Amid China's economic slowdown, fragmented consumer demand, the impact of online e-commerce, and intense market competition, the traditional channel model in the FMCG industry is under pressure, with sales generally hitting bottlenecks.

Against this backdrop, New Distribution, in collaboration with Professor Gao Song from the Business School of East China University of Science and Technology, launches the "Gao Song: Channel Empowerment" column to explore new channel models, strategies, and methods for FMCG manufacturers and distributors in the new era.

Facing the drastic impacts of online sales, channel digitalization, and socialized warehousing and distribution, the traditional business model of distributors is unsustainable. What is the future direction of transformation? What role should distributors play in the future channel ecosystem, and what functions should they perform? What is the key to transformation?

Old Zhang is naturally stubborn; the more difficult the situation, the more it ignites his fighting spirit. He knows he needs to transform, but he can't do it alone. So, his first step is to persuade his son to take over the business. His son, who has been diligent since childhood and just graduated with a master's degree in management from City University of Hong Kong, initially didn't want to take over, but seeing his father's persistence and hardship, he agreed to help him through the crisis first.

-01- The Four Traditional Functions of Distributors Will All Be Replaced

Little Zhang, with a background in management and strong research skills, quickly read through recent materials on distribution channel transformation and was taken aback.

Distributors exist because they play the roles of order-taking, warehousing and distribution, financing, and promotion in the channel chain, serving as a crucial link between brand owners and downstream terminals. However, in recent years, these four functions have been gradually replaced.

B2B platforms (third-party or brand-owned) will gradually replace the order function; socialized unified warehousing and distribution will replace the warehousing and distribution function; supply chain finance will replace the financing function; and brand owners' channel sinking and intensive cultivation have already replaced the promotion function of distributors.

-02- Three New Roles for Distributor Transformation

Little Zhang is a calm, independent-thinking young man. Regarding distributor transformation, online articles are diverse. He wasn't distracted but started with an in-depth study of his own business. He accompanied his salespeople on vehicle sales, visited small shop owners, communicated with consumers, and discussed business with the X brand city manager. After three months of in-depth frontline research and observation, he gradually identified key issues and sorted things out.

Little Zhang believes that distributors must find a new ecological niche in the future channel ecosystem, play a new role, and perform specific functions to succeed in transformation.

The essence of business is to benefit oneself and others, achieving profitability and development by creating value for others.

Whether an ecological niche is valid depends on the value creation for the other three important roles in the channel ecosystem: brand owners, terminal shops, and consumers.

The Brand's Marketing Frontline

Little Zhang's research found that X brand has been sinking channels and intensively cultivating the market in recent years. To this end, they recruited a business team locally in Jingzhou to do terminal displays, promotional publicity, and other work. This actually replaced the distributor's promotion function. However, due to increased personnel and management difficulties, personnel efficiency has declined significantly.

Another issue is that X brand's business team is just executors; decisions from headquarters' marketing and project departments often deviate from reality, and product and marketing promotion plans are far from the actual situation in Jingzhou. As a result, they reacted slowly to the rise of competitor brand Y.

Little Zhang majored in marketing at City University of Hong Kong and keenly realized that if brand owners could delegate marketing decision-making to the frontline, allowing those who hear the gunfire to make marketing decisions and execute flexibly, marketing efficiency would greatly improve.

Distributors are local powerhouses who know local consumer needs, terminal situations, and competitive conditions best. If they can help brand owners with local market planning and execution, becoming the brand's marketing frontline, they will create tremendous value for brand owners.

The Terminal's Business Advisor

In the Jingzhou market, terminals are divided into AB-class supermarket terminals and CL-class township small shops. AB-class stores use order visit mode, while CL-class small shops use vehicle sales mode. Little Zhang observed that the fundamental nature of these two modes is still sales and delivery, lacking empowerment and service for terminals.

For example, some of X brand's old products are unsold but still occupy shelf space, affecting terminal sales. The gross margin of terminal product portfolios is also not ideal. Terminals are B-end, profit-centered. Therefore, the core of empowerment and service is to help terminals make money. Old Zhang is a distributor of leading brand X in the industry and has full authority to speak on this category. He can completely play the role of a terminal business advisor, helping terminals improve the quality of shelf management for this category. This is undoubtedly valuable to terminals.

