The survival and development of FMCG distributors are closely tied to changes in FMCG companies. When the FMCG industry continues to grow and companies expand rapidly, distributors develop in sync; conversely, distributors face heavy pressure and slow growth. As the overall FMCG industry growth rate slows and market competition intensifies, FMCG companies continuously raise their requirements for distributors.
China's economic geography and commercial development are characterized by a large population, complex geography, diverse consumption patterns, and varying market order, so there are multiple forms of manufacturer-distributor cooperation. Every sales model that has appeared in the market can be seen in the FMCG industry, and any sales model has its own space for survival and growth. However, when market competition reaches a certain level and early cooperative distributors cannot adapt to company needs, companies will reposition the role of distributors: either eliminate distributors, transform them into delivery agents, or establish joint ventures with them to form strategic partnerships. Of course, this phenomenon occurs in mature, highly competitive FMCG sub-sectors and is typically the behavior of leading companies in those sub-sectors.
Under the financial crisis, due to CPI increases and unstable income, residents reduced consumption of FMCG products, while industry competition became more intense. FMCG distributors face declining sales, slow capital turnover, low profits, inefficient terminals, serious cross-region selling, ineffective promotions, unsuccessful new product launches, and pressure from manufacturers. Although the domestic and global economies showed signs of stabilization and recovery at the end of 2009, the impact of changes in the FMCG industry on distributors has already occurred. How can FMCG distributors continue their response measures from the financial crisis? How can they create a manufacturer-distributor cooperation model that suits the new economic situation? Under the new economic situation, there are many factors influencing and driving distributor transformation. How can FMCG distributors implement reinvention and break through?
First, let us review the evolution of manufacturer-distributor cooperation sales models:
I. Analysis of FMCG Sales Model Evolution
Traditional Wholesale Model: This was a popular manufacturer-distributor cooperation model when the market economy first emerged. Its complete hierarchical structure was manufacturer → first-level distributor → second-level distributor → third-level distributor → retail terminal. Its most basic characteristics were multiple levels and wide coverage, allowing newly launched products to be distributed to terminals at all levels in the shortest time. Over time, the drawbacks of this model became apparent—as the number of manufacturers increased, the FMCG market gradually shifted from a seller's market to a buyer's market, and some emerging channels arose to adapt to market competition and company needs, gradually replacing the traditional wholesale channel model. However, in some local markets and for certain companies, this sales model is still used. The most typical representative is Wahaha, whose "joint sales" model can be considered a classic example of the traditional wholesale model. Today, Wahaha still relies on this sales model to expand across the national market and quickly grow stronger.
Controlled Wholesale Model: This is an upgrade of the traditional wholesale model, which is what we commonly call the conventional distribution model. Compared with the traditional wholesale model, the biggest feature of this sales model is that the levels of the distribution channel are shortened as much as possible, and manufacturers manage distributors by region. Under this short-level sales model, each distributor has its own market jurisdiction, and cross-region sales, cross-region selling, price undercutting, and vicious competition are not allowed. To clarify the rights and obligations of distributors, manufacturers clearly divide distribution areas, set sales targets for each area, agree on market expense support intentions, and sign distribution contracts with distributors. This marketing model has become the common choice for most small and medium-sized FMCG companies because of its low operating costs and simple operation.
Exclusive Distribution Model: This is a further segmentation of the controlled wholesale model. Its characteristic is that distributors only distribute one brand, or only one brand within the same product category. It avoids the multi-brand operation of distributors under the controlled wholesale model, helping distributors concentrate on market development and sales growth for a single brand. Under the exclusive distribution model, manufacturers require distributors to operate exclusively for the brand, and at the same time, they provide relatively greater marketing expense support, allowing distributors to obtain more resource support from manufacturers.
Wholesale Collaboration Model: This refers to manufacturers dispatching sales personnel to assist distributors in market development and terminal maintenance, help train distributor sales staff, and guide distributors in business planning and goal setting. The sales personnel dispatched by manufacturers actually play the role of distributor business managers, participating in frontline sales work and also in the management and training of distributor sales staff. The wholesale collaboration model is a sales cooperation model adopted by manufacturers when distributors lack professional skills, or to strengthen control over distributors and channels, and to obtain as much resource allocation as possible for their brand. The wholesale collaboration model is conducive to deep market distribution, penetration into lower-level markets, and terminal control, achieving the goal of rapid company development.
"I Sell, They Deliver" Model: This is an advanced form of marketing cooperation. Under this model, market development and sales work are entirely executed by manufacturer-organized sales personnel, while distributors only undertake the function of goods delivery. The "I sell, they deliver" model is generally adopted by large FMCG companies because their strength and brand power are strong, and products move quickly through terminals. To strengthen the development and control of terminal channels, manufacturers need to directly control terminals and reduce the risk of payment defaults, so they position distributors as delivery agents, having them undertake product delivery and prepayment functions. The characteristics of the "I sell, they deliver" model are that companies segment retail channels and directly develop and manage them, enhancing their ability to control market development and terminals, and reducing channel operation risks. Under this model, traditional distributors only undertake delivery functions and receive pure delivery fees, without participating in daily terminal management. The biggest disadvantage of this channel model is the high labor cost for companies to control terminals, requiring high marketing management levels, which is difficult for small and medium-sized enterprises. Leading brands in beer, instant noodles, etc., mostly adopt this model.
