Recently, in conversations with some friends, I've learned that supermarkets in many places are gradually undergoing overhauls, with some directly cutting at least half of their distributors. Why? One issue is pricing. Supermarkets require bare-price supply, all-in-one pricing, and many distributors cannot meet this due to profit margins and local price considerations. Another issue is product assortment. Supermarkets are streamlining SKUs, favoring top-tier brands, internet-famous products, and imports. Poor sellers, especially second- and third-tier brands, are being delisted in large numbers. Some supermarkets have replaced 80% of their SKUs, and one supermarket that previously had about 25,000 SKUs now has only 9,000. Many people are pessimistic about these supermarket overhauls. Indeed, the market is complex—some supermarkets use overhauls as an excuse to pressure prices, while others genuinely seek change but lack the knowledge, resources, or capital, leading to distorted actions. However, the signals from this trend are important. What we really need to focus on is: What changes are happening in the industry? What do they mean for distributors and for brands? A daily chemical distributor from a prefecture-level city told me that in 2024, a local supermarket system overhaul directly replaced 80% of its SKUs. What was the result? Second- and third-tier brands virtually disappeared from shelves, leaving only top-tier brands, national trendy products, and imports. Correspondingly, at least half of the distributors were eliminated. Supermarkets eliminated fees and required cash transactions, pushing distributors to offer the lowest prices. Most distributors were unwilling to break prices or cooperate, and eventually, supermarkets stopped working with them. This distributor had been deeply cultivating his product portfolio capabilities over the years and striving to transform into a category operator. He knew this trend was unstoppable, and thanks to his advantages in product portfolio and costs, he not only survived but now holds over 50% of the daily chemical category share in that system. Many people think that supermarket overhauls simply cut out the middlemen, with retailers cooperating directly with manufacturers. That happens, but if you have a basic understanding of economic operations and market transactions, you know that middlemen are always indispensable; in many cases, they reduce transaction costs. So, the reality is that most distributors lose business, while a few with advantages in product portfolio organization and more competitive operating costs gain larger market share. Some distributors have even followed the supermarket supply chain to expand their supply scope from regional to national. A distributor from a first-tier city told me that a national chain supermarket there is also advancing overhauls, mainly the so-called de-KA (key account) process. This includes several aspects: streamlining SKUs, reducing the number of SKUs to just over one-third of the previous count; comparing prices with online channels, with some prices dropping to less than half of previous levels; reducing or eliminating backend fees for suppliers; removing third- and fourth-tier brands, retaining top brands, introducing internet-famous national trends and imports, and developing co-branded custom products or private labels. These actions have led to a large number of products being delisted, and some products are now directly contracted between supermarkets and manufacturers. As a result, many distributors have lost their business. But supermarkets cannot directly cooperate with manufacturers for all products. Manufacturers have their own distribution systems and limited energy. In this context, distributors with service capabilities act as a bridge. This distributor helped the supermarket introduce internet-famous products. For products with insufficient gross margins or directly contracted by manufacturers, they only provide services and earn service fees, and they also facilitate cooperation between manufacturers and retailers to develop co-created products. As supermarket supply chain resources are integrated, their services have expanded beyond regional boundaries to other parts of the country. Due to manufacturer rules, distributors typically operate regionally, but the expansion of supermarket overhauls is allowing more capable distributors to break these limits. The shift from "regional" to "cross-regional" and even "national" actually represents a transformation from regional "distributors" serving manufacturers to relatively independent "middlemen." In the current market environment, the survival conditions for "middlemen" are actually better than for "distributors," which is more evident at the Zhengzhou Bairong Market. In 2024, wholesalers at Zhengzhou Bairong saw very brisk business, especially since the Pangdonglai overhaul. In the past, regional supermarkets cooperated with local distributors, but as competitive pressure increased, supermarkets began self-procurement. Self-procurement means they source low-priced goods directly from wholesale markets. Many local supermarket owners or procurement managers, after visiting Pangdonglai, go to Bairong Market to purchase. At Bairong stalls, many products are labeled "Pangdonglai same style." "Why be a distributor when you can be a wholesaler? It's all cash on delivery," one owner told me. In 2024, they achieved double-digit growth, with business coming from all over the country, all cash purchases by supermarkets. Supermarket overhauls, on one hand, require adjusting product assortments, and on the other, lowering prices. Original regional distributors cannot meet these needs, so supermarkets seek supply chains with service capabilities. At Bairong, there are wholesalers who only supply goods, serving supermarkets that have product selection capabilities, know what they want, and pay cash. More supermarkets lack selection capabilities and don't know which products sell well, so they seek suppliers with product assembly capabilities. This has led to rapid growth for suppliers focused on category output and whole-store output. Traditional regional distributors are being bypassed! Of course, this is not just a distributor issue; it's also a problem brands must face. Retail transformation and supermarket overhauls present challenges for brands in both products and distributors. First, products. Why do supermarkets across the country look similar? Because their product portfolios are largely the same. Manufacturers pay fees, distributors distribute into stores, retailers collect channel fees—the three parties jointly maintain an offline product portfolio community through gaming. But now supermarkets must change; they need to adjust product assortments. This means a large number of products will lose shelf space, including second- and third-tier brand products, and poor-selling products from top brands. Brands must pay attention to this trend and prepare in advance. Second, distributors. Regional distributors are severely polarized; capable ones are evolving, while many will eventually be eliminated. A brand executive told me that some distributors have no future, but they still maintain cooperation, even if larger distributors come to cooperate. Supermarket overhauls accelerate distributor consolidation, and the trend toward larger distributors is accelerating. In 2025, manufacturers will face stronger urgency to make decisions; they must cooperate with distributors who can truly sustain development, as this concerns future regional market share. At the same time, the "remaining" distributors are also changing; they are transforming into true middlemen, serving as bridges between manufacturers and retailers, and they have more say in selecting brands. Facing this transformation, brands must position themselves correctly and build new manufacturer-distributor relationships. A batch of traditional distributors is transforming into category operators and supply chain service providers. In response to retail changes, they have also put forward their own ideas to upstream manufacturers. For example, manufacturers should be flexible in launching new products, not just launching without delisting, and they must act quickly. Also, in the past, new products relied on push, but in the future, they will rely more on consumer pull. The old push methods won't work; making good products and doing good publicity is the only way to have opportunities. Some distributors also said that advancing funds and taking orders definitely have no future. They need to transform their functions. For example, distributors are more sensitive to channel changes and can pass information to manufacturers to jointly develop products that meet consumer needs.
Final Thoughts
Overhauls are actions supermarkets must take to save themselves in the current market environment. From the perspective of upstream suppliers, what is the real impact? First, supermarket overhauls are accelerating distributor consolidation. Second, capable distributors are transforming into service-oriented suppliers. Third, the brand-led regional distribution network is being severely impacted. In 2025, retail transformation will accelerate, determining the landscape of China's retail market and commercial circulation for the next decade. At this point in time, how should we respond to current challenges and seize future opportunities? From March 17-19, 2025, in Chengdu, at the China FMCG Innovation Conference, we have specifically set up a forum/discussion on supermarket overhauls. If you are interested in this topic, don't miss it! 【New Order · Symbiosis】 ****The 10th China FMCG Innovation Conference Time: March 17-19, 2025 Location: Chengdu, China