A major FMCG manufacturer held a performance review meeting for distributors covering January to April, and over 40% of distributors saw year-on-year sales declines. If we look only at traditional channel distributors, the proportion with year-on-year sales declines exceeded 50%.
At the meeting, distributors experiencing declines cited reasons such as "poor environment, weaker terminal sell-through, consumers having no money, and competitors investing more in promotions."
Currently, channel decentralization, online impact, and the rise of emerging channels like snack discount stores are continuously eroding traditional channel sales, meaning the market capacity facing traditional distributors is shrinking.
Thus, sales declines among traditional distributors have become common, but a small number of distributors have seen cliff-like declines (declines exceeding 20%), which seems abnormal and indicates significant changes in the market or within their own operations.
Reasons for Cliff-Like Declines
In recent years, I have visited multiple distributors with cliff-like sales declines, and the direct causes mainly fall into three points.
1. Long-Term Overstocking Leading to Distributor Collapse
Distributors who overstock for long periods face continuously rising risks. Once external adverse factors such as market fluctuations, weather impacts, or channel sluggishness occur, their business can quickly collapse.
One distributor saw a 70% year-on-year sales drop in April.
"Look, the warehouse is stacked to the ceiling. This year has been particularly rainy, and goods are moving out slowly," the distributor shook his head. "I really can't take more pressure. These goods will last four to five months. There are also over ten thousand units of last year's products being returned from the market. Even if the company covers half the handling costs, I'll still lose a lot."
To meet the manufacturer's sales targets, distributors have to overstock every month, especially at year-end, when they fill the warehouse to the brim to hit annual goals.
In the past, manufacturers would provide funds to handle unsold or near-expiry products, but as these funds are squeezed year after year, distributors are unwilling to overstock further. If they overstock, they have to bear the cost of unsold goods themselves. So, after continuous profit erosion, distributors finally see the light and come clean, no longer bowing to pressure from the manufacturer's business teams or leaders.
Additionally, excessive overstocking slows terminal sell-through.
"Last March, we overstocked, and the March products sold until September-October, bringing many negative effects: poor freshness at terminals, weaker sell-through, and low-price clearance of near-expiry products," a distributor said bluntly at a customer symposium.
When terminals sell products with long production dates over an extended period, they lose consumer trust, and sell-through slows.
Because today's consumers check production dates and believe that for the same product, fresher is better. If competitors' products have noticeably fresher dates, some consumers will switch to the freshest comparable competitor products.
Finally, the market falls into a vicious cycle of "overstocking—slow sales—loss-making clearance—overstocking again," eventually leading to a broken capital chain and complete exit.
2. Shift in Business Focus
In the FMCG industry, more and more distributors are shifting their focus, even abandoning the brand that helped them get started.
One distributor's sales dropped over 50%. "The distributor boss took on XX grapefruit juice, and the effort and resources spent on my brand have decreased," a salesperson sighed helplessly. "There's no choice; distributors want to make more profit."
In reality, the fundamental reason for the shift in business focus is the continuous decline in distributor profits, leading to a loss of confidence in the manufacturer. To increase profits, they start looking outward for new profit growth points.
The most common approach is diversification by taking on more brands.
The outcome of shifting focus is usually one of two:
- If they make money, distributors invest more effort in the new business, even shifting their focus entirely.
Visiting a beer distributor in a township market, he said, "The company only gives me three townships, and my share is already 80%. There's no room for growth. At the end of the year, my profit is at most XX thousand yuan."
The distributor continued, "Next, I plan to focus on running my three supermarkets. I really don't have time for the XX brand anymore. We've cooperated for many years, and I have feelings for it. My first pot of gold came from the XX brand. Once you find a new distributor, I'll quit completely."
- But more often, the newly taken-on brands don't bring quick profits; instead, they tie up more of the distributor's capital. Many distributors, after operating for over half a year, return to their original brand business.
Some distributors, in desperation, invest in unfamiliar fields, resulting in broken capital chains and no money to buy goods. Worse, some end up deeply in debt and completely exit the FMCG industry.
In a core beer market (with over 70% share), the original major distributor fled. "Distributor Lao Li worked in beer for over 20 years and accumulated tens of millions in assets. In recent years, seeing profits far below previous levels, he invested in mining on a friend's recommendation, lost heavily, and owed a lot of money. Now he's fled."
It's truly "decades of hard work, back to square one overnight."
3. Competitors Grabbing Market Share
Facing competitors increasing investment to grab volume, many distributors lack the ability to respond, or they have the ability but are unwilling to invest, waiting for the manufacturer to act. The result is inevitably a significant decline.
- Weak strength and no ability to respond: Such distributors are most easily eliminated in today's competitive environment.
One distributor, a husband-and-wife team, one delivering and one visiting, has no sales team and maintains a modest sales volume. But this year, they were unlucky: Competitor A made a push in their market, and they were powerless to respond, watching their market share drop.
Even if the company provides sufficient policies, they cannot quickly and effectively implement them at the terminal.