Direct Sales and Direct Delivery Model: This is a manufacturer-direct sales model. Under this model, in addition to organizing personnel to develop markets and maintain terminals, manufacturers also handle distribution and delivery themselves and bear the risk of accounts receivable during product sales. FMCG manufacturers adopting the direct sales and direct delivery model are generally very strong multinational FMCG companies. Relying on their strength and brand influence, they can achieve cash-on-delivery or advance payment for most products during distribution, leaving only a small portion of accounts receivable, minimizing the risk of payment defaults.
Comparative Analysis of Exclusive Distribution Model and Collaborative Wholesale Model: Under both the exclusive distribution model and the collaborative wholesale model, manufacturers provide certain policy support to distributors. Some support policies appear the same on the surface but are essentially different. Take the sales assistant, which exists in both models, as a simple example:
| Item | Exclusive Distribution Model | Collaborative Wholesale Model |
|---|---|---|
| Labor relationship of sales assistant | Belongs to distributor | Belongs to company |
| Salary of sales assistant | Paid by distributor, company subsidizes distributor | Paid directly by company |
| Management authority over sales assistant | Directly managed by distributor, guided and trained by sales representative | Directly managed by company business supervisor |
| Maintenance of intermediaries | Daily maintenance by business supervisor | Daily maintenance by sales assistant |
- Comprehensive Analysis of Sales Models: Different industry development stages lead to different sales models adopted by companies; the scale, strength, and position of a company in the industry also affect its choice or change of sales model. For a new FMCG sub-sector, the initial sales model adopted by companies is generally the controlled wholesale model; when the sub-sector develops to a certain extent and shows rapid growth momentum, companies often adopt the collaborative wholesale or "I sell, they deliver" sales model to seize the opportunities of rapid development and enjoy the returns from rapid industry growth. Leading national FMCG brands may adopt the "I sell, they deliver" model in first-tier cities, the "collaborative wholesale" model in second-tier markets, and the controlled wholesale model in third- and fourth-tier cities. FMCG sales models are dynamic and evolving; they cannot be generalized or fixed, and must be analyzed on a case-by-case basis.
II. Analysis of Distributor Role Repositioning under Different Sales Models
As sales models upgrade and change, on the one hand, manufacturers continuously raise service upgrade requirements for distributors; on the other hand, distributors continuously reposition themselves and improve. Below is a description of distributor role positioning under different sales models in different periods.
Role of Distributors under the Traditional Wholesale Model: Distributors under the traditional wholesale model mainly transformed from relevant departments of the commercial system during the transition from a planned economy to a market economy. Although the functional positioning of these departments changed, they did not synchronously transform their thinking; they remained mainly as sedentary merchants, waiting for customers to come, rarely engaging in market development and channel construction, resulting in a lack of market expansion functions. Although the traditional wholesale channel played a positive role in product distribution for a long time, as marketization increased, the drawbacks of the traditional wholesale channel became increasingly obvious, and channel members gradually differentiated.
Role of Distributors under the Controlled Wholesale Model: Under the controlled wholesale model, manufacturers' positioning and role requirements for distributors changed compared with the traditional wholesale model. Distributors not only need wholesale business but also retail business; they must not only maintain existing sales channels but also develop new sales channels and retail outlets. To meet the needs of new market and channel development, some emerging distributor forces gradually appeared. They accept new business operation ideas, carefully choose brands, have regional market distribution concepts, emphasize market development and channel construction, lower the channel center, gradually improve channel structure and market operation levels, and grow into the largest and strongest distributor group.
Role of Distributors under the Exclusive Distribution Model: Under this model, companies have clearer positioning and role requirements for distributors, stricter qualification certification standards, and the distributor group is more segmented. While manufacturers raise requirements for distributors, they also provide greater market expense support than under the controlled distribution model. Exclusive distribution is a more specialized sales model. Distributors under this model generally do not obtain excess profits or short-term wealth, but their development and profitability are relatively stable, allowing them to survive and develop over a longer period.
Role of Distributors under the Wholesale Collaboration Model: The wholesale collaboration model is generally adopted by rapidly growing companies. The reason for adopting this model is that distributors find it difficult to adapt to the needs of rapid company growth, or manufacturers need deep distribution. Under this sales model, although the manufacturer's marketing team plays a collaborative sales role, it actually plays the main role. The focus of the manufacturer's sales force further shifts downward, from helping first- and second-level distributors to visiting and maintaining terminals. Under this model, distributors act as the manufacturer's offices, and in some industries, specialized terminal service sales assistance organizations are established. This manufacturer-distributor united channel model plays an irreplaceable role in promoting new products, upgrading product structure, controlling prices, and building channel advantages. This united channel model takes into account the current economic environment and future development direction to the greatest extent, suits most current FMCG companies, effectively builds channel competitive barriers, and is often a powerful tool for small and medium brands to fight against strong brands and grow rapidly.
