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Since last year, distributors have been experiencing impacts from changes in upstream manufacturers and downstream consumers, making it necessary for them to clarify the transformations occurring at every link in the supply chain and re-examine their own environment.

Manufacturers Under Channel Transformation: Slowing Development

Most upstream manufacturers are undergoing channel transformation. During business negotiations and contacts with manufacturers, we found that since last year, many manufacturers have slowed their development pace and reduced expense investments, deeply impacting distributors.

Slower investment, more caution. Previously, manufacturers made substantial market investments upfront to embed their brands, gain market share, and build brand influence. Despite large retailers like Carrefour and Wumart not yielding significant short-term returns, manufacturers would still help distributors cover a large portion of entry fees, barcode fees, and supermarket contract deductions to help them enter these major channels. But last year, a clear shift occurred. Many costs that did not yield proportional returns were no longer readily paid by manufacturers.

All manufacturers are channeling down to lower-tier cities because entry costs are lower there. In first- and second-tier cities, hypermarkets and chain supermarkets, due to compressed operating costs, have increased pressure on distributors in those regions. When manufacturers no longer arrange promotional staff or provide material support, distributors still have to pay annual contract fees to hypermarkets. The slowdown and reduced upfront investment by manufacturers mean distributors have fewer resources, unable to buffer terminal store costs through manufacturer support.

Panic and blind follow-up. When manufacturers' input-output ratios are not proportional, they try various methods, such as producing many market-following products. Many companies, to release capacity or enhance brand appeal by entering hot categories, often require distributors to make initial payments of over a hundred thousand yuan. However, due to unguaranteed product quality, immature product decisions, or lack of innovation, poor sell-through is common, and market losses are borne by distributors, while manufacturers fail to provide effective solutions. This reminds distributors to reduce agency risks when selecting new products and not to bear market risks due to manufacturers' blind follow-up.

Diversified attempts and structural adjustments. When market problems arise, manufacturers change their thinking and adjust their business structures, such as developing online stores or replacing distributors. But sometimes adjustments are incorrect. For example, a marketing director of a beverage manufacturer in Henan, to meet sales targets, developed a new batch of distributors, while old distributors, facing approaching shelf-life and unsold inventory, slashed prices, causing problems for both old and new distributors, with no after-sales support from the company. In manufacturers' diversified attempts, changes in agency structures are the most impactful for distributors. Thus, the relationship and stickiness with manufacturers are crucial topics for distributors.

Retail Terminals Under Channel Transformation: Changing Landscape

In the 1990s, when Carrefour opened its first store in Beijing, people cried "the wolf is coming," believing foreign entry would cause unprecedented impact on Chinese retail. Now, Chinese retail faces a second impact: the influence of online channels on traditional retail formats.

The retail landscape is "changing." Especially in first- and second-tier cities, online shopping has carved out a large portion of offline sales. For example, Beijing Xingfu Zhiguang Trading Co., Ltd., which distributes Shanghai Maling products, saw its annual sales of 20 million yuan split with 12 million from e-commerce channels and only 8 million from traditional supermarkets like Carrefour, a shift that occurred within two years of developing e-commerce channels.

Many traditional retailers believe online stores steal their business. For instance, Suguo Supermarket, after declining performance in Nanjing, increased pressure on suppliers, and manufacturers passed that pressure onto distributors. This shows that only the channel has changed, not the consumers themselves. Therefore, traditional distributors have advantages in years of offline sales experience and experiential services. When negotiating with manufacturers, distributors should convey these industry trends to upstream companies to enhance their competitiveness and bargaining power.

Terminal strategy contraction. Last year, the closure wave of large supermarkets like Walmart continued, and some small chains also closed due to poor management, all impacting distributors. Sales disappeared, upfront investments were lost, and subsequent compensation was unrealized. For example, Beijing previously had hundreds of snack food distributors, but now only 40-50 remain, gradually exiting hypermarkets—this is the current objective supplier-retailer relationship.

Short-term management regression. When the retail industry was thriving, it was proactive, conducting procurement training and cultivating professional buyers. But since last year, some large supermarkets have been urgently solving survival issues, completely ignoring corporate spirit, employee training, and professionalism. Especially with the new generation of post-90s procurement staff, who no longer receive professional training, the industry's professionalism and vocational level have regressed compared to around 2000.

This means buyers dealing with distributors are increasingly unprofessional. Facing such buyers, distributors should recognize their own advantages, build confidence based on years of experience with professional buyers, and strive for more benefits.

Consumers Under Channel Transformation: Emphasis on Experience

Manufacturers assign sales tasks to distributors, distributors complete distribution, but whether products sell through depends on consumer acceptance. When distributors execute well according to manufacturer standards but products still don't move, they worry. So what changes have occurred in consumers?

Purchase rates decline rather than increase. In a weak overall consumption environment, consumer spending power hasn't improved much in recent years, and consumers have become more conservative, reducing purchase rates.

Brand consumption is more concentrated. Currently, brand concentration in each category is high. For example, there are over a dozen soy sauce brands, with common ones like Lee Kum Kee, Haitian, and Jiajia. As purchase rates decline, consumers pay more attention to brands when choosing products. Impulse buying decreases, and they are less willing to try new products. Each category has only a few best-selling brands, such as herbal tea and plant protein drinks.

Although competition is fierce in many categories, market rules will leave only a few survivors; competition is just a process. Therefore, distributors must seize branded products. Some products may be profitable short-term but lack long-term potential.

Here, the biggest taboo for distributors is treating branded products as short-term products and short-term products as branded ones. For short-term products, distributors only earn the middleman's margin, which is highly speculative. Investing extra funds and personnel, and when the product is phased out, causes significant losses. Because a company's brand cannot be changed by a regional distributor, distributors should look at the overall national situation to guide their product selection decisions.

Information from all directions. Consumers are increasingly exposed to online information. Previously, consumers received information through advertising and in-store promotions. Now, online reviews, corporate WeChat platforms, and online marketing all influence consumer purchasing behavior. Consumer brand preference comes from multiple factors. Therefore, distributors must understand companies and products comprehensively, evaluating product reputation, corporate online marketing capabilities, and participation in influential activities to judge brand development prospects—that is, examining products and brand promotion capabilities from a broader perspective.

Greater emphasis on nutrition, health, and attractive packaging. Previously, many distributors focused on the middleman's margin, but now they must consider product quality, which is the foundation of product vitality. Because even high profit margins are short-term. Consumers are no longer fully controlled by channel power but pay more attention to product reviews and actual experience. Therefore, when selecting products, distributors should focus more on taste, nutritional value, and health benefits.

Use a product selection mindset, abandoning the previous approach of selecting based on gut feeling, and introduce systematic, scientific concepts and methods to guide selection practice. So, what are the criteria for judging a product's quality? Simply put, four points: first, it aligns with category development trends and has good growth potential; second, it complements the company's existing resources, capabilities, and products; third, it has competitive companies, brands, products, and prices; fourth, the manufacturer has good marketing concepts, business models, market support, and team execution.

When facing changes from upstream manufacturers and terminal channels, distributors should adjust promptly, but they will still be significantly affected. Therefore, distributors should pursue diversified development. For example, when conditions are ripe, develop their own brands. Brands like Tianwo Tea House and Meihua MSG were initially established by distributors through diversified development. Industry development has its ups and downs, which is the principle of not putting all eggs in one basket.

This article is reprinted from: Sugar, Tobacco, Alcohol Weekly Food Edition

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