---
title: "The Future of Distributor Business: Service Fees Outweigh Product Price Differentials"
description: "Distributors attribute low achievement rates to poor market conditions and declining supermarket sales, leading to inventory backlogs and pessimism. However, proactive distributors are introducing new brands to offset sales declines, and opportunities exist in channel diversification, product selection, and service fees."
author: "王正齐"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-08-04"
language: "en"
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# The Future of Distributor Business: Service Fees Outweigh Product Price Differentials

> Distributors attribute low achievement rates to poor market conditions and declining supermarket sales, leading to inventory backlogs and pessimism. However, proactive distributors are introducing new brands to offset sales declines, and opportunities exist in channel diversification, product selection, and service fees.

Everyone summarized the reasons for the low achievement rate into two points:
> 1. The market environment in the first half of the year was poor, and many distributors had a backlog of inventory in their warehouses that they couldn't sell, so they were all looking for ways to clear inventory. There were many products with long shelf life at the terminal, and the return rate rose from 3% to 8% in the industry. Distributors were confused about the future and wanted to solve current problems first, so they weren't considering new products for the time being;
>
> 2. Many supermarkets saw declining sales, which led to a significant decline in distributor performance. Sales personnel were leaving, and distributors were pessimistic about the future and wanted to gradually wind down.
I also learned about some salespeople with high development achievement rates, and their views were the opposite. With the dense opening of snack stores and discount supermarkets, the sales of traditional supermarkets, independent small stores, and CVS stores that distributors rely on for survival have declined to varying degrees. In the process of intensified price competition, chain supermarkets and large A/B stores are again considering direct cash purchases from manufacturers or purchasing from supply chain companies (regional B2B platform operators), which has led to a significant decline in overall distributor sales. A decline in distributor sales will inevitably lead to an increase in warehousing costs, logistics costs, and labor costs. If distributors want to continue this business, the only solution is: **continuously introduce new brands to fill the gap in performance, so some proactive distributors are introducing new brands, but they are cautious.** In the previous article, I discussed with you how distributors can stop losses: **reduce loss-making brands, channels, and outlets.** For this loss reduction, you can think of it as a weight loss for an obese person, cutting off excess body fat to make the company light, flexible, and healthier. However, the decline in distributor sales due to poor market conditions is not weight loss but malnutrition, which makes you sick! Today, many trading companies are sick, and everyone can't find a radical cure, so most people become anxious and pessimistic about the future. But with a consumer market of 1.4 billion people—the world's largest market—can there be no opportunities? **As long as you calmly analyze, opportunities are definitely there.** Today's market channels are fragmented, and consumer buying habits are changing. Unlike before, offline distributors only needed to do well with local chain supermarkets and convenience stores, plus independent large supermarkets, combined with some campus outlets, to have good performance and profits. Now sales in these channels are declining. If your company's core channels are still these, you will definitely face losses, and the stability of your sales team will also be problematic. If you don't adjust in time, you should be close to closing down. I'm not exaggerating; you should all know this in your hearts. So where are the opportunities?
**Channel Opportunities**
First, let's look at this channel transformation. Which channels are certain to be operable by distributors in the future, and have vitality and a certain scale? Traditional small stores: many stores, strong vitality, the owner is the employee, profit is the salary, and selling cigarettes, alcohol, and betel nut can support them. Small stores are basically cash businesses. Organizing products around these small stores and strengthening services can definitely increase sales. Many distributors transforming into B2B platforms are organizing products and services around these small stores, and many distributors' B2B platform sales have exceeded 100 million. For many county-level cities and small prefecture-level cities, distributors can complete coverage of local small stores through order taking combined with vehicle sales, and can also combine APP ordering. After all, small store APP ordering has been educated by Alibaba's Retail Link. Small stores are already accustomed to it, and the investment cost of the APP is very low. In the early stage, uploading images, pricing, and promotion are guided by professional companies. For slightly larger distributors, the threshold is still low, and the key link is product organization. Fresh supermarkets, campus stores, vending machines, scenic spots, enterprise and institution internal supermarkets, military supermarkets, gas stations, service areas, enterprise and institution group purchases, and other channels all need distributor services in the short term. These channels are scattered, but they all have a certain sales volume. If operated professionally and systematically, they can still have a large volume. Last time I visited a distributor in Sichuan, whose annual sales from Sichuan Petroleum and PetroChina stores were tens of millions, and campus business was over 20 million.
Instant retail channels: With young people going to bed later and later, instant retail channels like Meituan Flash Purchase warehouses, JD.com and Douyin offline stores will be a big opportunity in the future. These channels all need local distributor services. They have a front-end gross margin of 25%, delivery fees of 20%, and higher selling prices (because of delivery fees). However, consumers can accept relatively high prices because they enjoy delivery services. E-commerce channels are also operable, and Pinduoduo, Douyin, and community group buying are also worth doing. **Channels are becoming more and more diverse, which raises the requirements for distributor operational capabilities, but the opportunities are definitely greater.** If traditional channels decline by 10%, that 10% will definitely shift to new channels; if only 10% of the customers in the new channels are operating, then on average, each customer's performance will increase by 100%, which is the dividend of channel transformation. Although local chain supermarkets and large A/B stores are declining in sales, a lean camel is still bigger than a horse. For a period of time in the future, they may still be the core channels for distributors, but the proportion is declining.