Role of Distributors under the "You Sell, I Deliver" Model: Under this sales model, there is no longer the concept of distributor, only the concept of delivery agent. Delivery agents only undertake the functions of product distribution and delivery and capital provision. Delivery agents earn logistics distribution fees and profits from capital occupation, but rarely obtain product sales profits. Under this model, although the profits of delivery agents are relatively stable, they are also relatively meager, making it difficult to achieve large gains.
III. The Road to Transformation for FMCG Distributors under the New Economic Situation
The FMCG industry is dynamic and constantly changing and developing. On the one hand, FMCG distributors will strive to adapt to changes in companies and adjust, trying to keep pace with company development; on the other hand, they will also step out of the circle related to companies and independently plan their own development direction and goals. These measures can all be called corporate reinvention. The paths to corporate reinvention include:
Developing in Sync with Companies: Distributors keeping pace with company development, following companies step by step, adjusting their organizational structure and market operation models according to company requirements, can be called developing in sync with companies. For example, transforming from a controlled wholesale distributor to a collaborative wholesale distributor, or from a distributor to a delivery agent, as required by the company. Developing in sync with companies requires distributors to have strong learning abilities and to keep their thinking in sync with companies; it also requires distributors to have high loyalty to companies, not abandoning them during development. Developing in sync with companies can be a development strategy formulated by distributors, or it can be interest-oriented, meaning the main interest bond maintaining cooperation is very strong.
Logistics Specialization Direction: If distributors continuously strengthen their logistics and delivery capabilities during cooperation with manufacturers, they can consider developing in the direction of logistics specialization. In addition to continuing as distributors for existing companies, they can spin off their logistics department into an independent logistics company, ultimately building a comprehensive operating distributor. A successful case in this regard is Hong Kong's Li & Fung Distribution Group, which focuses on distribution and OEM. It is a large comprehensive business group listed in Hong Kong with global operations. Its logistics specialization is very high and its competitiveness is very strong, making it a successful model of logistics specialization.
Market Specialization Direction: This is mainly reflected in three aspects: new products, promotion, and recruitment. Traditionally, the direction of new product development was proposed by the company's technical R&D department or marketing department; the promotion and recruitment of new products were based on feasibility analysis, product positioning, and product concept design at the time of project initiation. However, as competition among manufacturers intensifies and distributor power rises, manufacturers may increasingly rely on distributors for product development direction because distributors are closer to the market and can better perceive consumer needs. Similarly, for promotional activity design, advertising forms and content, and other market promotion behaviors, distributors are closer to consumers and have more confidence and execution ability than manufacturers. For manufacturers hoping to quickly expand sales areas and market share, channel members have higher recruitment ability and development efficiency, and some channel members even have the ability to "reverse recruit" and "customize" products.
Branding Direction: Brand has always seemed to be a proprietary term for manufacturers, unrelated to distributors. However, when consumers realize that the consumption benefits of products include not only product quality but also consumption experience, purchase service, and other values, they not only pay attention to the manufacturer's brand but also begin to pay attention to the distributor's brand. This change in consumer behavior has rapidly strengthened the brand awareness of channel members, because channel brand is not only an important factor in attracting consumers and bringing business, but also an important part of the product brand. In some industries and regions, the influence of channel brands has surpassed that of manufacturers' brands, becoming the standard for consumer identification and a guarantee of consumption quality. Conscious distributors, while promoting the brands they represent, will also pay attention to promoting their own brands and develop in the direction of branding.
Integration Direction: Acquisitions, mergers, and reorganizations occurring in the FMCG industry are also frequently happening in the distribution link in the same way, and the speed and scope of integration are continuously expanding. It is certain that in the next few years, this integration trend will accelerate and the intensity will increase. The integration and transformation of channel members will not only affect the competitive landscape of the channel link but also have a significant impact on the industry chain. The main characteristic of this influence is the emergence of cross-regional super channel merchants, which gradually integrate and concentrate channel resources, thereby driving products and brands to break through regional competition barriers, promoting large-scale product circulation and sales, and achieving significant reductions in market costs and increases in total profits. Distributor alliances can also be seen as a form of channel integration, especially alliances among distributors in the same industry.
Under the new economic situation, distributors face increasing challenges and narrowing space for survival and development. Only by breaking through can distributors step onto another development platform and enter a new round of development. The previous review of sales model evolution and analysis of distributor role transformation under different sales models can provide some reference for distributors to analyze their own role positioning and provide some sparks for their own path to reinvention. It is believed that the road to reinvention for distributors has already begun, and under the new economic situation, new-type distributors will soon stand out.
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