Click the image for details Text | Yunjiu Team (WeChat ID: YJTT2016) Second-tier distributors, as sub-distributors under regional dealers, primarily distribute goods from dealers to terminals and retailers for a margin, leveraging their familiarity with outlets and people, logistics, and financial platforms. Under the dual pressure of industry adjustment and manufacturer channel flattening, the survival space for second-tier distributors is shrinking. The rise of e-commerce and B2B models has further undercut many second-tier distributors. In recent years, second-tier distributors have collectively perished. Do they still have a future, and where is the way out? ❶ Cause of Death 1: Victims of Flattening Policies Zhang, from Shijiazhuang Shangyuan Trading, had been a second-tier distributor for six years and recently officially announced his "retirement from the scene." The second-tier model had become unsustainable. Zhang previously mainly handled the Great Wall series wine products of a major distributor in Shijiazhuang. Relying on long-established upstream relationships, he could secure good supply. That major distributor mainly developed brands under famous liquor manufacturers and recruited distributors nationwide, with relatively loose market control. This gave small second-tier distributors like Zhang market opportunities and survival space. Zhang would take goods from the major distributor and deliver them to various famous tobacco and liquor stores, cigarette and liquor shops, etc., with a gross margin of about 10%. With two people and one vehicle, he could achieve annual sales of about 2.5 million yuan. After 2015, the flattening trend of major distributors became increasingly evident. Previously, major distributors looked down on cigarette and liquor shops and grocery stores, but after market shrinkage, they also eyed this "cake." Major distributor salespeople directly visited terminals and summoned them to order meetings. Many of Zhang's downstream customers "defected." Zhang reported that sales in 2016 dropped to about 1.2 million yuan, while gross margin fell from 10% to 6.5%. After deducting vehicle wear and tear, delivery fees, etc., Zhang had little left. He also tried adding liquor, beverages, and other categories to strengthen customer stickiness and increase profit points. However, Zhang lacked product and price advantages, and his downstream customers were not receptive to his delivered liquor and beverages. Zhang belongs to the "resource-based" type among second-tier distributors, meaning he had a price advantage on one or several fast-moving products, earning profits from channel "transshipment." After the manufacturer flattened the market, his price advantage disappeared, leaving no room for transshipment. Under the dual pressure of market shrinkage and profit decline, he was immediately hit. ❷ Cause of Death 2: Loss of Control over Core Terminals Core terminals refer to popular dining restaurants, large liquor stores, and other high-volume liquor sales points in the region. Distributors generally hope to cooperate directly with these terminals, but due to constraints such as personal connections and payment cycles, they often supply through second-tier distributors. Once second-tier distributors lose control over core terminals, they may be replaced immediately. XX Bazi is a famous hotpot restaurant in Chengdu with high sales of small liquor. Zhang, from Chengdu Qunying Trading (pseudonym), was the exclusive supplier of small liquor to one of its franchise stores. According to Zhang, during peak season, small liquor sales at that store reached 50-70 cases per month, and including other restaurants he supplied, his company's monthly small liquor sales exceeded 500 cases. However, the hotpot restaurant settled payments every two months, and since it could not implement unified procurement of liquor and beverages, Zhang's operating pressure was always high. In February 2017, XX Bazi required Zhang to produce restaurant menu covers for free and give away wine glasses. At the same time, under the pretext of a competing brand's "smash golden eggs" activity in the store, they required Zhang to carry out similar promotional activities. Zhang said that payment had been outstanding for two months and hoped to settle first. The two sides fell out, and Zhang withdrew in anger. When the distributor learned of this, he clearly stated that if Zhang no longer supplied XX Bazi, his distribution qualification would be revoked. Zhang felt like a mouse in a bellows, caught between two sides, and his second-tier qualification was in jeopardy. Core terminals are the main capital for second-tier distributors to negotiate with manufacturers and distributors, and they are also what brand owners value most about second-tier distributors. In recent years, businesses such as restaurants and core liquor stores have been sluggish, and it has become common for them to delay payments to second-tier distributors or demand "toll money." Second-tier distributors should strengthen their service functions, transforming from mere suppliers to service providers, and strive to become comprehensive suppliers of liquor and beverages to the catering channel, strengthening control over terminals. Otherwise, they may well be replaced. ❸ Cause of Death 3: Failure to Provide Value-Added Services Upstream Second-tier distributors and manufacturers generally sign tripartite contracts. In addition to daily payment and delivery, they should also assist manufacturers in brand promotion, terminal promotions, and other activities. Some second-tier distributors hope to "hitch a ride," expecting to follow behind and "pick up dead fish" after the manufacturer builds the market, feeling that the market promotion and publicity required by the manufacturer are none of their business. When manufacturers find that second-tier distributors can no longer provide value-added services, they may be "sacrificed" at any time. Chengdu A Trading Company was a distributor for a well-known local small liquor brand. To deepen and penetrate the market, the brand required second-tier distributors to do a good job of terminal store displays, presentations, and merchandising, and formulated corresponding assessment standards. Boss Li of Company A thought, "As a second-tier distributor, I only earn the margin; what do I care about the manufacturer's affairs?" As a result, the market was left unmaintained, and no one participated in activities. The brand owner remained silent at the time, waiting until a suitable replacement was found to eliminate Company A. By then, Boss Li tried to get closer to the manufacturer, but it was too late. One of the values of second-tier distributors is to use their connections and regional advantages to cover outlets that manufacturers and distributors cannot cover. However, if second-tier distributors can only serve as delivery providers, their value to manufacturers is limited, and they may be replaced at any time. Smart second-tier distributors often use providing value-added services upstream as a means to strengthen their position, such as assisting manufacturers in developing markets, improving outlets, and undertaking terminal service functions. Only then can they achieve an indispensable position in the manufacturer-distributor chain. ❹ Cause of Death 4: Impact of E-commerce Platforms In this wave of liquor e-commerce B2B, platform companies have made developing terminal retailers their main goal, and second-tier distributors have become the primary targets of "disintermediation." This is also an important reason for the collective demise of second-tier distributors. The rise of internet and mobile internet technologies has made it possible for retailers to place orders via PC and mobile phones. Moreover, platforms often use subsidies to attract retailers, greatly encroaching on customers that originally belonged to second-tier distributors. Under the dual squeeze of the internet and low-price subsidies, the survival space for second-tier distributors is increasingly narrow. It is understood that currently aggressive platforms like XX Pi and XX Wang have professional ground promotion teams whose main job is to develop terminal retailers to install apps and other tools. During festivals, sugar and liquor fairs, and other time nodes, they also launch strong "buy X get X" activities to boost sales, which has a significant impact on second-tier distributors' customers and sales. The internet trend is unstoppable, and second-tier distributors can only adapt to survive. One approach is to transform into regional partners of platforms, turning from opponents into partners. Another is to leverage their own advantages. For example, the logistics cost for a platform to deliver to a terminal may be 10 yuan per case, while a second-tier distributor can deliver multiple varieties for less than 5 yuan per case. Platforms require payment before delivery, while second-tier distributors can offer certain payment terms based on customer relationships. Additionally, there are huge regional differences, and platforms may find it difficult to provide products suitable for local markets. Only by fully leveraging their advantages of local familiarity, personal connections, and flexible operations can second-tier distributors survive the competition. Expert Comment: Yang Yonghua, Chairman of Shanghai Guanfeng Consulting For second-tier distributors, it is essential to deeply understand the principle that restructuring is necessary for rebirth. The above four causes of death for second-tier distributors are very accurate. Channel flattening is a major trend. On one hand, second-tier distributors must become "1.5-tier distributors" to achieve rebirth and change their passive fate. The so-called 1.5-tier distributor means having their own leading and main promoted products, and having team spirit to implement network development. On the other hand, second-tier distributors should implement customer database marketing, enrich products, highlight leading categories, and implement a one-stop shopping platform for customers. At the same time, they should increase service capabilities such as delivery, and change the behavior of sitting in the store waiting for customers. Additionally, terminalization and mall-ization can be two paths for second-tier distributors to consider breaking out. Terminalization means developing multiple needs of downstream retail customers and changing the business model of only earning delivery fees. Mall-ization means expanding store scale and increasing retail functions. Only in this way can second-tier distributors achieve rebirth. What do you think about the awkward fate of second-tier distributors? Click the image for details The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. At this conference, New Distribution has invited 1000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to participate. The theme of this conference: New Forces, New Ecosystem. We will invite well-known domestic B2B industry experts, mentors, and B2B platform founders to discuss the following topics: Core Topics of This Conference:
How can the FMCG industry achieve new growth opportunities through B2B
How to build a new supply chain behind new retail
How can intra-city logistics help B2B achieve leapfrog development
Highlights of This Conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent transforming and upgrading distributors
Conference + exhibition upgrade, Hall 6 Internet Technology Exhibition strengthens docking
Alibaba Retail Link, ProLogis Financial, Eternity Supply Chain, Best Store Plus, Yijiupi, Unilever, Haiding Technology, Yunmei Media - leaders from various fields will deliver speeches and share pioneering views on site.
Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend and note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-