Click to read the original article for details Forty years ago, when the curtain of reform and opening-up was lifted, distributors and wholesalers in the food industry began their journey of gold panning. In a blink, we have arrived at today. Once riding high and loaded with gold, they have been "tormented" in the past decade. Especially those small and medium distributors, facing manufacturers' disdain, channel changes, and shifts in consumption patterns... all make them feel business is hard. In the last five years, it has been even more "miserable."
Transforming into Service Providers, Changing Their Way of Life
Person: Ma Jianguo
Products represented: Want Want, Jiashili, Lay's
Years in the industry: 1998 to present "We peaked in 2014, and it's been getting worse every year since." Regarding the declining sales of food wholesale in recent years, Lan Xiaofang, a distributor for Lay's and Alpenliebe, said the company has not made adjustments and continues as before. Unlike Lan Xiaofang, Ma Jianguo, who started with candy wholesale, made changes a few years ago. "Sales dropped significantly in 2014, and although they didn't drop much in 2015, I was anxious and quickly looked for reasons." Ma Jianguo, who is thoughtful and quick to respond to market changes, realized that e-commerce had a huge impact on food distributors, and change was necessary. In March 2016, he launched the Yunmayi Mall, "mainly for services, using this platform to take our service to the extreme." He showed FBC reporters his distribution workshop—popular products neatly arranged on shelves, with salespeople busy picking three or five packs for ordering customers. "All products in the warehouse are now displayed online, with a menu column for 'New Product Releases.' When old customers order online, they can see new products and, if interested, order them together." He introduced. FBC reporters learned that deepening relationships with old customers is Ma Jianguo's current strategy. The new products he mentions are no longer limited to leisure and subsidiary foods; grains and oils, fresh produce, daily chemicals, and even vegetables and fruits are all part of his service scope. Later, he also showed FBC reporters a small restaurant he invested in, claiming he holds shares in two beauty hospitals and plans to participate in a welfare lottery store.
Intensive Channel Cultivation, Winning by Depth
Person: Wang San
Products represented: IPs like Peppa Pig and Super Wings
Years in the industry: 2003 to present "I got a children's biscuit and planned to make a big push, using the brand effect to open up the blocked channels. But then I realized that even the circulation channels are basically controlled by Wang San. The areas we can reach are very narrow, mostly places he doesn't cover or doesn't want to do, like Enshi with inconvenient transportation and Huangmei County near Hunan's Gaoqiao market." Tu, a boss at a Wuhan subsidiary food wholesale market, told FBC reporters. The children's biscuit mentioned is Peppa Pig, which has been selling hot in the past two years. During distribution in circulation channels, he discovered that many prefecture-level channels were firmly controlled by Wang San, who is the Hubei provincial general agent for this biscuit. Not only that, Tu also found that his second-tier customers were also selling Peppa Pig biscuits. "She is an old customer in Wuchang, ordering only a few pieces each time, with simple staffing and older age. The general agent, in order to continuously expand his channel customers, doesn't even let go of such small customers." In fact, large manufacturers have been intensively cultivating channels in the last 10 years, and such customers have been included in the visit lists of large distributors' salespeople. As the market economy matures, especially with the entry of internationally renowned companies, competition is fierce, and market competition methods have become diversified. In the eyes of manufacturers who believe in "channel is king, terminal wins," besides large distributors, all others are sub-distributors. The manufacturer's goal is to reduce intermediate layers, save marketing costs, build their own marketing channels, and implement intensive distribution. Therefore, manufacturers and provincial-level agents are reaching further, squeezing the resources of small distributors and wholesalers, making their days increasingly difficult. Wang San's control over channels is meticulous. He said, "Our market is quite detailed. In many prefecture-level cities in Hubei, we either have our distributors or have our own shareholding branch companies distributing the brands I represent." Thirty years east, thirty years west. He started with delivery, but now he not only represents well-known brands but also has built his own factory and registered independent brands.
