---
title: "“No Middlemen to Earn the Difference” Is Indeed a Lie, but the Good Old Days for Distributors Are Gone Forever!"
description: "The transformation of traditional distributors is not a new topic, having been explored for over a decade. With the rise of B2B platforms since 2014, the internet has injected new vitality into this old issue. The article analyzes what disintermediation in the FMCG industry removes and what it retains, and suggests directions for traditional distributors to transform."
author: "杜建芳"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-08-09"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/xnJHttRREXjQsSNpZAp4kA"
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# “No Middlemen to Earn the Difference” Is Indeed a Lie, but the Good Old Days for Distributors Are Gone Forever!

> The transformation of traditional distributors is not a new topic, having been explored for over a decade. With the rise of B2B platforms since 2014, the internet has injected new vitality into this old issue. The article analyzes what disintermediation in the FMCG industry removes and what it retains, and suggests directions for traditional distributors to transform.

Click 'Read Original' for details.

The transformation of traditional distributors is not a new topic; it has been explored and practiced for over a decade, with countless participants from governments, brand owners, and distributors, each trying from different angles.

With the rise of B2B platforms since 2014, the penetration of the internet has injected new vitality into this old topic. After four years of development, it shows no signs of stopping.

The penetration of the internet is significantly reflected in the removal of intermediate links, and the FMCG industry is no exception. But in the disintermediation of the FMCG industry, what is removed and what is retained? Distributors are the main body of intermediate links; which part of distributors will be removed, and which part will remain?

**1**
**What are the characteristics of FMCG distribution channels?**

Before analysis, let's look at the characteristics of FMCG channels. There are many discussions online about the current state of FMCG channels; this article will not repeat them. Instead, we will analyze the characteristics and causes from a different angle.

The above diagram is a schematic of the channel structure. From it, we can derive the following characteristics and causes of FMCG channels:

**1) Brand owners and retailers are unique**
As nodes in the supply chain, brand owners and retailers have unique attributes, while the intermediate channel members form a network-like cross structure. Issues that manufacturers often focus on, such as channel stuffing, occur here.

**2) From top to bottom, transaction quantity and amount decrease, while product items increase**
As B-end users, the essence is profit-seeking.

FMCG covers a wide range of customers. With low dependency and low attention, consumers often only buy products that are convenient to obtain, so the end market is the main battlefield for brand owners. This is the origin of the saying "the terminal is king."

But the closer to the end market, the smaller the market capacity for a single product, and the higher the cost of localized services. Therefore, channel members in the end market must enrich product items to focus on terminal demand and seek profits.

**3) Repeated transactions and repeated taxation**
In the current traditional business model based on buying and selling, goods are continuously bought and sold in the channel. Each transaction node's seller only cares about its own interests, ignoring the value of supply chain collaboration. Under current tax law, enterprises must pay value-added tax on sales. So for distributors, they essentially do warehousing and logistics, but they have to pay VAT.

**4) From top to bottom, financial characteristics weaken, and service characteristics strengthen**
Brand owners need large amounts of capital to maintain production and sales, while channel members in the end market mostly lack sufficient funds to obtain regional privileges. Therefore, in the development of FMCG channels, distributors with financial strength have purchased privileges (distribution rights) from brand owners in certain regions. However, high localized service costs and low market entry barriers force them to continuously subdivide their regions to profit from privileges.

If we label channel members with two tags: finance and service (where service includes warehousing, logistics, etc.), we can roughly see the proportion they bear in these two tags:

The above characteristics, combined with internet penetration and the emergence of B2B platforms, allow us to see some changes that have occurred, are occurring, or will occur.

**2**
**What is removed in disintermediation?**

**1) Vertical integration: channel flattening, and it is a top-down weakening**
This is easy to understand. On one hand, first-tier brands have long passed the brand formation period. On the other hand, with the rapid development of internet finance, the difficulty of capital entering the physical business is decreasing, and the monopoly formed by capital in the original channels will continue to disintegrate.

