Recently, several terms have become very popular in the distribution industry: "channel digitalization," "channel diversification," and "business online." Today, I'd like to share my personal understanding of channel diversification. Simply put, channel diversification is the process where a distribution company transitions from a single sales channel to multiple sales channels.
Why develop from a single channel to multiple channels? In today's fragmented channel landscape, the most obvious change is that consumers have more shopping methods than ever, and the demand for multi-channel product availability is increasing. In such circumstances, distributors limited to traditional channels find it increasingly difficult to achieve business growth. Especially against the backdrop of the pandemic, the risks of relying on a single channel have been magnified, leading to significant losses. Conversely, distributors operating multiple channels have been relatively less affected, and some have even seen growth. For future development, distributors must adapt to changes in consumer behavior, which essentially means channel diversification. Distributors must move towards multi-channel or even omni-channel operations.
-01- Channel Selection Distributors often say business isn't profitable—why? Because consumers are becoming smarter and there are more shopping venues. Clearly, channel development has advanced rapidly in recent years.
Traditional channels and supermarket channels are the main channels for most distributors, accounting for the largest share of distribution business and where distributors perform best.
AB-class stores are a format between hypermarkets and small traditional stores, typically standardized chain stores. AB-class stores represent a trend in retail development and will open more in the future. Especially in first-tier cities like Beijing and Shanghai, non-standard small stores and mom-and-pop shops struggle to survive.
Fresh food supermarkets, a retail format that has risen in the past two years, primarily sell vegetables and fruits. During the pandemic, fresh food supermarkets across the country saw sales roughly double. Fruits and vegetables are fast-moving consumer goods within FMCG, making this channel one that distributors must capture.
For example, traffic in supermarket channels is being diverted; some consumers have shifted to fresh food supermarkets, others to online. As consumers shift, distributors must adjust their business accordingly. For instance, if a supermarket channel previously required 6 staff but sales have declined, it might now need only 4, while fresh food supermarkets with higher foot traffic might need 2 additional staff.
Third, channels closer to consumers are the ones we need to directly expand. The most obvious is online shopping; accelerated by the pandemic, consumers have gradually become accustomed to delivery services. Looking at big data, the share of internet channels in sales is gradually expanding—isn't this worth distributors' attention?
This addresses channel selection. After making the choice, how should one proceed? Next, let's discuss specific practices for traditional channels and fresh food channels.
-02- Traditional Channels: Downward Extension to Towns and Villages!
Most distributors are "old hands" at operating traditional channels and do it well. Compared to new channels, traditional channels have limited incremental growth, but opportunities still exist. A simple question: how many distributors can fully cover all stores in their operating area? Urban and township areas might be covered, but at the village level, no one can claim full coverage. In fact, the rural market is vast; Pinduoduo's rapid growth in recent years is also due to its focus on the rural market. There is still great potential to tap in rural markets, and distributors must extend down to villages to be closer to consumers. Some distributors might say, "Everyone knows about going down to villages; it's easier said than done. It's dozens of miles from the city to the village, and the money earned in village markets might not even cover the costs."
This situation does exist; areas with good transportation might be okay, but many village markets have poor transportation, making coverage difficult. We have encountered this when extending to village markets. If coverage is truly difficult, distributors can select 1-2 secondary wholesalers in corresponding townships that carry multiple brands.
These secondary wholesalers previously relied on self-service supermarkets, waiting for village customers to come to them. But with more channels, fewer customers come to pick up goods. This has prompted these small secondary wholesalers to buy their own tricycles or vans to deliver to villages.
I call these secondary wholesalers township-level distributors. Find such distributors, sign agreements directly with them, make them your sales agents, and let them handle the village-level market. Giving an extra 2 yuan per box as delivery fee can solve the problem of high delivery costs to villages.
In this way, each township agent covers dozens of villages, radiating products to the entire village-level market. Most rural small stores carry at most three brands in a category, so once you can cover the entire village market, sales can be substantial.
Competition in rural markets is relatively low because too few distributors truly serve these markets. For traditional channels, extending to townships is not enough; you must go down to villages.
-03- Fresh Food Channels: Key Support and Continuous Operation
Fresh food supermarkets are a retail format that has grown rapidly in the past two years, especially accelerated by the pandemic, and have become a trend that distributors cannot ignore. Taking Anshan as an example, there were few fresh food supermarkets before, but in 2019, over 100 opened, several times more. Don't underestimate these 100 stores; they directly brought thousands of tons of grain and oil growth. As a trend, fresh food supermarkets will continue to increase nationwide.
In this process, distributors must seize the opportunity and proactively cooperate. How to do it specifically? Set pricing properly; operate the price system for fresh food supermarkets according to the supermarket channel price system. Fresh food supermarkets primarily sell fresh fruits and vegetables, which are FMCG within FMCG, and have very high foot traffic. The sales generated by such traffic are substantial, making it a must-fight battleground for all distributors, with intense competition. In such circumstances, how to win? Only by seizing terminal resources, which come from profits, so you must follow the supermarket channel price system to ensure sufficient profit.
With sufficient profit, you can invest in expenses: buy floor displays in fresh food supermarkets, hire promoters, and secure good display positions. Taking condiments as an example, a well-operated fresh food store can easily achieve monthly sales of over 100,000 yuan. The prerequisite for success is following the supermarket channel price system; if you follow the small store price system, you won't have enough profit to invest in personnel and expenses, and relying on natural sales won't generate volume.
In summary, the model for fresh food supermarkets is to operate according to the supermarket channel model: First, high pricing; second, buy displays and floor space; third, use personnel interception to drive sales.
In Conclusion:
Channel expansion revolves around consumers; wherever consumers are, products are bought there. The closer you are to consumers, the greater your opportunities, and business will naturally be good.
Multi-channel development not only reduces distributors' operational risks but also meets the needs of upstream brand owners. Previously, New Distribution predicted that regional distributors will inevitably become larger, and smaller ones will gradually be eroded. With limited incremental growth in existing channels, expanding into new channels is an inevitable choice for distributors to become major players.
Of course, it must be emphasized that when pursuing multi-channel, you should make reasonable choices and allocations based on resources. Not all channels are worth your time and effort; avoid being overly eager for quick success!