The Consumer's Category Expert

Little Zhang was born in 1993 and is 26 years old. The post-90s generation are natural digital natives. He understands these people well: they are well-informed, individualistic, shop online, and rely on word-of-mouth and communities. This is the profound background for the current trend of FMCG markets moving toward fragmentation and personalization. Knowing how to meet consumer needs is king; whoever is closest to the customer has the most say!

If distributors, starting from the categories they operate, play the role of local category experts, recommend the latest and best products in that category to consumers, create the best experience for them, and lead the consumption trends in that category, they can create value.

Through interactive forms such as brand communities and community e-commerce, giving consumers a sense of participation and experience, on the one hand, can provide guidance for brand owners' product development; on the other hand, it can also find unmet niche market demands and business opportunities.

Little Zhang discussed his ideas with Old Zhang, who thought they made sense but was unsure about X brand's thoughts. So he suggested Little Zhang talk to X brand's marketing director, Old Cao.

Old Cao has recently been busy with a marketing channel empowerment transformation project. To this end, he specially hired Professor Li, a well-known marketing channel expert from a prestigious university. In the front, middle, and back office transformation co-planned with Professor Li, distributors need to become the marketing frontline and be given local marketing planning authority. This coincides with Little Zhang's ideas!

After reporting to Old Cao, Little Zhang received enthusiastic encouragement. This made Little Zhang more confident in his judgment of the transformation direction: distributors are naturally a link in the channel ecosystem, and the transformation direction is to collaborate more closely with brand owners and contribute to the overall progress and upgrade of the channel ecosystem.

-03- The Distributor's New Ecological Niche—The Marketer

The common needs of brand owners and distributors for transformation have led to the creation of a new ecological niche for distributor transformation—the Marketer!

The Marketer has three key roles and corresponding functions:

Role 1: The Brand's Marketing Frontline Function 1: Market planning (local): market insight, market planning, information feedback, promotion plans, competitive benchmarking, product upgrades

Role 2: The Terminal's Business Advisor Function 2: Empowering terminals: category planning, sales promotion, promotion, traffic generation, visualization, service

Role 3: The Consumer's Category Expert Function 3: C-end operations: building local KOLs, brand communities, community e-commerce

-04- Two Pillars of Distributor Transformation

Back in Jingzhou, Little Zhang calmed down and found that to achieve the transformation to a marketer, two aspects of transformation are needed as support: activating the organization and lean operations.

Activating the Organization

In Little Zhang's view, the biggest difficulty in transforming distributors into marketers is building organizational capabilities. Traditionally, distributors only played the role of promotion executors.

If they are to grow into marketing frontlines, shop advisors, and category experts, they need to have marketing planning capabilities, conduct localized market planning, strategy, and execution. Marketers must not only be able to collect information, deeply study consumers, be proficient in category development, and be familiar with new retail, but also master self-media communication methods. These are undoubtedly huge challenges for traditional distributors!

In addition, due to declining performance, Old Zhang's team morale is low, and everyone is slacking off. How to rebuild organizational mechanisms, stimulate team vitality, achieve unity of purpose, proactive initiative, and joint effort is a necessary condition for transformation.

Lean Operations

Little Zhang also specifically checked Old Zhang's accounts and found that Old Zhang's finance only played the role of a bookkeeping accountant, without any management function. There was no statistical accounting for indicators such as inventory turnover rate, loss rate, accounts receivable turnover rate, and high-margin product ratio; no data-driven management; and no regular business diagnosis or targeted improvement measures.

This directly led to management "leaks and drips," such as high loss rates, theft issues, accounts receivable defaults, low warehouse efficiency, low vehicle efficiency, and low personnel efficiency.

Jingzhou is a third- and fourth-tier market, and socialized warehousing and distribution still have a long way to go. Therefore, how to improve warehousing and distribution efficiency, reduce inventory while ensuring service response time, control accounts receivable aging, and increase asset turnover are practical issues that need to be addressed.

Old Zhang's business scale has exceeded 50 million yuan, and such rough management is an important reason why Old Zhang isn't making money.

Distributors cannot wait until after transformation to make money; they must first make money, accumulate strength, and then gradually explore transformation, taking small steps without stopping. This is the issue of pacing control in transformation.

Through nearly half a year of research and thinking, Old Zhang and Little Zhang, father and son, finally clarified their thoughts and reached a consensus. But transformation needs a breakthrough point. How to choose this breakthrough point and start the business transformation journey?

Extended Reading:

Once the tip is adopted, a payment of 400-2000 yuan will be made.