Having heard too many pseudo-experts say 'cut out the middleman' or 'remove distributors,' it's clear that any successful business model requires clear role division in the industry chain to maximize value; otherwise, it will only be a temporary phenomenon. Simply put, the manufacturer's core value lies in 'marketing,' focusing on product development and brand promotion, while the distributor's core value lies in 'sales,' focusing on warehousing, logistics, and promotions. Especially for FMCG companies focusing on offline channels, brand owners must unite distributors to maximize brand and product power, which is particularly important for small and medium-sized enterprises.

Current Situation of Surviving Distributors In the first half of this year, I visited eight provinces and called on dozens of distributors, summarizing seven macro facts:

  1. Number of distributors: During the three years of the pandemic, the number of distributors in the FMCG industry has been declining. Even this year, the number has not recovered to the 2019 level, with some regional distributors and social wholesalers seeing a sharp decline of over 50%.
  2. Manufacturer voice: Brand owners' voice is gradually weakening. Some new-type distributors have either gained channel control, have a good product structure, or have become regional category leaders, giving them the qualification to 'say no' to big manufacturers.
  3. Manufacturer-distributor dependency: The affiliation relationship is also changing. Previously, distributors were strongly dependent on brand owners (distributors' promotions and orders were all handled by the manufacturer, with distributors responsible for funding and delivery, turning them into delivery and financing agents, losing channel management capability). Now, distributors have independent operational capabilities, and conversely, many big brands are exiting channel operations through changes in channel coverage models, gradually becoming dependent on distributors.
  4. Rise of e-commerce: With the rapid development of the internet and mobile technology, e-commerce has become a channel that distributors cannot ignore. Some distributors have actively expanded online sales channels, building their own e-commerce platforms or partnering with internet platforms to meet consumers' online shopping needs.
  5. Data-driven decision-making: By collecting and analyzing big data, distributors can better understand market trends, consumer needs, and competitor situations, enabling more accurate decisions. Data-driven decisions help distributors gain competitive advantages in product selection, marketing, and sales strategies, and many distributors have already started building their digital capabilities.
  6. Supply chain management optimization: To improve efficiency and reduce costs, some distributors have begun optimizing supply chain management, including improving logistics and inventory management efficiency, using intelligent technology for forecasting and planning, and strengthening cooperation and coordination with suppliers and retailers.
  7. Refined market segmentation: As market competition intensifies, some distributors are capable of more refined market segmentation and developing targeted marketing and sales strategies, including customized product promotions and sales activities based on different regions, consumer groups, and channel characteristics. These facts were unimaginable a few years ago. The three years of the pandemic continuously reshuffled the distributor tier, and those that survived are enterprises with unique achievements in 'sales.' They have established their current market position through continuous learning and iteration. Peter Drucker said, 'The greatest danger in turbulent times is not the turbulence itself, but to act with yesterday's logic.' So I want to say: Can FMCG brand owners still rely on 'inertia' to cooperate with distributors? With fewer fish in the water, will using the same large net still yield as much catch?

Evolution of Manufacturer-Distributor Relationships The manufacturer-distributor relationship in FMCG has been constantly changing, and it varies significantly by product category and scale. From the brand owner's perspective, I have summarized several common types of manufacturer-distributor relationships.

