By Pan Ruidong, Food Business Observer (FBC)

Forty years ago, when the reform and opening-up began, food industry distributors and wholesalers started their gold rush. In the blink of an eye, we've reached today.

Once thriving and loaded with profits, they have been 'tormented' over the past decade. Especially those small and medium distributors, facing manufacturer disdain, channel changes, and shifting consumer habits, all make business difficult. The last five years have been even more 'miserable'.

01 Transforming into Service Providers, Changing Their Way of Life Person: Ma Jianguo Products represented: Want Want, Joselist, Lay's Years in business: 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 her company has not made adjustments and continues as before.

Unlike Lan Xiaofang, Ma Jianguo, who started with candy wholesale, made changes several years ago.

"Sales dropped significantly in 2014. Although they didn't drop much in 2015, I was anxious and quickly looked for reasons." Ma Jianguo, who is thoughtful and quick to adapt to market changes, realized that e-commerce had a huge impact on food distributors and that change was necessary. In March 2016, he launched the Yunmayi Mall platform, "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 orders for customers. "All products in the warehouse are now displayed online. There's a menu column for 'New Product Releases.' When old customers order online, they can see new products and, if interested, order them together." He explained.

FBC reporters learned that deepening relationships with old customers is Ma Jianguo's current strategy. The new products he mentioned are no longer limited to snacks and side foods; grains and oils, fresh produce, daily chemicals, and even vegetables and fruits are all part of his service scope.

Afterwards, he also showed FBC reporters a small restaurant he invested in, claiming he holds stakes in two beauty hospitals and plans to participate in a welfare lottery store.

02 Deep Channel Cultivation, Winning Through Depth Person: Wang San Products represented: IPs like Peppa Pig and Super Wings Years in business: 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 I later realized that even the circulation channels were basically controlled by Wang San. The areas we could reach were very narrow, mostly places he couldn't cover or didn't want to do, like Enshi with inconvenient transportation and Huangmei County near the Hunan Gaoqiao market." Tu, a boss at a Wuhan non-staple food wholesale market, told FBC reporters.

The children's biscuit mentioned is the hot-selling Peppa Pig from 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's an old customer in Wuchang, ordering only a few cases 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 doing deep channel cultivation over the past decade, and such customers have already been included in the visit lists of large distributors' salespeople.

As the market economy matures, especially with the entry of internationally renowned companies, competition has intensified, and market competition methods have diversified.

In the eyes of manufacturers who believe in 'channels are king, winning the terminal,' everyone except large distributors is a sub-distributor. 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 extending their reach 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 sub-distributors or have our own shareholding branch companies distributing the brands I represent."

Thirty years east, thirty years west. He started with delivery, and now he not only represents well-known brands but also has built his own factory and registered independent brands.

03 Must Change, But Don't Know How Person: Boss Niu Products represented: Third-tier children's candy toys Years in business: 1999 to present

"Fifteen years ago, I was forced onto the delivery route," Wang San said.

At that time, he saw merchants in the wholesale market making good money, but lacking his own products, he had to source from the wholesale market. Every day, he rode a motorcycle with a box of samples, went to second-tier stores, and dumped the box on the boss's desk. The boss would order a few items, sign the order without payment, and the next day he would deliver door-to-door in a van.

However, this path has become unviable in recent years.

As wholesale market business shrinks and circulation customers decrease, many distributors and wholesalers have switched careers or sought other paths. Boss Niu, who deals in children's candy toys, bought an Iveco in 2016 to expand his business, but the vehicle just sits in the wholesale market, rarely used, 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 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 lack of innovation, they stick to their original business and products in a rapidly changing commercial world, 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 got one or two orders a day. Although the profit margin 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.

In previous years, when business was poor, he built a factory in Zhengzhou, Henan, trying to transform into a manufacturer, but eventually 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 went to distributors, then to downstream customers, and then payment was collected. The whole process was smooth with no obstacles. The generous middle margins and profits made them rich.

However, in the past decade, 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, hindered by 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: they can sell, but it doesn't matter how much, 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, 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 manufacturers' 'intensive distribution, winning the terminal' policies over the past decade, 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- and 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, all names in the article are pseudonyms.)

Source: Food Business Observer (ID: fbc180) -END-