---
title: "The Middleman Revolution: You Can't Eliminate Middlemen, but You Can Be Eliminated if You Don't Improve"
description: "Middlemen shield you from upstream complexity, enable small-scale low-cost procurement, and guarantee safety and quality. While middlemen will always exist due to information, scale, and professional asymmetries, as well as bullwhip effects and order pulses, the article argues that although the middle link cannot be removed, you as a middleman can be replaced if you don't adapt to efficiency gains and changing market dynamics."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-08-14"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/7hBhRr75VO_T9apUTnq0_g"
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---

# The Middleman Revolution: You Can't Eliminate Middlemen, but You Can Be Eliminated if You Don't Improve

> Middlemen shield you from upstream complexity, enable small-scale low-cost procurement, and guarantee safety and quality. While middlemen will always exist due to information, scale, and professional asymmetries, as well as bullwhip effects and order pulses, the article argues that although the middle link cannot be removed, you as a middleman can be replaced if you don't adapt to efficiency gains and changing market dynamics.

**They shield you from upstream complexity.**
**They enable small-scale, low-cost procurement.**
**They guarantee your safety and quality.**
I fully agree with Mr. Liu Run's assertion that middlemen cannot be eliminated in the business world. This is not only due to the three issues he mentioned—**professional asymmetry, scale asymmetry, and information asymmetry**—but also because of problems like the bullwhip effect and order pulses caused by peak and off-peak seasons in the industry chain, which require middlemen to balance supply and demand.
Undoubtedly, middlemen will always exist, but Mr. Liu Run only told half the story. He didn't mention the other half: **Although the middle link cannot be removed, it doesn't mean you cannot be replaced!**
Returning to the FMCG industry, middlemen generally refer to distributors, sub-distributors, and retailers. This article focuses on the future challenges that distributors and sub-distributors will face in the business world.
Let's first talk about the three truths distributors face today:
**Supply Overcapacity**
Overcapacity in the FMCG industry is not a new issue. Over the past 40 years of rapid development in China, a large number of consumer goods companies, based on their expectations for the future, have made massive investments in production capacity.
It is an indisputable fact that China's population has entered negative growth since 2022. On one hand, the birth rate is declining and the population is aging; on the other hand, the outflow of population from non-first-tier cities has led to a reduction in total consumption in most individual cities, except for first-tier cities.
However, production capacity does not quickly reduce just because total consumption declines. **Overcapacity in consumer goods has long been a persistent issue.**
In the future, China's economy will gradually enter a low-growth model, with market capacity continuously shrinking. But all enterprises have development needs, so the market will inevitably see severe involution, and squeeze-style growth will become the norm. The market doesn't need so many products, nor does it need so many distributors.
This means that the second half of the Chinese market competition will shift from an 800-meter sprint qualifier to a UFC octagon elimination match. **Those with low efficiency, poor capability, or who cannot provide value that others cannot will inevitably be eliminated.**
**More Transaction Scenarios**
Transaction scenarios here refer to places where goods can be purchased.
**China's retail industry is transforming from a super-large scale in terms of "quantity" of a single type of format to a super-large scale in terms of "sales volume" across multiple types of formats.**
What does this mean? In the past, retail scenarios were only offline physical stores. What were the characteristics of these stores? Single type, wide distribution, and an enormous number. This required more distributors and sub-distributors to handle transactions and delivery for these stores.
Today's retail scenarios, especially the vast number of online retail and new retail, leverage their traffic advantages to move transaction scenarios online, forming super-large transaction aggregation platforms.
**When transactions and delivery are separated, the role of distributors is reduced by 80%** because communication and transaction scenarios are no longer offline. Delivery can be handled by logistics. In this new business model, the original middlemen have no reason to exist, except to serve traditional, old business entities.
This leads to **the market's sales volume being cut by online channels, while offline distributors' sales also decrease significantly.** But distributors have operating costs, not just gross margin involution. Once sales volume falls below a certain critical point, it triggers the break-even line, causing losses for distributors.
**Not only are traditional operations losing money, but the complexity of operations is also increasing exponentially.**
In the past, a beer distributor only needed to handle offline retail stores, restaurants, nightclubs, and KA supermarkets. But what is the business like now?
Do we need to do Jiuxiaoer (酒小二) and 1919? Do we need to do Meituan Flash Delivery? Do we need to do community group buying? Do we need to do local discount stores and snack bulk stores? Are the beers on Meituan Waimai listed by the stores themselves? Have we done Douyin local live streaming?
**Today's channel structure has upgraded from two-dimensional to three-dimensional. The complexity of transaction scenarios is increasing exponentially. If two-dimensional business is addition, three-dimensional business is multiplication.**
Every new transaction scenario added to the channel means we need to add a new operational capability.
