---
title: "Practical Tips | 11 Pitfalls for Food Distributors When Choosing Small Brands!"
description: "Many company executives understand that in today's market, where products are largely oversupplied and competition is fierce, those who control distribution channels may win the market. In China, the role of distribution channels has never been more emphasized. Distributors are a crucial part of the channel. Opening a well-known financial newspaper or magazine, one sees various sizes of recruitment advertisements. Companies use every means to attract distributors, from strong corporate strength and R&D capabilities to comprehensive marketing support from marketing experts, to promises of strict market protection mechanisms, prevention of channel stuffing, generous year-end rebates, and完善的 return and exchange policies, among others."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-03-03"
language: "en"
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# Practical Tips | 11 Pitfalls for Food Distributors When Choosing Small Brands!

> Many company executives understand that in today's market, where products are largely oversupplied and competition is fierce, those who control distribution channels may win the market. In China, the role of distribution channels has never been more emphasized. Distributors are a crucial part of the channel. Opening a well-known financial newspaper or magazine, one sees various sizes of recruitment advertisements. Companies use every means to attract distributors, from strong corporate strength and R&D capabilities to comprehensive marketing support from marketing experts, to promises of strict market protection mechanisms, prevention of channel stuffing, generous year-end rebates, and完善的 return and exchange policies, among others.

Many company executives understand that in today's market, where products are largely oversupplied and competition is fierce, those who control distribution channels may win the market. In China, the role of distribution channels has never been more emphasized. Distributors are a crucial part of the channel.

Opening a well-known financial newspaper or magazine, one sees various sizes of recruitment advertisements. Companies use every means to attract distributors, from strong corporate strength and R&D capabilities to comprehensive marketing support from marketing experts, to promises of strict market protection mechanisms, prevention of channel stuffing, generous year-end rebates, and完善的 return and exchange policies, among others.

In short, as long as distributors agree to distribute their products, they are guaranteed to make a profit and become millionaires without worry. These manufacturers offer such favorable conditions that many distributors are tempted. But before acting on that impulse, remember: there is no free lunch in the world. Doing business is not just collecting money while sitting down. Think twice before choosing a partner. Distributors should pay attention to the following points when selecting a company.

1
**Thoroughly Investigate the Company's True Financial Strength**

Often, companies in their recruitment ads and materials claim: "XX Company is a high-tech subsidiary of XX Group, which has assets of tens of billions and many nationally famous companies as its subsidiaries." Such companies seem to have strong backing, and distributors might think that joining their system would be beneficial. However, distributors should not blindly trust these so-called wealthy and powerful large companies. The parent company may be rich, but it is a diversified conglomerate with large family and high expenses. How much money actually goes to the subsidiary that the distributor deals with directly?

What distributors truly seek is the "big money" that can be invested in the products they will distribute and related business. Of course, as an outsider, the distributor may not need to know the exact financial details initially, but by looking at the company's advertising expenditure, registered capital, and interactions with other distributors and customers, one can get a general idea.

2
**Whether the Product Truly Has a Market and Conflicts with Existing Products**

Although companies will praise their products to the skies, the market is quite ruthless. Even if a company believes its product has reached a high level and is indeed high-tech, its applicability, suitability, and ability to meet consumers' real potential and actual needs are crucial. The extent to which consumers accept the product's price-performance ratio indicates the potential market opportunity.

Of course, this is closely related to advertising, pricing, channel management, and other factors. However, product quality and positioning accuracy are the foundation for all other marketing efforts. This requires distributors to have rich knowledge about the products, which is also the so-called "don't do what you don't know."

Additionally, distributors should carefully weigh their existing product line against the company's product policies to see if there are conflicts. Some companies may want distributors to sell only their products and not competitive brands. However, many distributors act as "spokespersons" for consumers, distributing multiple similar best-selling products, which is not only a consumer purchasing need but also the foundation of distributor profitability.

When forced to choose between the two, distributors must weigh whether giving up the original product to introduce a new one is worth it. This involves assessing the product's market prospects, the company's advertising and financial capabilities, and if the new product complements the existing ones, it should be prioritized.

3
**Whether the Company's Advertising Is Effective**

Whether a company spends big money on advertising has become an important basis for distributors to choose a partner, but distributors must also seriously focus on advertising effectiveness, just like the company. Nowadays, product, corporate, and service advertisements are everywhere, filling CCTV, satellite TV, newspapers, magazines, etc. Advertising costs are astonishingly high. Given that audiences are resistant to ads and message reach is declining, the effect of a company spending tens of millions on national advertising versus hundreds of thousands on city advertising is completely different.

So distributors should not only look at how much money the company is willing to spend on advertising, but also how that money is used; more importantly, the quality of the ad creative, whether it attracts the audience; the media mix, whether it can create a dense bombardment effect and ultimately carve a clear path for the product in the sea of advertising.

4
**Detailed Examination of the Model Market**

To increase the chances of success, reduce risks, and make it easier to persuade distributors, companies often concentrate their marketing efforts in a specific region to create a successful model market. Distributors should not be impulsive just because they see the model market distributor's warehouse bustling with pickups. They should view the model market calmly.

First, the model market is the result of the company's meticulous cultivation. Will the company invest the same amount of energy, manpower, and money in other regions? Second, to what extent can the successful experience of the model market be replicated in other markets, given that regional environments differ (especially in a country like China)? Third, can the problems that arise in the model market be effectively overcome in the distributor's own territory? If, after considering these points, the distributor is confident they can perform as well as or better than the model market, then boldly take it on.