Change Is Necessary, but How to Change Is Unknown
Person: Boss Niu
Products represented: Third-tier children's candy and toy products
Years in the industry: 1999 to present "Fifteen years ago, I was forced onto the delivery route," Boss Niu said. At that time, he saw that merchants in the wholesale market were making good money, but he had no products, so he had to source from the wholesale market. Every day, he rode a motorcycle with a box of samples. When he arrived at a second-tier store, he would dump the box on the boss's desk. The boss would order a few items, and he would write the order on the spot without payment, then deliver door-to-door the next day in a van. However, this path has also become unviable in recent years. As the wholesale market business shrinks and circulation customers decrease, many distributors and wholesalers have switched careers or sought other ways out. Boss Niu, who deals in children's candy toys, bought an Iveco in 2016 to expand business, but the van just sits in the wholesale market, rarely moving, covered in dust. "I originally wanted to start delivery services, but the channels are basically saturated, making it difficult to develop. Compared to previous years, business has been much worse. I'm over 50, no longer have the drive, and my children don't want to take over. I'll just do it as long as I can," Boss Niu said. In other words, latecomers to delivery services will find it hard to get a piece of the pie! For more and smaller wholesalers like Boss Niu, with outdated concepts and insufficient innovation, they stick to their original business and products, unable to withstand the impact of changing times and new business models. "I don't know how to change; it seems everyone prefers to shop online now. One day, Alibaba's wholesale site said putting products online could increase sales, so I paid 8,888 yuan, but the effect was poor. After a month, I only get one or two orders a day. Although the profit is okay, I only sell about 100 yuan a day. I don't know what the future holds," said a wholesaler selling Xiangbalao (a local snack). He has stuck to his Xiangbalao business for over a decade, with little increase in product categories. A few years ago, when business was poor, he built a factory in Zhengzhou, Henan, trying to transform into a manufacturer, but gave up due to losses. A sad reality is that they clearly realize they must change, but they don't know how.
Afterword From the perspective of these small players, circulation is becoming a shrinking market. The first 30 years after reform and opening-up were the golden age for small and medium distributors. At that time, demand was strong, and products seemed to have no marketing or promotion issues. Products reached distributors, were distributed to downstream customers, and then payments were collected. The whole process was smooth with no obstacles. The generous intermediate margins and profits made them rich. However, in the last 10 years, Chinese brands have become more numerous and stronger. Keen distributors have followed changes in the external business environment, constantly adjusting their thinking and strategies, gradually becoming favored by major brands. Small and medium distributors and wholesalers who failed to respond promptly to the business environment, due to outdated concepts and lack of innovation, have seen sales plummet. "The trend is that manufacturers only support distributors with terminal control capabilities. For pure wholesalers in the circulation channel, the manufacturer's attitude is: you can sell, but it doesn't matter how much you sell, and there will be no policy support," said Ma Jianguo, who successfully transformed into a service provider. Distributors in circulation channels, without salespeople for promotion, cannot push new products; manufacturers want products to be quickly distributed and reach end consumers, but circulation distributors lack this capability. Worse, circulation channels are being eroded and shrinking. At the end of 2016, Boss Tu went to Henan to visit second-tier customers, but awkwardly, that customer was attending a "Qiaqia" ordering conference... Such second-tier distributors, who once contributed to circulation channels, have grown and developed by leveraging their market understanding and the "intensive distribution, terminal wins" policies from manufacturers over the past 10 years, gradually becoming local distributors with absolute control over terminals. Over time, circulation channels have weakened further. Small wholesalers, lacking terminal customer maintenance capabilities, cannot establish cooperative relationships even if they proactively contact first-tier brand manufacturers. Therefore, small wholesalers do not have market-popular, first- or second-tier brand products, creating a vicious cycle or Matthew effect: large distributors get larger, small distributors get smaller. "Now, we are surrounded on all sides. If we don't change, we might really be unable to continue in a few years," Ma Jianguo said. (At the request of interviewees, names in the article are pseudonyms.) Source: Food Business Observation (ID: fbc180)