Let's take stock: how many capabilities does a distributor need to operate a brand in a city today?
**You need traditional business management capabilities, right?**
**You need to know how to operate O2O community group buying, right?**
**You need to know where the entry points for private domain social traffic are, right?**
**For Douyin live streaming, Tmall, Taobao, at least you need a store to sell goods, right?**
The problem is that aggregating all these capabilities into one person is almost impossible.
So when transaction scenarios increase, when upstream brands demand more, and when downstream retail scenarios become more complex, it inevitably requires more middlemen with different capabilities to meet the demand.
Ask yourself honestly: **As a middleman, how many capabilities can you possess?**
**The Middle Link is Shortening**
In the past, the distribution chain relied on a single type of super-large-scale dispersed market, all offline, which required brand owners to build a pyramid-shaped distribution network.
The greater the distribution density, the more levels are required, and even the need for parallel distribution increases.
For example, mom-and-pop stores are a type of retail, but they are numerous and scattered in the Chinese market, about 6.5 million of them.
For a brand to get its products onto the shelves of these 6.5 million mom-and-pop stores, it must rely on many distributors, sub-distributors, and wholesalers to achieve this collectively.
Today, channels have begun to show a new characteristic: **There are more and more types of retail, with high transaction efficiency per unit and large retail scale per unit,** but the over-concentration of traffic and transactions means that the number of players that can participate in this type of retail is very small.
Sam's Club, for example, has only 14 stores in China, but the sales of these 14 stores exceed the sales of hundreds of thousands of traditional mom-and-pop stores. And such a large sales volume only requires one supplier to supply.
Another example: B2C has huge sales, but on the B2C platform, a brand's flagship store only needs one to directly face consumers nationwide.
There are countless such examples. There's a joke online that Viya and Li Jiaqi's live streams may have created 1,000 new jobs, but they caused tens of thousands or even hundreds of thousands of physical stores to close, and millions of people to lose their jobs.
Let me give an even more exaggerated example: when you watch a live stream on Douyin, you think there's a real person selling energetically on screen, but in fact, it might not even be a person—it could be AI digital humans operating automatically.
Mr. Liu Run is right: in the real world, middlemen have not been eliminated. But when a single middleman can replace tens of thousands or even hundreds of thousands of merchants, do you still think it has nothing to do with you?
The chain is shortening. It's not that you as a middleman aren't working hard; it's just that **when industry efficiency improves, this track simply cannot accommodate so many players.**
#### **Final Words**
2023 was a very surreal year. In April, GPT-4 was released; on July 22, a research team from the Korea Institute of Energy Research published a paper claiming they had discovered the world's first room-temperature superconductor; on August 6, the Lawrence Livermore National Laboratory under the U.S. Department of Energy announced that, following December last year, they had again achieved a breakthrough in nuclear fusion ignition, with output energy 1.5 times the input energy, signaling the dawn of the possibility of commercial nuclear fusion.
Any one of these news items would have been explosive in the past century, but this year, such technological miracles have been happening one after another. Some say it's the eve of the Fourth Industrial Revolution, others say the singularity is imminent. But regardless, human technology and social progress are not stagnating; they are accelerating.
**China's commercial revolution, like these tech news stories, is undergoing dramatic changes.**
When facing these changes, we must be clear that it's not just about working hard or making an effort; it's about truly perceiving the changes in the world and understanding the profound logic of new business.
The world we face today is a window period where information technology is rapidly increasing efficiency, and population and consumption are entering a new industrial cycle. In this era of unprecedented change, the value of every business entity is to solve some need for society. A company's core competitiveness lies in solving problems that others cannot solve.
**As a middleman, the core value is efficiency: communication efficiency, transaction efficiency, management efficiency, and operational efficiency.**
All middlemen must re-understand the meaning of the word efficiency. It's not that the internet defeated distributors, but that high efficiency will inevitably replace low efficiency!
**How to replace low efficiency with high efficiency?**
**From October 9 to 11, the 5th China FMCG Conference and the 1st China FMCG Distributor Conference will be grandly held in Shenzhen. It is also the first China FMCG Distributor Conference.**
In this surreal year, what changes have occurred among distributors? What difficulties have they encountered? How did the surviving distributors do it? How did those who grew bigger and stronger do it? What are the current business development trends for distributors?
Bring these questions to Shenzhen, to the 5th China FMCG Conference, and I believe you will find the answers you're looking for!
This conference will revolve around the theme **「New Era • Rebuilding」**. Over 3 days, with 1 day of main forum on FMCG industry, 6 parallel forums, and 1 day of national distributor conference, we will meet thousands of FMCG professionals in Shenzhen to discuss how to rebuild enterprise capabilities and usher in a new era for the FMCG industry!


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