Click to read the original article for details Recently, I visited several distributor friends and discovered many "bloated" distributors during our exchanges: their annual sales are not low—two to three million in county towns, five to six million in prefecture-level markets, and some even exceed one hundred million annually. These large-scale distributors are considered "prominent" trading companies locally, but when asked about profits, compared to their multi-million or billion sales, profits are often pitifully low. After a year of hard work, net profits of one to two million are not uncommon.
01 Dialogue with a Bloated Distributor This is a conversation I had with a county-level distributor.
Q: What is your annual sales and gross margin? A: Annual sales are 35 million, but I haven't calculated gross margin.
Q: Then what about your profit? A: Profit isn't high; I don't see money each year—it's all tied up in inventory.
Q: If you haven't calculated, how do you know if you made money this year? A: I basically calculate it this way: the profit from product price differences roughly offsets warehouse rent, staff wages, and vehicle wear. In the end, whether I make money depends on whether I can get manufacturer rebates. If I don't get rebates, I basically work for nothing all year.
Q: How do you plan for the future? A: Either tough it out or find ways to sell high-margin products.
Q: What do you mean by tough it out? A: See who falls first. The secondary wholesalers below are also struggling, with severe price cutting and rising warehouse costs. As wholesalers decrease, they'll have to order from me, so things should get better.
Q: But you don't have salespeople; how will you get orders? A: The manufacturer will definitely add staff. If we deliver directly to wholesalers, the margin is only 1 yuan per case, but if we deliver to retail stores, it's definitely more than that.
Q: I see. So how do you plan to handle high-margin products? Will you hire salespeople? A: A salesperson costs over 6,000 yuan a month; I can't afford it.
Q: Then how will you do it? A: Uh... The manufacturer's salespeople will do it, and I'll ask the manufacturer for some policy support then.
This is a real conversation with a distributor for a well-known beverage brand. In fact, this isn't distribution or agency business; it's logistics and delivery. Orders come from the manufacturer, stores are controlled by the manufacturer, and the market is developed by the manufacturer. Even if the distributor earns a meager profit, it's just the "manager's salary" paid by the brand owner. After a year of coordinating loading and unloading, renting warehouses, hiring employees, and advancing funds, the brand owner says, "You've worked hard all year; here's a bonus."
This is one type of bloated distributor: completely dependent on the manufacturer, actually doing logistics and delivery.
Another type of bloated distributor, while not dependent on the manufacturer, still operates with brand thinking and manufacturer thinking. A distributor represents a well-known beverage brand and a well-known snack brand. To deeply penetrate the local market, they run two separate business teams, one for each brand.
With nearly 50 people across two teams, the labor costs are enormous. Although annual sales exceed one hundred million, traditional distribution channels barely make a profit, relying on local new retail O2O and other special channels to supplement profits.
The business teams are independent, serving only one brand. While it seems efficient for a single brand, in reality, increased labor costs, repeated store visits, and a focus on order-taking as the core work inevitably lead to less detailed market coverage and shallower store service.
Of course, it's understandable: upstream manufacturers demand "refined" strategies, and distributors dare not disobey, so business teams can only "exclusively sell and operate" for one brand.
Facing such requirements, distributors focus more on new retail and special channels. Although traditional distribution is the market focus and sales focus, it lacks profit, so they don't invest effort there. Salespeople get tired and, to meet sales targets, they sell to wholesalers for quick turnover.
02 Based on Market Thinking, Not Brand Thinking Frankly, both types of distributors are the same kind of "brand-thinking" distributors. All their actions revolve around upstream brands. Indeed, upstream brands give distributors agency opportunities and even their business source.
But just because the brand gives business doesn't mean we should forget what actions we need to take to generate more sell-through and sales.
Sales come from stores, and competition comes from stores. Although distributors represent a certain brand, they should focus their daily work on retail stores, on the last mile to consumers.
How to distribute into stores: get more SKUs and key items into stores. More SKUs and new products in stores mean more high-margin products.
How to grab shelf space: after getting more products in, consider expanding display space and grabbing high-traffic positions. Use floor displays, cut-case displays, and hanging posters to increase purchase conversion.
How to promote new products: with good positions, during peak sales seasons and high-traffic hours, run promotions, tastings, and samples to further boost sell-through conversion.
Serving the brand is important, but a series of store-based sell-in and sell-through actions is more important. Brand sales growth and task completion are the effect; store visits, store grabbing, and store service are the cause.
A distributor with annual sales of 30-50 million might only have two or three first-tier brands and must follow their commands.
But once a distributor reaches 50-60 million in sales with more brands, to secure a place in the market and avoid being tied down by upstream brands, only by rooting deeply in store operations within a region can they achieve "iron-clad camp, flowing brands."
Many distributors started their businesses by representing one brand and later grew rapidly with two or three brands. Despite dissatisfaction with upstream brand pressures, they still believe that representing these brands brought them more business.
Many distributors think that store grabbing and shelf space work will be done by the brand owner, and they just need to assist and provide logistics support—no need to think too much, just follow the brand.
But have distributors considered: upstream connects to brands, downstream connects to stores—what is our core capability or core competitiveness?
Choosing a brand and following it is not core competitiveness. Visiting and taking orders, exclusive sales, is not core competitiveness. Completing tasks and stocking up for rebates is not core competitiveness.
For distributors, there is only one core competitiveness: the ability to distribute and sell through stores. Why do distributors exist? Because China's market is vast, and a single brand cannot achieve full market coverage. From provincial agents to city agents, and now county and district agents, the brand's core purpose is to deepen and expand market share.
Distributors' inherent advantages are local warehousing and logistics cost advantages, plus years of local store relationships, but neither is core competitiveness—other local distributors have these too. Transforming relationship advantages into in-store distribution and sell-through capability is the true core competitiveness.
03 Summary Serving the brand is indeed important, but it cannot build a distributor's core competitiveness. Obeying orders, paying on time, and completing stock pressure may satisfy the brand owner, but as a distributor, you must know what truly satisfies the brand owner.
It's the grabbing of stores, positions, and promotion slots. This is not only the brand owner's expectation but also what distributors should achieve.
Without these grabbing capabilities, there can be no true competitiveness for your trading company. Operating based on local stores, rather than based on a single brand, is, I think, extremely important for any distributor!
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