Recently, the author exchanged views with a major snack food distributor and heard a very interesting interpretation: distributor brothers, when facing the current intense market competition, need to think clearly about what exactly they are competing on. Is it products? Is it prices? Neither—it's survival capability. Distributors are currently facing a grim situation, which I won't describe in detail. The main pressures are: first, the decline of traditional terminal channels, with business being carved up by new retail channels; second, brand owners' growth pressures, leading to continuous inventory pushing. Under these dual pressures, distributors are having a tough time! Many say distributors have no future. But the author believes that the distribution business still has great potential. The key is to build a new capability model for the distribution business. Viewing Problems from a "Full Industry Chain" Perspective In the current market environment, distributors must adopt a "full industry chain" perspective to understand issues, and they must have an extremely clear understanding. Retail is undergoing drastic changes, efficiency is iterating, order is being restructured, and a large-scale shakeout is occurring. New retail channels, whether discount retail, membership supermarkets, or even instant retail, are growing rapidly, but the main contradiction is not in creating new market increments, but in making more focused and efficient deliveries within the market. To some extent, the growth of these new retail formats is a choice made by the times, a model screened out under the macroeconomic environment. Because the overall consumption market is what it is, showing a declining trend. In the era of shrinking volume, every link in the FMCG market is changing, and they are all interconnected. If the market doesn't create new increments, then there will inevitably be migration among existing stocks. Stock migration requires efficiency to drive it. In simple terms, it means making more focused and targeted deliveries based on the segmentation of consumer groups. For example, the popularity of boutique businesses like Sam's Club is about focusing on middle-class, family-oriented consumers with targeted delivery. This consumer group hasn't grown (it's even shrinking); it's just that they weren't well served before. Now that they are well served, business is good. Most other retail formats with good growth are similar. This migration of market stock filters out more efficient retail formats, naturally driving efficiency iteration across the entire industry. Distributors are no exception; those without efficiency will be shaken out. This shakeout process is inevitably a competitive elimination process. Facing this situation, distributors indeed need to abandon unrealistic fantasies such as market recovery and prepare for the battle of survival capability. Cutting Losses: Eliminating High-Risk Channels and Brands Competition itself is a process of "hurting the enemy by a thousand, losing eight hundred by yourself." No matter how large the distributor, times are tough. The author knows many major distributor friends who, when negotiating cooperation and accounting with brand owners, proactively control gross profit within 10% and net profit within 2%. In their words, the competition is too fierce now; if they don't control prices to this level, others will come and snatch business. Many actions have to be taken, even decisively, otherwise they may be forced into a passive position. Below, I'll briefly discuss the two common problems distributors face (decline of traditional retail customers and brand owners pushing inventory). The decline of traditional retail customers, especially regional KAs and CVS, with some even experiencing astonishing business declines, is something veteran distributors must deeply feel. The history of Chinese retail development is a process of channel diversification and decentralization, which inevitably leads to competitive elimination. In this service process, distributors encounter several troubles:
Customer payment terms are getting worse, and even settlement amounts are becoming less satisfactory; 2. To boost sales, they cooperate with customers on various activities, but the results are unsatisfactory, and the cost-benefit ratio is poor;
If terminals aren't moving, they still need to cooperate with brand owners to handle near-expiry products, which is labor-intensive and time-consuming... When retail customers' business is not ideal, distributors can only delay the decline with all possible means but cannot change it. At the end of the year, calculations likely show losses, and even if there's a small profit, it's with anxiety. In such cases, even if there's no bad debt, the efficiency of capital use is getting worse. They must decisively admit defeat and withdraw, otherwise it's tantamount to chronic suicide. On the other hand, brand owners have always been obsessed with maintaining growth. To achieve growth, they continuously push inventory onto distributors or design very complex tiered rebate and expense subsidy game rules. When downstream product sell-through has problems, brand owners seek solutions by transferring the major risk to distributors. But frankly speaking, the current competition has reached a very fine level. If general merchandise sell-through has problems, it's likely due to a series of issues with the brand owner's product pricing, content, channel matching, etc., not properly handled. It's hard to blame the distributor. Distributors can at most try to open more different types of customers, but if the product itself has channel matching issues, and after distribution there's no repeat purchase, then it's beyond their control. Many brand owners don't realize the crux of the problem. Especially regarding some needs raised by retail customers, they can't provide customized solutions but only try to transfer risk through various means. Distributors need to carefully consider, even if they've made money in past cooperation, even if it's a big brand. In the current environment, what's more important than staying at the table to continue doing business? Clearly Define the Capability Model of the Distribution Business The above only ensures distributors control risk, but to do well in the distribution business now, they still need to think from the bottom up about what exactly distributors earn money from. First, it must be clear that China's FMCG market ultimately cannot do without distributors with industrial value. The market is only shaking out inefficient distributors, not denying the value of distributors' existence. In the past 20-plus years of the FMCG market, this model seemed to work without problems. But current changes force us to re-examine; just this is not enough. Retail procurement rules are changing Excerpt from "'Supply Price Same as Distributor, Retail Pricing Unrestricted', Yonghui, Jiajiayue, etc. Strongly Promote 'Bare Procurement'" To compromise on price, retail enterprises' procurement game rules have changed, leading to the continuous weakening or even disappearance of the industrial function of "advance funding." From an industrial value perspective, distributors originally had thin margins, and with this further contraction, they basically have no profit to speak of. But again, China's FMCG market ultimately cannot do without distributors with industrial value. As the profit effect of advance funding weakens, it's necessary to start from new industrial functions and explore new opportunities. Based on the author's current observations, most distributors that have transitioned smoothly and are growing benignly have almost two choices:
1. Expand their role to undertake the functions of manufacturers or retailers; 2. Expand their capabilities to have buyer and assortment capabilities, becoming service-oriented distributors. Expansion of the distribution business capability model (role extension or capability extension) For role extension, distributors are no longer just distributors; they begin to get involved in manufacturing (controlling production factories) or retail (opening stores, wholesale-retail integration), earning industrial value beyond distribution. Of course, this upstream and downstream extension requires higher strength and capability from distributors. For most distributors, they still need to consider how to serve retail customers more valuably. In simple terms, "buyer" means becoming the external procurement function for large retailers, helping accelerate the iteration and optimization of product assortments; "assortment" means becoming the external procurement function for small retailers, helping solve overall assortment output solutions. The core is: stepping out of the pure competition of just comparing supply prices, and around the issue of goods, providing more valuable services to retail customers. Only by helping customers (retailers) solve their customers' (consumers') problems can this 2B business have more stable long-term value. Clearly define the business capability model and become a valuable industry partner. The distribution business still has great potential!