  1. Laissez-faire Relationship Around 1995, when supply was insufficient, distributors operated independently, and companies only provided products and liaison personnel (whose duties were mainly payment, shipping, and communication of expenses). Business was driven by the demographic dividend. In an era of material scarcity, as long as a factory could produce quality products, natural distribution was sufficient to meet the network coverage needs of small and medium-sized enterprises. The laissez-faire relationship was the embryonic stage of China's FMCG industry. At that time, brand owners lacked management capabilities and were still in the exploratory stage. Distributors were also engaged in arbitrage, but fortunately, the demographic dividend was driving industry development.
  2. Managed Relationship Around 2000, competition intensified, and the terminal was king. The channel model focused on controlling terminals, with brand owners leading operations and distributors acting as delivery agents. Product proliferation led to fierce competition, and the drawbacks of crude channel distribution became apparent. Brand owners began optimizing channels, and the deep distribution model came to the fore, shifting the channel focus downward and placing competition at terminal outlets, with the slogan 'Decisive Battle at the Terminal.' Leading FMCG brand owners began deploying deep distribution operations. To improve operational efficiency, they recruited large numbers of sales personnel for a human-wave tactic, sweeping the streets indiscriminately. Around 2005, with the booming domestic economy and increasing demographic dividend, the gap in market product demand expanded, and many FMCG companies sprang up like mushrooms. At the same time, more people began to pay attention to this low-threshold business, and agents were educated by companies like Wahaha and Master Kong, quickly opening up the channel chain. New brand owners needed to establish local distributor channel networks to reduce operating costs, giving distributors more responsibilities, rights, and benefits, and began to retreat behind the scenes to handle 'logistics management services.' Around 2010, with the disappearance of the demographic dividend, the incremental market turned into a stock market, and brand owners' growth became less easy, bringing profit pressure. Additionally, with the standardization of labor laws and rising prices, labor costs surged, making the human-wave tactic unsustainable for many brand owners. So some brand owners designed the rights of manufacturers and distributors and began delegating authority to distributors, with the basic requirement being that distributors possess high operational efficiency. Around 2015, distributor bosses and frontline sales staff formed partnerships, with brand owners acting as sparring partners. The employment relationship between distributor bosses and frontline sales staff transformed into a partnership. Companies like Jinmailang believed that the more decentralized the distribution of rights, the stronger the initiative of personnel. Only by stimulating people's primal desires could market competition be invincible. As a result, Jinmailang, under the 'Four-in-One' model, led the annual growth rate among top FMCG companies for several consecutive years despite a weak market. The basic requirement here is that both the execution team and distributors possess a certain level of operational efficiency. The managed relationship dominated the FMCG industry for a long time, and we often hear the term 'distributor management capability.' A person without such capability cannot survive in a manufacturer. Regardless of how the channel coverage model changes, the brand owner's management position has remained unshaken.
  3. Partnership Relationship This type of manufacturer-distributor partnership has always existed, but it is less common in the FMCG industry (except for liquor). There are three typical forms of partnership: a. Co-creating a sales company: Manufacturers and distributors jointly establish a sales company to build a win-win platform. Through this, the two entities with different interests—manufacturer and channel—are basically overlapped in risk-sharing and benefit-sharing, aligning concepts and centripetal force, truly reflecting high integration. With unified thinking, common goals, and consistent behavior, it is easier to implement deep cooperation, jointly improve management, operations, and profitability, and thoroughly solve or avoid market operation puzzles and problems such as cross-region selling and dumping. b. OEM marketing: Distributors purchase the brand usage rights from manufacturers for OEM production. Manufacturers and distributors jointly set up a branch factory in the distributor's location, transforming the distributor's single role from merely selling the manufacturer's products to selling 'our' products, uniting to 'conquer the world,' thereby sharing risks and benefits, achieving a win-win effect. Through local OEM production, the two parties can be effectively 'bound' together, enhancing market response speed, improving operational efficiency, promoting flexible market operations, and improving market feedback mechanisms, allowing sustained rapid market development. c. Manufacturer 1+1 Model: The manufacturer sends business representatives to establish an office in the distributor's dominant market, i.e., manufacturer's office + distributor. The office directly handles market development, maintenance, brand promotion, and consumer education, while the distributor mainly plays a supporting role. Manufacturer personnel are not only market ambassadors for communication but also operators who help distributors develop and maintain markets. The essence of the 1+1 model is to connect the manufacturer's marketing system with the distributor's network system, forming a 1+1>2 system competitive capability. The manufacturer-distributor cooperation in building a systematic marketing model broadens the marketing value chain and is more conducive to regional market control and healthy development. The manufacturer-distributor partnership is an inevitable trend in the FMCG industry. On one hand, distributors' operational capabilities have reached a new height; things they couldn't do before can now be done independently. Distributors have their own ideas and will not blindly follow orders. On the other hand, the distributor boss group is also changing. Recently, I chatted with several post-90s distributor bosses who are more active in breaking old conventions and innovating, with stronger innovation capabilities and willingness. The original control model is clearly unable to constrain them.

Manufacturer-Distributor Partnership Must Achieve Unity of Form and Spirit The manufacturer-distributor partnership is an inevitable trend in the FMCG industry. So how to establish such a model? What are the handles? I have summarized three points for reference.

  1. Corporate culture must be connected between manufacturer and distributor: A gang relies on passion, a team on processes and systems, and an organization on culture. For FMCG manufacturers and distributors to unleash the power of partnership, they must share the same corporate culture. For example, many brand owners want to learn from companies like Nongfu Spring and Jinmailang, even spending heavily to hire their executives, but ultimately find that what they learn cannot be implemented. The main reason is that they learn the 'techniques' but cannot grasp the 'way,' and this 'way' is corporate culture. If the 'way' is not connected, the 'techniques' cannot be implemented. Therefore, manufacturer-distributor partnership must be built on the foundation of a connected 'way.'
  2. Process and system support: There is a saying that culture is the soul of systems, and systems carry the implementation of culture. The implementation of manufacturer-distributor partnership must be supported by relevant processes and systems; otherwise, even the best corporate culture will only be 'on the wall, not in the heart.'
  3. Iteration of partnership mechanisms: Recently, I learned that Jinmailang has begun to abandon the 'Four-in-One' model and is planning the 'Four-Separation' model. Indeed, any model has its matching period, and partnership mechanisms are no exception. With the development of enterprise scale, changes in market competition, and the development stage of the category industry, partnership mechanisms must be iterated; otherwise, elimination is only a matter of time.

Final Words

In this article, I have described the current development status of distributors from my research and surveys, briefly reviewed the evolution of manufacturer-distributor relationships, and finally introduced the handles for establishing manufacturer-distributor partnerships. I just want to tell FMCG companies a fact: the pure management model of distributors is gradually fading away. For long-term development, brand owners must establish a partnership mechanism where manufacturers and distributors share honor and disgrace, especially with the inclusion of core distributors, which is the cornerstone of brand development and the only way to reduce internal friction, unite against external competition, and enhance core brand competitiveness.