The current marketing landscape for traditional FMCG companies can be summarized in three sentences: First, the product is what should change most, but it remains the same; Second, the distribution channel is what should change least, 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 distribution channel. Why should the channel change least? Because since deep distribution began, the channel has contributed greatly to growth. However, the channel is quietly changing, with two major shifts: One is the resurgence of "provincial distributors" and "second-tier wholesalers"; the other is the impact of Internet tools on channel efficiency. Manufacturers are not prepared for either of these changes. Some view the resurgence of provincial distributors and second-tier wholesalers as a regression of the channel. I believe that such natural changes, without strong forces driving them, are valuable.
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 "city distributor" model became mainstream because the sinking work was done well, suppressing the development of county distributors. 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 terminals 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 channel regression or a restoration of the provincial distributor system?
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 use 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 channels, it was difficult to sustain due to high costs. Therefore, the cosmetics industry now has two completely different channels: big brands go to terminals, and small and medium brands go through provincial distributors. Recently, in the FMCG industry, which has always been 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, letting them "naturally float goods" with their channel advantages. This is a "resignation" approach by manufacturers.
Why Are Provincial Distributors Making a Comeback? Most companies now using provincial distributors are the small and medium enterprises that were the first to sink their channels. Originally, when the market had more space, big brands used provincial distributors, and small and medium enterprises used city distributors; when big brands used city distributors, they used county distributors; when big companies used county distributors, small and medium enterprises 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, precisely when big brands were doing deep distribution. Why have provincial distributors become popular in recent years? Because big brands' deep distribution is no longer sustainable, giving provincial distributors room to survive. We once predicted that provincial wholesale markets would disappear, but now it seems we were wrong. Of course, today's provincial distributors are not a replica of the past; they are upgraded. Because now they are not just sitting merchants but have their own sales teams, their own downstream networks, and even their own delivery teams. Manufacturers have retreated two steps, and provincial distributors have advanced two steps. A provincial distributor may handle small brands, but they have many brands. Moreover, since they mainly "float goods," they offer higher gross margins to retail stores. 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.
The Internet Role of Provincial Distributors Although provincial distributors are building their own teams, the market is too vast to cultivate deeply, and small and medium manufacturers' products 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.
The Resurgence of Second-Tier Wholesalers Now, big FMCG brands are experiencing declining sales, deep distribution is disappearing, and second-tier wholesalers are making a comeback. Since the resurgence of second-tier wholesalers, manufacturers 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, because as long as a space is vacated, it will not remain empty; someone will fill it.
The Irreplaceable Role of Agents in the FMCG Field A while ago, an article went viral titled "'No Middlemen to Earn the Difference' Is the Biggest Marketing Lie," which illustrates that agents are irreplaceable in the FMCG field. 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 role of agents is hard to replace in the manufacturer-agent-retail chain, except for large terminals, even with the Internet, especially the new product promotion capability of agents. Many B-end e-commerce platforms in China are engaging in cross-regional selling of best-selling old products because they lack new product promotion capabilities.
Internet Tools Are Changing Channel Efficiency Should we bypass agents to improve efficiency, or use Internet tools to improve efficiency in the existing channel? I lean toward the latter. I believe 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, costs are too high; second, efficiency is too low. High costs are manifested in: first, high distribution costs; second, high labor costs. Because channel terminals are small in scale and highly dispersed geographically. Low efficiency is manifested in: too few orders 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 me not talk about e-commerce first, but treat the Internet as a tool, such as SaaS systems. Another aspect of 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.
Summary: The resurgence of provincial distributors and second-tier wholesalers is the channel's instinctive self-protection in response to social changes, and it has already changed the channel; Internet tools, without changing the existing channel structure, can greatly improve efficiency and reduce costs, and are changing the channel operation system. Perhaps on the surface, the channel seems unchanged, but from the perspective of internal operations, the channel is already very different.
At the request of many distributor friends, the fourth B-end e-commerce inspection class of this public platform will go to Nanjing and Hangzhou from August 15 to 18 to inspect two platforms: Qianmi.com and Alibaba Retail Link. Distributor friends interested in transformation can join us for on-site inspection:
Activity process: Time: August 15-18
15th: Check in at designated hotel in Nanjing; 16th: Inspect Qianmi.com, then take high-speed rail to Hangzhou in the afternoon; 17th: Participate in the "FMCG Distributor B2B Transformation Exchange Summit"; 18th: Inspect Alibaba Retail Link in Hangzhou;
Distributor friends interested in transformation are welcome to join us to learn and inspect on-site:
Organization Form
- Company visit
- Actual market case visit
- On-site explanation
- One-on-one communication
Participating distributor friends only need to pay a registration fee of 200 yuan. Other expenses are self-covered. Note: This inspection is limited to distributors only.
Interested distributor friends can register by long-pressing the QR code below. When adding, please note: "Fourth Registration".
Non-participants, please do not disturb
Group Photos from Previous Inspections: Group photo of the 3rd B-end e-commerce inspection, from top to bottom: Yunbao Shangmeng, Weijie Chengpei, Wanshang Yizhan. Group photo of the 2nd B-end e-commerce inspection, from top to bottom: Jinhuobao, Caiba, Yishang. Group photo of the 1st B-end e-commerce inspection, from top to bottom: Piduoduo, Beiquan, Yishang.
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