A typical representative is the general distributor. In the past, relying solely on capital to make profits will become increasingly difficult in the future. This type of distributor will find it harder and harder, and they are out of touch with the ground.

**2) Evolution from buying and selling to service functions**
More and more brand owners are beginning to realize that channel members and retailers are not their customers but partners. In the channel, brand owners, distributors/wholesalers, and retailers are a community of interests, with a relationship of interdependence.

For brand owners, transactions between channels are of decreasing value. Brand owners must unite with localized service providers and retailers to build an efficient marketing system to remain invincible.

At the same time, technological progress will inevitably lead to changes in consumption habits. Those wholesalers with too small coverage areas, outdated concepts, and unwillingness to go online will soon have no business. For this type of wholesaler, natural elimination will occur.

Therefore, in the FMCG supply chain channel, only suppliers that provide localized services and follow the trend of internet development, leveraging the advantages of the internet, are the inevitable existence connecting brand owners with terminal retail and special-channel customers.

**3) Decentralization, re-intermediation, and profit is king**
FMCG is affected by many factors such as product characteristics, consumption characteristics, regional consumption habits, and localized service costs. Centralized platform business models similar to 2C (like mall + express delivery) cannot provide a good user experience.

In the future, the FMCG distribution field will form regional platforms that rely on offline retail terminals (not just convenience stores), localized service providers, and platform operators to better serve consumers through online-offline integration.

Intermediate links can form comprehensive service providers in regional markets through horizontal alliances, continuously deepening in logistics, warehousing, marketing, and other aspects.

The essence of business is production - **circulation** - consumption. Before goods are consumed, all links should be value-added links. This also illustrates the profit-seeking nature of the circulation process. Only after consumers consume can the entire supply chain's interests be realized.

"No middlemen to earn the difference" is indeed the biggest marketing lie, but it is undeniable that with the advent of the internet, for some distributors (general distributors), the days of holding capital and distribution rights to rest easy are gone forever. The rights are given by brand owners, not yours; also, the outlets are not yours. If you cannot provide more and better services and value to terminal users, you will naturally be eliminated.

**3**
**Where should traditional distributors go?**

**1. Embrace the internet, transform from buying and selling to service - core enterprise strategy**
Distributors have excellent localized service capabilities, such as warehousing, distribution, and after-sales. By leveraging the advantages of the internet, they can effectively reduce service costs, improve service quality, and gradually grow into regional core enterprises.

**2. Leverage the internet, transform from distribution to operation - regional platform operation strategy**
1) Sharing and win-win: as described above, no need to repeat.
2) Segment channels: develop specific operational strategies for different channels, such as retail terminals, catering, entertainment venues, welfare group buying; further segmentation, such as retail terminals can be divided into communities, offices, commercial areas, campuses, roadside stalls, etc. Provide customized services to meet the needs of different groups and enhance their experience.
3) Move towards chain operations: free rather than self-operated chains, not simply changing signs. Not only to improve the store's external image, but also to assist stores in differentiated operations. Root service awareness in business philosophy, lock stores with service, not control.

**3. Transform from independent distribution to joint operation - go with the flow**
The trend of the internet is unstoppable. For distributors, participating in it is not only about reducing costs and increasing efficiency, but more importantly, ensuring you still exist on the future battlefield.

A distributor once mentioned: "These convenience stores are all mine; why should I share them with others?" The author analyzed for him: "This store is open there; it belongs only to the owner. You provide services for your product items. I believe no fewer than 20 distributors like you are providing services for it, and of course, competitors are not excluded."

Whether it is B2B platforms or distributors, whether integration or competition, ultimately it will return to the essence of business. Everyone should fully analyze their own strengths and weaknesses. In the process of transformation, if everyone has the same advantages, it is likely to be competition; if advantages are complementary, it is likely to be cooperation. Do something and leave something undone. With the continuous penetration of the internet, sharing and win-win will become the main theme.

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