"Snack stores and discount stores are springing up everywhere, accelerating their impact on local markets. How should distributors view this business model? How should they respond? Can discount retail bring new business opportunities for distributors? What insights can it offer?"

Small Shop Business Down 20%-30% Discount 'Low Prices' Accelerate Impact on Local Markets

Recently, I visited a number of distributors in Shandong and Anhui to discuss the impact of snack stores and discount stores on their local areas. The general response was that the impact has been significant.

Snack stores and discount stores, while not directly affecting distributors' trading agency business, have a direct impact on downstream stores. Some distributors reported that local small shop business has declined by about 20-30%, while larger stores of 500-1000 square meters and bigger supermarket outlets have been affected even more in terms of foot traffic and sales.

The impact of hard discount stores on traditional retail is undeniable, most visibly through low prices that attract consumers. In fact, many discount stores now sell major brands at prices below the manufacturer's price. For example, Lay's and Mondelez products are priced 10-20 points lower than factory prices, and major water beverage brands are even cheaper.

This impact from low prices on big brands is undoubtedly fatal to traditional retail stores, and small shops with little risk resistance are the first to suffer.

A snack food distributor in Shandong shared a vivid case: on a commercial street where convenience stores and small shops were doing well, a snack store opened in the first half of last year. At its opening, it achieved daily sales of nearly 40,000 yuan, taking away a large portion of business. In the second half of the year, it got worse—four snack stores opened on the same street, and the surrounding small shops were nearly bankrupt, barely retaining some customers thanks to their tobacco licenses.

Mr. Jia from Xuzhou Jintong Food also shared a case at the previous Hard Discount Conference: for Feng County in Xuzhou, hard discount has not yet had a major impact on local trading business, but the impact on retail business has been severe. Although there are currently only five Haoxianglai snack stores of over 100 square meters locally, after the Mid-Autumn Festival in 2023, business at surrounding traditional retail stores generally declined by more than 20%.

Of course, the entire market feels the impact most in hypermarkets. In 2023, supermarkets were generally sluggish, with many chains like Hema and Yonghui starting discount-oriented reforms. Some regional supermarket chains took a simpler approach, directly benchmarking their mainstream product prices against snack stores. For example, Nongfu Spring water is sold at 13.8 yuan for 12 bottles, less than 1.2 yuan per bottle, and 70g bags of Lay's are 4.9 yuan each.

Some regional supermarkets have even begun to compromise with the market, voluntarily giving up part of their front-end gross margin, or even changing settlement methods, to cope with the impact.

Undoubtedly, if this business model continues to develop long-term, the continued decline in downstream retail store business will inevitably affect trading business.

Distributors do business with offline retail stores. In many places, the impact is already evident even before snack stores have reached a state of full bloom. Once more discount chain systems enter the local market, business will only get worse, and the impact on distributors will become more pronounced.

Although there are many analyses in the industry saying that the discount format is not currently operating healthily and will gradually return to normal, with prices not staying low forever, distributors also need to consider: how many stores can survive a year of impact from these snack and discount stores? By the time it returns to normal, some surrounding stores may have already closed.

Channels are changing, and distributors have reached a point where they must change too. Survival of the fittest has always been the rule in this industry. In the face of hard discount impact, resistance is useless because the trend is irreversible. Only by hedging and adapting to the market can you survive.

The Harder the Times The More You Must Focus on Your Own Business

Today is hard, tomorrow will be harder.

Distributors' business has experienced an era of huge profits, when anyone with people, vehicles, and products could make money. At that time, channels were relatively simple, and product circulation mainly relied on distributors. But with channel differentiation, this business has gradually entered an era of thin profits.

There are more and more ways for products to move from upstream to downstream, and channel involution is diluting the value of distributors, leading to more impacts.

Similar to this hard discount low-price impact, distributors have actually experienced many such challenges before. In earlier years, the rise of traditional e-commerce, internet platform B2B, community group buying chaos, etc., all initially expanded aggressively with low prices to quickly impact the market.

Almost every new model's rise has had a significant impact on distributors. But it is precisely these new models that have forced the evolution of the distributor community, from 'moving goods' to 'operations' to 'refined operations.'

So the harder the times, the more you must focus on your own business, dig deep into your core competitiveness, and seize opportunities.

For distributors, the essence is selling goods: sell what sells well, sell what makes money. Therefore, the true core competitiveness is the channel.

