Currently, the marketing landscape for traditional FMCG companies can be summarized in three sentences: First, the product is what most needs to change, but it remains the same; Second, the channel is what least needs to change, but it has quietly changed; Third, the internet's greatest impact on traditional business is in communication, yet traditional companies are clearly at a loss. Today, I will focus on the quiet changes in the channel. Why is the channel the least likely to need change? Because since the era of deep distribution, the channel has contributed greatly to growth. However, the channel is quietly changing, with the most significant changes being: First, the resurgence of provincial distributors and second-tier wholesalers; second, the change in channel efficiency brought about by internet tools. Manufacturers and distributors are not prepared for these two major changes. Some view the resurgence of provincial distributors and second-tier wholesalers as a regression in the channel, but I believe that such natural changes, without strong forces driving them, are valuable. 01 The Provincial Distributor Was Once Revolutionized China's channel transformation began in 1997 with the sinking of channels, changing provincial distributors to city distributors, and then to county distributors. Around 2000, the basic pattern of county distributors was formed and remained quite stable, with slight regional variations. For example, in coastal provinces, the sinking of city distributors was well implemented, suppressing the development of county distributors, making city distributors the mainstream. Once the pattern stabilized, marketing competition evolved into deep distribution competition. Deep distribution did not change the agency pattern; its purpose was to bypass second-tier wholesalers and reach the terminal directly. Therefore, for a long time, second-tier wholesalers nearly disappeared. Now, in addition to the resurgence of second-tier wholesalers, provincial distributors are also making a comeback. Is this a regression of the channel or a restoration of the provincial distributor? 02 The Resurgence of Provincial Distributors I first heard about the resurgence of provincial distributors in the cosmetics industry, around 2010. Large cosmetics brands basically focused on terminals. Moreover, the washing and chemical giants mainly focused on terminals. Some washing and chemical brands that went through channels did not have strict control over circulation, and in fact, it was difficult to control. Domestic cosmetics brands mostly go through channels. Due to limited retail terminals for cosmetics, county or even city distributors find it hard to achieve scale. So, although many cosmetics companies once sank their markets, it was difficult to sustain due to high costs. Therefore, the cosmetics industry now has two completely different channels: large brands go to terminals, and small and medium brands go through provincial distributors. Recently, in the FMCG industry, which has always practiced deep distribution, some small and medium brands, unable to support deep distribution due to market scale, simply use their marketing budget to engage provincial distributors, allowing them to leverage their channel advantages to "naturally float goods." This is a "resignation" approach by manufacturers. 03 Why Are Provincial Distributors Making a Comeback? The companies now acting as provincial distributors are mostly the small and medium enterprises that were the earliest to "sink channels." Originally, there was more market space. When large brands used provincial distributors, small and medium enterprises used city distributors; when large brands used city distributors, they used county distributors; when large enterprises used county distributors, small and medium enterprises once tried township distributors, but practice proved that township distributors had no future. After several struggles, small and medium enterprises chose to return to provincial distributors, which happened to be the time when large brands were doing deep distribution. Why have provincial distributors become popular in recent years? Because large brands' deep distribution is no longer sustainable, which actually gives provincial distributors room to survive. We once predicted that provincial wholesale markets would disappear, but now it seems we were wrong. Of course, the current provincial distributor is no longer a replica of the past; it is an upgraded version. Because the current provincial distributor is no longer a sedentary merchant, but has its own sales team, its own downstream, and even its own distribution team. Manufacturers have retreated two steps, and provincial distributors have advanced two steps. A provincial distributor may handle small brands, but there are many of them. Moreover, with a focus on "floating goods," the gross margin for retail stores is relatively high. After small and medium manufacturers switch to provincial distributors, they can focus on R&D. According to one manufacturer, a small factory evolved its product six times in half a year. Product evolution has also gained more survival space. 04 The Internet Role of Provincial Distributors Although provincial distributors are building their own teams, the market is too vast to cultivate deeply, and the products of small and medium manufacturers are not suitable for deep cultivation. So, how do provincial distributors establish close ties with downstream and retail stores? In fact, the internet provides complete tools. Mobile apps are the best tool for provincial distributors to interact with their downstream. Developed third-party logistics provides conditions for provincial distributors to save logistics costs. The demand for small and medium brands in the channel market is the soil for provincial distributors' survival. 05 The Resurgence of Second-Tier Wholesalers Now, sales of large FMCG brands are declining, deep distribution is disappearing, and second-tier wholesalers are making a comeback. Since the resurgence of second-tier wholesalers, manufacturers and distributors have not found effective remedies. Although I believe SaaS systems are effective tools for B-end e-commerce, few companies are aware of this now. The resurgence of second-tier wholesalers also provides space for provincial distributors. After all, as long as a space is vacated, it will not remain empty; someone will fill it. 06 The Role of Agents in the FMCG Field Is Hard to Replace A previous article went viral titled "'No Middleman to Earn the Difference' Is the Biggest Marketing Lie," which illustrates that the role of agents in the FMCG field is hard to replace. I agree with this view. Some products can bypass all channel links, such as clothing, cosmetics, home appliances, digital products, and furniture, so C-end e-commerce accounts for a relatively high proportion. In the FMCG industry, the manufacturer-agent-retail chain, except for large terminals, the agent role is hard to replace, even with the internet, especially the agent's ability to promote new products. Many B-end e-commerce companies in China currently engage in channel diversion of best-selling old products because they lack the ability to promote new products. 07 Internet Tools Are Changing Channel Efficiency Is it more efficient to bypass agents or to use internet tools to improve efficiency in existing channels? I lean toward the latter. I believe that improving channel efficiency is more important than reducing channel levels. Deep distribution was once a sharp weapon, but why can't it continue now? First, the cost is too high; second, the efficiency is too low. High costs manifest as: first, high distribution costs; second, high labor costs. Because the terminal scale is small and geographically highly dispersed. Low efficiency is manifested by too few transactions per day in vehicle sales. How to improve channel efficiency? I think this is the strength of the internet. Given my natural hostility to e-commerce, let's not talk about e-commerce first, but treat the internet as a tool, such as SaaS systems. Another link in the traditional channel is the problem of high distribution costs, which will eventually be solved through socialized distribution systems. Moreover, the distribution system may be separated from the order system in the future, just as the logistics system of C-end e-commerce is separated from the platform system. The SaaS system is not only an order system but also a promotion system, based on internet tools. Some venture capitalists also regard it as a B-end system. Socialized third-party distribution systems are already playing a role in many places, and this is definitely a trend. Source: Teacher Liu's New Marketing Tips will be paid 400-2000 yuan once the tip is adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer and distributor transformation and channel digital solutions