-selling product, has a retail price per box outside the province generally 20 yuan higher than in Beijing.

"The manufacturer's reform is unilateral," Yang Gang believes. Niulanshan's idea of relying on its brand power to overhaul urban Beijing is too idealistic. Niulanshan's volume in Beijing is too large, and it cannot completely do without second-tier distributors now. "If this adjustment doesn't allow distributors to make money for six consecutive months, it's dangerous for the manufacturer. Many manufacturers are now eyeing Niulanshan's distributors for recruitment."

**After the Pain, There Will Be Rebirth**

Soochow Securities analysis: Under the "major customer system," the company has high dependence on distributors, so it needs to give more support to the channel. On one hand, the actual ex-factory price is lower; on the other hand, the expense ratio reflected in financial statements is higher. Soochow Securities estimates that Niulanshan's period expense ratio reflected in 2015 financial statements exceeded 30% in total. If considering sales expenses at the distributor level, the actual sales expense ratio is even higher, placing it at a relatively high level among listed liquor companies. However, Soochow Securities research found that distributors of competing liquor products in Beijing generally have high recognition of Niulanshan's channel control capability and the effectiveness of expense allocation. The company does not leave major distributors unchecked.

In this regard, Tian Zhuopeng, general manager of Zhengyitang, said in an interview with Wine Industry Journal that mid-to-low-end products and bottle-less liquor will trend towards FMCG-like operations in the future, with specific operations being flat management and refined downward implementation. From a model perspective, Beijing as the home market, manufacturers controlling core terminals is a trend. He said that in the future, distilleries must serve terminals, and distributors should adapt to the changing trend and transform into service providers and delivery providers, earning logistics, warehousing, and delivery fees, because the industry is still in an environment of screening distributors and survival of the fittest.

Huang Qiuhai believes that second-tier distributors determine the fate of manufacturers. He said that manufacturers can control first-tier but not second-tier distributors. Second-tier distributors can sell multiple products; for example, they can sell a few boxes of Chenniang at naked price or even at a loss but make money by bundling products like Jinliufu at a markup, making it difficult to control Niulanshan product prices. He said that even if manufacturers don't act, second-tier distributors will be eliminated by the market. "Second-tier just transfers goods without any contribution. In the internet age, this price difference cannot withstand scrutiny."

"Direct terminal control, vivid display, making products visible and accessible to consumers is the key. Qingdao Beer and Jinjiu also do this. Whoever encounters this adjustment is unhappy, but the market forces manufacturers to do it. For manufacturers, the pain is short-lived," Huang Qiuhai also believes that in this situation, whoever transforms first can adapt to the market first and seize the opportunity.

Tian Zhuopeng believes that although Niulanshan is a manufacturer that relies on major distributors for sales, it will not cause too many major distributors to leave. "From Niulanshan's consistent way of handling things, Niulanshan will resolve and handle its relationship with major distributors well, finding solutions that are good for both distributors and the market without harming distributors' interests."

Text | Wine Industry Journal Reporter Liu Yawei, Editor and Planner Su Qin
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