Mr. Guo from Chongqing Wanhe Food shared an insight at the China FMCG Hard Discount Conference: In the past, distributors needed to actively embrace brands, but now, as long as you have strong channel capabilities locally, brands will come to you to discuss cooperation. In other words, only by mastering channel discourse power can distributors have higher discourse power in the entire trading business.

Under this discount low-price impact, how to make the channel stable, deep, and thorough is the key for distributors to hedge against the discount format.

Over the past six months, New Distribution has exchanged views with many outstanding regional distributors and summarized some of their experiences and thoughts for everyone.

First, expand categories, grab competitors' sales, improve terminal coverage and sales, thereby achieving higher risk resistance.

Traditional retail small shops have only a few shelves, typically accommodating around 1,000 SKUs. The more good products you can provide to stores, the more shelf space you can occupy. New Distribution has always advocated that distributors do B2b and platformize their business. The reason is that multi-category sales are more resistant to risk than pure agency business.

In the past, many distributors represented major brands and felt they were the 'regular army,' considering parallel importing as shameful. But now this mindset is gradually changing. The brands you represent are not your own brands; no matter how valuable they are, they are not the distributor's core competitiveness.

New Distribution has previously mentioned a viewpoint: don't take brands too seriously. To achieve breakthroughs in supply chain efficiency, you must first build advantages in products—can you supply stores, and can you supply more products to stores?

Second, sort out existing stores: make good stores better, and cut off bad stores.

Luoyang Hecai shared insights on store classification management at last year's China FMCG Hard Discount Conference. You can learn from this:

The first type of customer saw a significant decline in business, affecting payment terms. Store payment terms are usually around 60 days, but some customers have overdue payments. Since August last year, cooperation with such customers has been gradually terminated.

The second type of customer was impacted to some extent but chose to change transaction terms and cooperate deeply with the platform. These customers, who previously only purchased snack foods, now purchase multiple categories, bringing us growth.

The third type of customer is profitable, but most of their stores are in suburbs, away from traffic. For these customers, we continue to strengthen service and consolidate relationships.

Third, expand channels: cover stores not previously covered, and pick up channels previously overlooked as long as they don't lose money.

Although channels are differentiating, there is still a lot of business in offline channels, such as township stores, enterprise and institutional canteens, campuses, fresh food stores, and other special channels, as well as emerging formats like flash warehouses. As long as they don't lose money, pick them up. First, expand scale and sales; profits can come from manufacturer fees.

Regional 'small but beautiful' distributors will become fewer in the future. Competition in the stock market will be brutal. When industry trends are irreversible, competition in regional markets will inevitably involve grabbing sales from competitors, squeezing out peers to grow yourself.

Final Thoughts

During our market visits, we also saw some distributors feeling confused.

Some distributors pin their hopes on manufacturers, hoping they will control the market and prices.

This idea is only idealistic. China's wholesale market and logistics are too developed; the difficulty and complexity of control are far beyond a few words. Moreover, manufacturers need growth, regions need growth, and areas need growth. In a stock market, this heavy pressure will inevitably lead to disorderly product flow.

Some distributors are also considering entering the discount store business, thinking if you can't beat them, join them.

Some distributors who have already opened stores report that retail is even more involuted. You might make money on your first store, but then major snack chain systems enter, opening stores within 50 meters of each other, and soon everyone stops making money.

Distributors should be cautious about entering this track. If you decide to enter, professional matters should be left to professionals. Distributors' expertise is in channels; do the channel business well, and leave store opening to professional partners.

Due to space limitations, we cannot answer every distributor's questions. If you are still hesitating and confused; if you are still trapped in involution and cannot extricate yourself; if you are still stuck in your current business model and cannot see direction or future, then from March 14-16, come to the 9th China FMCG Innovation Conference, where you can meet with thousands of FMCG brand owners, distributors, retail innovators, and industry service providers in Chengdu. Engage in continuous brainstorming to explore the challenges and opportunities, changes and solutions in the supply chain revolution era.

On March 16, we will hold the 2nd China FMCG Distributor Conference, where outstanding distributors from across the country will gather to comprehensively interpret distributor business from enterprise growth paths, challenges and opportunities, and operational practices, helping distributors move into the next decade in the direction of supply chain revolution!

In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave. We believe this will be a conference worth attending!

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