---
title: "Some Distributors Exit, Others Transform"
description: "The FMCG industry's channel transformation is an indisputable fact, with distributors facing a future of consolidation and quality improvement. Surviving distributors will evolve into brand operators, category operators, or supply chain enterprises, requiring them to enhance their distribution and sales capabilities."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-06-28"
language: "en"
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---

# Some Distributors Exit, Others Transform

> The FMCG industry's channel transformation is an indisputable fact, with distributors facing a future of consolidation and quality improvement. Surviving distributors will evolve into brand operators, category operators, or supply chain enterprises, requiring them to enhance their distribution and sales capabilities.

Click to read the original article for details.
Recently, I met with some brand executives and regional distributors. During our communication, **we all agreed that the channel transformation in the FMCG industry is an indisputable fact.** **The biggest takeaway is that offline channels are no longer the single distribution channel they used to be.**
Wang Ling (pseudonym), a distributor in East China with annual sales of 400 million yuan, lamented, "The market changes too fast now. A bottle of water, a barrel of oil, a carton of milk—you might be the exclusive agent in the region, but more and more often, consumers don't necessarily buy from you. B2C e-commerce, community group buying, content e-commerce, O2O new retail... all kinds of retail scenarios have emerged in the past two years!"
Feeling increasingly unable to keep up with the industry's pace, and with a blurry vision of the future, many distributors share this anxiety. As intermediaries, rather than pondering the future direction, it's better to focus on surviving in the regional market. Wang Ling told New Distribution that although the overall development trends and landscape evolution of the FMCG industry are uncertain, one thing is clear: the number of distributors in a region will definitely decrease. Those who are poorly managed, average, or lack core competitiveness will disappear.
This makes me wonder: if the number of distributors is bound to shrink, what kind of distributors will survive and thrive in a regional market?
Based on New Distribution's observations and insights, **in a regional market, due to upstream brand owners' proactive or reactive channel restructuring, the diversification of downstream retail scenarios, the niche evolution of consumer demand, and mobile internet technology becoming a basic marketing tool, future distributors will be continuously integrated and optimized, with fewer in number but higher in quality.**
Overall, the evolution of distributors will focus on quality improvement in three directions:
**1. Brand Operators.** These are not OEM distributors but those deeply tied to upstream brand owners, often forming strategic partnerships in a region to become the designated and exclusive local operator or service provider.
**2. Category Operators.** These operators focus on deep operations within a specific category, aiming to maximize shelf space at various terminal levels or connect the category with diverse retail scenarios.
**3. Supply Chain Enterprises.** These are not urban distribution companies but large supply chain enterprises with the power to allocate channel profits and even set channel prices. Current regional B2B platforms can be seen as prototypes.
We will elaborate on these three transformation paths to help distributors clearly see the development trajectory of FMCG intermediaries and how to leverage their own advantages for early planning.
**Brand Operators: Deep Ties with Upstream Manufacturers**
The digital transformation of FMCG channels is irreversible. Since the emergence of FMCG B2B in 2015, although it's been a tough nut to crack, the habit of ordering via mobile apps has been cultivated, especially among small shops.
In the past two years, leading brand owners have gradually awakened to the trend of channel transformation. They are actively exploring cooperation models with B2B platforms while piloting internal reforms, such as building their own "B2B" systems.
New Distribution believes that **no matter how smoothly first-tier brand owners cooperate with B2B platforms, they will never completely hand over offline channels to one or a few platforms, losing control of the market. Upstream manufacturers will definitely find ways to unite local distributors to achieve overall digital distribution transformation.**
The failure of deep distribution in the past was essentially due to inefficiency and rising labor costs. Brand owners used to rely on a human-wave tactic to reach small shops and continuously control and manage distributors.
During the rise of deep distribution, most distributors were "non-professional" players; brand owners valued their capital and warehousing resources. Now, as distributors have matured and learned from brand-led markets, they have basic market operation capabilities.
Meanwhile, facing rapid external changes, brand owners can no longer do everything themselves. Returning the market to distributors and improving operational efficiency is the most appropriate choice.
A regional manager for a first-tier brand in South China told New Distribution, "**With the standardization of commercial contracts and the efficiency gains from mobile internet, brand owners will definitely return power to local distributors, letting manufacturers serve distributors in the market. Through deep joint operations, manufacturers will act as platforms, developing good products, building strong brands, and exporting marketing concepts, while distributors serve as frontline troops to expand territory.**"
We used to say distributors are "disloyal," but behind that disloyalty lies the manufacturers' inconsistent policies and the inaction of middle-level channel managers. In the future, to penetrate a local market, manufacturers must use digital tools to collaborate with distributors, reducing communication costs and improving feedback efficiency. Products are just the carrier; the core is the output of business philosophy and methods.
For distributors, the key to becoming "operators" lies with upstream manufacturers. Brands like Nongfu Spring and Yihai Kerry are experimenting with different channel reforms. We believe more brand owners will re-evaluate and redefine the value of distributors.
