"The future of the distributor community is not optimistic, even pessimistic. In the future, the distributor community will undergo significant differentiation; the advantaged will become increasingly strong, while the weak may gradually disappear from the industry." Facing the fierce market competition that distributors will encounter in 2024, Li Feng of New Distribution specially invited Liu Chunxiong, a proponent of new marketing, channel digitalization expert, and associate professor at Zhengzhou University, to the Li Feng New Distribution live stream to discuss strategies for distributors to break through. Certain Judgments for 2024 Regarding the market trends that distributors will face in 2024, Professor Liu Chunxiong proposed four certain judgments: 1. A definitive farewell to incremental growth In recent years, there has been a stubborn illusion in the FMCG industry: when the economy improves, our business will improve again. This is a wrong judgment. In the past, many enterprises habitually relied on economic growth to drive sales and profit increases. When the economy is on an upward trend, people are more willing to consume. However, in an era of declining stock, this traditional concept must be overturned. 2. The internet revolution is coming to an end Ten years ago, e-commerce and B2b platforms became prevalent, and e-commerce now accounts for 26% of physical retail. This means that over the past decade, the offline share of traditional distributors has decreased by 26%. Nowadays, live-stream e-commerce and interest-based e-commerce are merely seizing traffic from graphic e-commerce, changing the form, which is essentially a redistribution of traffic. It is worth noting that the internet has brought two major changes to the environment: digitalization has become standard for offline channels; user operations have become standard. 3. The trend of premiumization and choice differentiation is evident Consumer choices are no longer singular; there are both hard discount options and premium options, and the premiumization trend is outpacing the growth of hard discounts. 4. The supply chain revolution has begun. This judgment is detailed in a separate section. Supply Chain Revolution The internet revolution is nearing its end, and the supply chain revolution has begun. The supply chain revolution has had a significant impact on supermarkets and distributors, with snack hard discount stores being the most direct impact felt by distributors. In the past, one of the most profitable categories for distributors was leisure food. However, with the proliferation of snack bulk discount stores, there has been a huge impact on distributors' revenue and profits. According to survey results, some distributors have seen revenue decline by 30%, with profits even more affected. Currently, the supply chain revolution is mainly manifested in the rapid development of private labels, hard discount stores, the chainization of BC stores, and platform distributors. First, private labels Data shows that private labels in Europe account for 38% of total retail share. If we refer to this standard, in the future, China's social retail market will be mainly divided into three parts: nearly one-third e-commerce, one-third private labels, and one-third traditional retail. It should be emphasized that the first two parts can bypass distributors. From this perspective, in the future, only one-third of retail share will be available for traditional distributors to compete for. Second, hard discount stores Hard discount means no discounts, direct price reduction, and super cost-effectiveness. For example, European private label tomato juice is more than three times cheaper than well-known brands of the same quality. A supermarket's private label cola is only one-tenth the price of Coca-Cola. This is very attractive to price-sensitive consumers. Third, the chainization of BC stores, i.e., rebranded stores This is a byproduct of platform distributors. Guangdong Meiyijia, for instance, actually rebrands the storefronts of mom-and-pop stores, unifying their visual identity. Then, by connecting with platform distributors, they enter a large-scale platform system. The above phenomena are more prominent in the supply chain revolution. It is worth mentioning that the purpose of the supply chain revolution is to reduce operational links and lower operating costs through "de-distributorization." Retailers directly connect with manufacturers, store-to-factory, with no intermediate costs, thereby reducing procurement costs. However, the supply chain revolution has just begun and will affect China's trends for the next 10 years. How Should Distributors Respond? Sales may decline, but profitability must not decline. The current goal of enterprises must shift from sales targets to profit targets. In the past, profitability relied on sales volume; now, the environment no longer provides that opportunity, so it must be earned back through capability. Three essential capabilities for new-type distributors: 1. Channel digitalization Currently, channel digitalization is a standard requirement. It may feel fine now, but when competitors gradually achieve channel digitalization and you haven't, you lose the qualification to compete in the market. 2. User operation capability to promote new and high-end products This is a sharp blade for our distributors to dominate the market. With the ability to promote "three new and one high" (new brands, new markets, new products, and high-end products), even if sales decline, profits will not decline. Under the supply chain revolution, what is the main reason manufacturers cannot do without distributors? It is actually the distributors' user operation capability to promote "three new and one high," which is also the main source of profit for future distributors, not big single products. 