**Product Opportunities**
Currently, declining sales per store are the norm, which inevitably leads to an increase in logistics costs, warehousing costs, and labor costs for distributors. **The best way to solve this problem is to take on more brands to fill the gap and share the costs; otherwise, distributors will only continue to lose money.** Unless distributors want to give up because they are too old and have no one to take over, or they are unwilling to change and want to exit the industry. I believe most distributors are still trying to find a breakthrough. The value of distributors is to serve channels. Once you understand the future channel opportunities, you need to consider products in conjunction with these channels: which categories have good sell-through and profits; which brands need to be introduced; which products are suitable for them to sell. Distributors introducing new products should be **first category, then brand, and finally product**. The choice of category should match the channel and also consider the current economic environment. In an economic downturn, be cautious about introducing products that consumers can buy or not buy; these products decline the most, and gift boxes with gift attributes are also heavily affected. Only essential products, such as grain, oil, rice, noodles, and convenient ready meals, can ride out the cycle. Even if these products have long shelf life, a little promotion can sell them. Instant noodles or rice noodles with poor dates can be sold quickly in discount channels like "HotMaxx" if they are cheap, or through buy-two-get-one-free or buy-one-get-one-free promotions in campus or farmers' markets. This is something many snack and beverage products cannot do, so this year many snack and beverage distributors have started to represent such brands. In addition, products with advantages in e-commerce sales should also be avoided, such as categories with stocking needs, and e-commerce operating costs are lower. Offline product selection should favor products with immediate demand, such as beverages, convenient ready meals, and low-priced snacks. Alcoholic beverages are the best-selling category in small stores, and these categories are also within consideration. The choice of brand should consider the distributor's channel capabilities. If the channel network is complete, don't choose first-tier brands with low gross margins, heavy stocking tasks, and slow expense reimbursement; such brands can easily cause losses. Also, don't take on small brands that are only cheap, have no personnel maintenance, no expense investment, and no after-sales service. You should take on brands that have profits, after-sales service, market expense investment, personnel maintenance, and a certain brand power, such as brands like Mo Xiao Xian. **The most core aspects of products are price bands and bestsellers:**
**If you do small store business and take on snack foods and convenient foods,** in third to sixth-tier cities, **the best-selling price band is 5 yuan and below.** A brand has many SKUs, but small store shelves are limited, so you must choose the best-selling SKUs in the brand; otherwise, there will be too many returns. This kind of product is also suitable for the other channels mentioned earlier and instant retail channels. Discount supermarkets and local snack chains, if local distributors can supply them, these channels like Douyin bestsellers.
**Service Opportunities**
Finally, let's discuss how to adjust distributor service functions: **Distributors mainly rely on selling goods to earn the price difference, but in the future, service fees may be greater than product profits.** Local large supermarkets and chain supermarkets may purchase directly from manufacturers, but store maintenance and promotional activity arrangements still rely on distributors, and brand owners are willing to pay service fees to distributors. This kind of work, which doesn't require capital or delivery services, may bring more profit than before. In addition, for channel expansion, store expansion, and store display maintenance, brand owners will also provide a certain proportion of market expenses. Single store sales have declined, but the extra time of sales personnel can be used to obtain returns by providing more services, which indirectly solves the problem of personnel loss caused by declining sales personnel income. If distributors represent many brands, the expenses of sales personnel can be completely transferred to the brand owners. But currently, some distributors are still unclear about the value and collection of service fees: **This year, we made significant adjustments to offline sales expenses; previously, display fees accounted for more than 50%.** This year, large supermarket performance declined, and the return on investment of display fees declined severely. Except for image building in core stores, many stores are leaning towards improving main shelves, expanding store numbers, and filling in barcodes, and store visualization. The company's expense investment has begun to shift towards incentives for distributor sales personnel and purchase rewards for C/D class stores. Large stores obtain display space by providing promotional packs or promotional items, mainly to improve store sell-through. Many large supermarkets, due to the impact of snack and discount supermarkets, need brand promotional support to enhance product price competitiveness and attract traffic, rather than simply collecting display fees as before. Regarding the personnel incentive expenses invested by brand owners to distributors, distributors feel that it should be given directly to the company for them to allocate. On this point, brand owners feel that if distributor salespeople make sales actions but don't get timely returns, they will definitely lack motivation. Every distributor represents many brands, and each salesperson's daily work is generally saturated. To make them put in more effort, they must be given separate returns that are simple, easy to operate, and can be paid promptly. If paid to the distributor, it becomes a normal bonus for salespeople, which may be paid every other month, and the incentive effect for salespeople with declining income is actually limited, and the brand owner's purpose may not be achieved. In fact, distributors need to think clearly about one principle: **Does this incentive increase the income of salespeople? Does it promote product sales?**
**If so, you must accept it, because the stability of the sales team is one of the distributor's core competitiveness, and an increase in income is definitely conducive to team stability.**
**If many brand owners have incentive plans, distributors can choose plans that are simple, pay quickly, and can truly promote sales growth to implement first. With priorities and order, sales personnel won't be confused, and you can also combine several plans to improve salesperson efficiency. You must not be afraid of salespeople earning too much. If your company's sales personnel earn much more than other companies, this will definitely stimulate their fighting spirit and improve their performance, and you haven't paid extra costs for all this. Through the adjustments in the above three aspects, I believe that distributor sales and profits will definitely improve, and the team will definitely stabilize. If adjustments are sufficient and timely, you can achieve growth in sales and profits.
In the coming years, many distributors will give up the brands they represent due to operational difficulties. If you have complete channels and funds, and a stable sales team, then many high-quality brands will come to you for representation, and your company will inevitably grow!
**Due to space limitations, there is much more dry content that cannot be detailed. The author of this article, Mr. Wang Zhengqi, founder of Mo Xiao Xian, will attend the 6th China FMCG Conference and deliver a keynote speech—"The Transformation and Opportunities of China's Offline Channels." Friends who are interested should not miss it!**


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