**As distributors' warehousing and capital functions become commoditized with third-party urban distribution and data-driven financing, they will no longer be the criteria for manufacturers to choose partners. Instead, business philosophy and operational capability will take precedence.**
**Category Operators: Deeply Connecting Diverse Retail Scenarios**
If brand operators are oriented toward upstream manufacturers, category operators are oriented toward integration and competition. **Through category integration, they maximize shelf space in the channel, squeeze out competitors, gain bargaining power, and gradually introduce new products and adjust the product mix to achieve profitability.** Category operators don't just pursue sales growth for a single brand; they strive to increase their market share in the category.
Looking at current prototypes of category operators, suitable categories are those with low industry concentration and high product substitutability, such as condiments, snacks, general merchandise, and daily chemicals. These can be further segmented, like daily chemicals into paper products, oral care, and personal care.
Becoming a professional category operator tests two capabilities: **first, the ability to select products from upstream; second, the ability to promote across diverse downstream retail scenarios.**
In the past, distributors relied on upstream manufacturers for product selection and simple product combinations. Now, it's about finding differentiated, niche products based on category trends. **At this point, distributors should consider setting up a "product manager" role, integrating procurement and sales. The front end configures different brands and products based on business and retail scenario needs, while the back end tracks category trends and finds suitable brand partners.**
Consumer demand is diversifying, with niche needs leading to product segmentation. As Liu Chunxiong once said, "Giants are hot, long tails are powerful." Consumers are increasingly accepting non-famous brands, and sales are no longer concentrated on well-known brands. As long as the product is good, even unknown brands can sell well.
For example, in recent years, innovative consumer products and viral hits frequently appear on platforms like Xiaohongshu, Douyin, and Taobao. These e-commerce platforms host many quality "small and beautiful" products. The "product manager" role is to proactively connect and evaluate these opportunities.
**Brand operators rely more on upstream manufacturers' business philosophy, executing well and identifying local sales opportunities with greater precision and verticality. Category operators face more challenges, as downstream fine operations depend entirely on themselves; they must have comprehensive marketing and promotion capabilities.**
What are these capabilities? Distribution and sell-through. Distribution means reaching diverse retail scenarios, including emerging ones like community group buying, O2O new retail, and local social platforms, to verify cooperation potential. Sell-through, especially for non-famous products, requires conveying product value to consumers, posing challenges for category operators.
**Supply Chain Enterprises: Deeply Linking Small Shops**
**Traditional distributors sell top-down, while becoming a local supply chain enterprise means procuring bottom-up. The emphasis is on "procurement" rather than agency, because procurement is centered on small shop needs, not on meeting upstream manufacturers' market share goals.**
New Distribution has previously reported cases of distributors transforming into regional supply chain platforms, and some have encountered problems and difficulties. In fact, not all distributors are suitable for this transformation. Suitable groups generally fall into three categories:
> 1. Regional "head" distributors with multiple brands and SKUs, comprehensive trading companies;
> 2. Distributors of snacks, condiments, daily chemicals, home care, personal care, frozen foods, etc., with many SKUs and weaker upstream control compared to beverages and alcohol. Most have independent distribution capabilities and strong links with small shops;
> 3. Comprehensive large-scale wholesalers.
Frankly, supply chain enterprises achieve profitability through scale effects, requiring strategic investments and even losses initially. But companies must consider the source of profits in the mid-to-late stages. While scale can bring profits, relying solely on distributing first-tier brands is difficult.
Therefore, **supply chain enterprises must have the ability to distribute non-first-tier products. The key indicator is a comprehensive gross margin of at least 15%.** Some distributors might think, "In the big data era, I can use data labels to identify small shop attributes and distribute suitable products to the right outlets. I'll drive operations with data."
Theoretically feasible, but reality is harsh! I suggest that **local distributors transforming into supply chain enterprises should first abandon the concept of "data-driven operations." Data can only guide or help identify problems and improve efficiency; it cannot drive transactions or conversions.**
To facilitate transactions, the key is still the effort of frontline ground staff, empowered by data tools to enhance sales capabilities. **Ground-level customer relations + sales skills + tool empowerment drive the sales of non-fast-moving items, thereby improving overall profitability.**
**Conclusion**
As some distributors exit, the remaining ones transform in three main directions: first, becoming brand operators centered on upstream manufacturers; second, becoming category operators centered on category promotion; third, becoming supply chain enterprises centered on small shop needs. In a regional market, these three forms will dominate.
**Although distributors can choose paths based on their resources, the essence of transformation is to enhance their independent distribution and sell-through capabilities.**
The day before yesterday, I chatted with Li Hua (pseudonym), a condiment distributor in East China. She told me that due to the manufacturer's strategic adjustment, all international and domestic mainstream stores were taken back for unified cooperation. At that time, KA stores accounted for 40% of her sales. Li Hua lamented, "Sales are gone, but people and vehicles remain. What to do? Either cut staff and vehicles, or force ourselves to find new sales."
After half a year of effort, Li Hua said, "We dug deeper into traditional channels, made terminal operations finer; vigorously developed C-end large clients like state-owned enterprise benefits and canteen supplies, and actively cooperated with community group buying companies and local Vanke community apps. Eventually, we made up the 40% sales loss. Although the KA stores were taken away, it proved that if you don't push yourself, you don't know you can do better..."
We've long talked about distributor transformation, **but the root of transformation is that distributors must "revolutionize themselves." If you don't push yourself and step out of your comfort zone, you won't survive in the future!**


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