3. Use the supply chain revolution to respond to the supply chain revolution Distributors have a channel mindset, positioning themselves from the manufacturer's perspective. Platforms have a supply chain mindset, positioning themselves from the retail end. These are two completely opposite thinking directions. Now, distributors must adopt a supply chain mindset, standing from the retailer's perspective, providing whatever they need. Become platform-type distributors to respond to the supply chain revolution, acting as both first-tier and second-tier distributors. Distributors with these three capabilities can be considered new-type distributors. If you ask how to survive now? If you don't have these capabilities, you don't need to endure; make an "orderly retreat." If you have these capabilities, charge forward, because most distributors currently lack these three capabilities. Platform Merchants: The Oligopolization of Distributors This is a turning point for distributors; the era where the environment provides opportunities no longer exists. In the evolution of China's FMCG channels, manufacturers have always held a strong position, leading to the small scale of distributors, such as the small-area agency system. This makes distributors more like an extension of the manufacturer's channel, with manufacturers having strong dominance in channel management, especially among leading enterprises. However, with the rise of platform distributors, this pattern may reverse. Brands, orders, and market share are expected to concentrate towards platform distributors. First, many terminals require "one-stop" supply, and only platform distributors can provide such services. Second, because platform distributors can provide high-quality services to small retail stores with multiple brands, multiple items, and multiple SKUs, supplying whatever customers need, their terminal coverage is higher, helping to eliminate the second-tier distribution phenomenon. Therefore, more and more manufacturers are willing to entrust brand agency rights to platform distributors. Third, platform distributors can develop in different regions and even conduct cross-regional mergers and acquisitions. This was difficult to achieve in the past under the manufacturer-led small-area agency system. Cross-regional M&A is one of the conditions for achieving national distributors. The occurrence of these three phenomena will inevitably lead to the oligopolization of platform merchants. Oligopolization means that a few platforms monopolize a small area. The oligopolization of platform merchants will lead to the disappearance of many small independent distributors. Of course, distributors of leading enterprises in the industry may have stronger survival capabilities. However, handing over public functions to third-party platforms, especially urban distribution platforms, seems to be an indisputable result. This development trend is causing profound changes in the entire FMCG industry. The rise of the platform economy will redefine the relationships between manufacturers, distributors, and retailers, shaping a new market landscape. Choices for Distributors In the current context, distributors have two major directions to choose from: First, keep up with trends, enhance capabilities, do high-end, do private labels, and become platform merchants.

  1. Do high-end. Premiumization is definitely a trend, but it is also slow and cannot bring short-term significant sales growth; its contribution to profits is higher than to sales growth.
  2. Do private labels. The premise for doing private labels is scale. Without scale, there is no cost advantage. Currently, most distributors under the small-area agency system do not have scale. Some platform-type distributors may be able to do private labels or establish private label alliances.
  3. Transform into platform distributors. For example, distributor + B2b platform is a more difficult choice but also a choice with a future position. Second, "orderly retreat." "Orderly retreat" does not mean abandoning everything, but rather preserving the "fruits of victory." If you cannot adapt to the new environment of the internet and supply chain revolution, the conservative strategy is to slowly exit the market, preserving your years of achievements, rather than suddenly collapsing after a wrong decision like some distributors in the past. Behind the growth of individual platform distributors, there must be many tragic stories of small distributors. Final Thoughts In the current business environment, we can observe that distributors of different age groups have different coping strategies when facing market changes. The older generation of distributors, facing their own transformation difficulties, often choose conservative business strategies. The new generation of distributors, with a stronger ability to accept new things, respond more quickly to market changes. If distributors cannot adapt to the new competitive environment, the best way is to learn from excellent peers, through on-site learning, feeling more deeply through the site, reality, and actual objects. Regarding the future development of distributors, there is more pessimism, but there is also hope. Many distributors may eventually fail to adapt to the new distribution system and exit, but this is also a natural elimination in industrial development, prompting the remaining distributors to make necessary adjustments and upgrades.