Additionally, distributors should be cautious of companies that previously had successful products and now launch new products, trying to ride on the coattails of the old product's success. The success of previous products proves they have some successful experience, but it often leads to the new product heavily copying the old methods. This is due to reduced marketing costs and habitual thinking, which is very harmful in a rapidly changing market. If distributors pay attention to the industry market, they should intuitively know whether the old ways will work and make their own choices.

5
**Consistency Between the Distributor's Market Coverage and the Company's Expected Sales Scope**

The market network that distributors possess is the foundation of their survival and the prerequisite for bargaining with companies. When selecting a company, distributors should have a clear understanding of their market coverage. This scope includes the geographical area covered by the network and the stable customer base the distributor has. If the company's expected sales scope in that area differs greatly from the distributor's market coverage, meaning the distributor cannot effectively cover the market the company hopes to cover, the company may consider adding more distributors in that area to better penetrate and refine the market and counter competitors.

Therefore, distributors should fully assess their market scope from the beginning, including future network growth, so as to negotiate regional distribution rights and protections upfront, avoiding unnecessary channel conflicts such as cross-region selling and transshipment.

6
**Whether There Is a Stable Price System**

Some companies, to attract new distributors, may promise: "We will offer you a lower supply price than other distributors." If you inadvertently receive such a promise, be wary. Because the lower purchase price you get will inevitably be reflected in lower wholesale prices downstream, and correspondingly, retail prices can be reduced. When small and medium retailers in neighboring areas are attracted by the lower prices and come to your region to purchase, you will unintentionally be accused of cross-region selling, leading to complaints, accusations, or even retaliation from distributors in neighboring regions.

Similarly, when other distributors obtain more favorable price conditions, it can also impact your distribution area. A stable price system is a guarantee of win-win for both the company and distributors. A stable price system includes reasonable profit margins between ex-factory price, wholesale price, and retail price, and ensures basic consistency in final retail prices. Special attention should be paid to whether the company's discounts to retail giants or large group consumers who deal directly with the manufacturer, and price differences between distribution regions, will impact the price system. How does the company balance these aspects? Do these measures effectively ensure the stability of the price system? A company with an unreasonable price system design and poor execution can cause great harm to its channel system.

7
**Whether the Company Has Effective Anti-Cross-Region Selling Measures**

Cross-region selling is the most common and troublesome issue for distributors, so they should pay close attention to the company's promises and measures to prevent it. First, check whether the distribution contract includes a "no cross-region sales" clause. Second, see if the manufacturer's total distribution price is a CIF price, with all transportation costs borne by the factory, to ensure all regional distributors have the same price benchmark. Third, see if there is a stable price system. Fourth, see if year-end rebates are linked to whether distributors engage in cross-region selling. Fifth, see if text or barcode identification is implemented, with different trademarks (at a subtle level) or different barcodes for different regions, providing evidence for monitoring cross-region selling. Sixth, see if strict freight monitoring is in place to ensure goods are basically shipped to designated areas, creating obstacles for cross-region selling. Seventh, see if the company has dedicated personnel to handle cross-region selling incidents and whether they handle them successfully.

8
**The Company's Financial Policies**

Companies naturally prefer distributors to pay in advance, even if it means giving more discounts, while distributors hope the company will allow them to sell on consignment. In this game of capital occupation, the stronger party has the say. Distributors should carefully understand the company's settlement methods, rebate levels, weigh their own financial situation, expected sales volume, and choose a reasonable settlement method. Additionally, pay attention to how the company allows distributors to use advertising and promotional funds, and how distributors can reasonably utilize the company's financial incentives to maximize profits.

9
**The Company's Market Service Status**

Being a distributor for well-known brands is often less troublesome than for unknown products from small and medium enterprises. Not only because well-known brands sell well, but also because they provide many market service supports to distributors, such as regularly sending personnel to work with distributors to collect and study market and consumer conditions, formulate new promotional plans to increase sales, promptly handle and coordinate conflicts among distributors, provide more consumer information, help distributors develop markets and establish new outlets, and assist in training distributor staff. The company's support for distributors to grow is an aspect that those distributors aspiring to grow should consider.

10
**The Company's Channel Structure**

Distinguish whether the company implements a deep (i.e., traditional) channel structure of manufacturer → distributor → retail → user, or manufacturer → distributor → retail → user, or even manufacturer → retail → user and direct sales forms. The company's different channel designs and combinations determine its price system and the degree of attention and support it gives to distributors. If the company focuses on developing the latter two sales channels, then distributors will only be transitional tools in the company's channel, indicating that the company wants to control the end market and strictly maintain the price system. Only by understanding this design can distributors position themselves correctly in the short and medium-to-long term and choose a good exit strategy.

11
**Identification with the Company's Corporate Culture and Management Style**

Although distributors are primarily profit-driven, before cooperating, they should try to deeply understand the company's business philosophy and management philosophy to see if they can accept it, or at least not dislike it. Otherwise, once the contract is signed, if the distributor disagrees with the company's measures, ignores them, or even pays lip service, and the distributor's suggestions are shelved, conflicts are inevitable, and the partnership will eventually break up. For future smooth cooperation, distributors should deeply "collide" with the corporate culture.

Source: FMCG News
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