A manufacturer's manager lamented, "The company's policies are not useless for small distributors, but by the time the policy period ends, they can cover at most 50% of terminals because they can't handle the distribution."
- Having the ability to respond but unwilling to see profits damaged, they fail to actively respond.
"Competitor X京 is grabbing stores and volume through free beer giveaways, terminal promotions, and 1-yuan exchange activities; X京's efforts are strong, and we can't respond without company support," the distributor said confidently. He had operated XX beer for over 10 years and achieved the number one share locally.
When the company policy came down, the distributor complained again: "Now the competitor has a firm foothold at the terminal, and consumers are actively asking for the competitor's product."
It's not that this distributor lacks hard strength, but that he didn't take proactive action in the face of market changes, still holding a wait-and-see attitude.
"External competition is increasingly fierce. Distributors need great flexibility to respond to market competition. If they still go through company approval and verification processes, they can only watch their market share drop," a beverage brand distributor lamented.
Competition in traditional channels will only intensify. Many distributors are in the same situation as the two types above, but they are lucky not to have encountered strong competitors, so their sales haven't declined sharply.
A cliff-like sales decline means losing the manufacturer's market share. To win it back later requires more resources and time to compete.
Manufacturers Must Proactively Reform
Currently, the fundamental reason for the significant sales declines among many traditional distributors often lies not with the distributors themselves but with the upstream manufacturers. If manufacturers stick to old thinking, refuse to change proactively, continue operating with old models, and keep pressuring distributors, the entire terminal market will eventually face large-scale collapse.
To stabilize the market and drive healthy distributor development, manufacturers must proactively seek change and take action, solving market chaos at its root.
1. Proactively Adjust Inventory
Overstocking is the most complained-about issue among distributors. Manufacturers must completely abandon the extensive model that only looks at shipment volume, not sell-through, and stop blindly overstocking distributors.
Jingjiu (a Chinese health liquor brand) calculates reasonable terminal inventory based on historical sell-through data, strictly controls supply to prevent overstocking, and implements clear pricing with no high listing and low selling, ensuring smooth channel pricing.
"I want to order more, but the company won't allow it," a distributor said with a smile.
It is precisely this model of "no overstocking, no hoarding, no price gouging" that ensures healthy and stable distributor development. Data shows that Jingjiu's distributor churn rate is far lower than that of other major manufacturers' distributors.
Additionally, proactively adjusting inventory is not simply reducing inventory but planning inventory reasonably according to sales rhythm. For example, many distributors hold ordering conferences at the beginning of the year, overstocking heavily in the first quarter, leading to selling slow-moving products from early in the year in the second half.
"The manufacturer's manager said we can't fall below the same period last year and pressured us hard. Last July, we were still selling March products. July is usually peak season, but shipments were very slow. This year, we adjusted the ordering rhythm, and I'm confident we'll achieve growth for the full year," a leading dairy distributor told me.
2. Differentiate Products for Special Channels Like Online Platforms and Special Trade
With the rapid development of online channels and special distribution channels, channel chaos and price wars have become market norms. To avoid cross-channel transshipment and low-price chaos, manufacturers must create exclusive product differentiation for special channels such as online platforms and snack special trade.
Even if the product ingredients and contents are identical, as long as packaging and specifications are adjusted, consumers will naturally perceive them as different products and won't compare prices across channels, because consumers don't calculate details like company staff do.
Many leading brands are already implementing this model. For example, Nongfu Spring's Oriental Leaf has developed exclusive small-capacity products for special trade channels like Snack Busy.
Major manufacturers are also adjusting their online flagship product specifications to clearly differentiate from offline physical store products. For instance, a leading dairy company sells its main product, pure milk, in 250ml×12 boxes offline, while online it offers 200ml×16 boxes, effectively avoiding channel price conflicts, maintaining the overall price system, and protecting distributors' offline profit margins.
3. Respond Quickly and Flexibly to Market Demand, Provide Substantial Support, and Cooperate with Distributors
Recently, I visited a beverage client who was very impressed: "When competitors offered bundle deals and special prices, the manufacturer immediately matched us with flexible promotional policies to help us hold our terminal market share. We didn't have to spend our own money on price wars, greatly reducing our operating costs and market pressure."
A beer distributor told me, "Last year, the manufacturer developed a customized product for the local market based on demand, and now that product has opened up the market."
Market competition changes rapidly. Sticking to fixed policies can no longer keep pace with the market. Manufacturers must proactively get close to terminals and respond quickly to market demand, whether through flexible promotional policies, products suited to local markets, or joint staffing support. The goal is to provide distributors with substantial support and jointly expand the market.
Final Thoughts
Market operations have always been about reaping what you sow. There is no sales decline without cause, nor market share loss without reason.
Facing continuous sales declines among distributors, manufacturers must stop solely blaming distributors and must not continue the old practices of overstocking and one-size-fits-all policies. The true way to break the deadlock is to proactively reflect, get involved, and solve core pain points like inventory pressure, price wars, and passive competition from the distributor's perspective.
Only when manufacturers proactively reform and provide precise support, deeply cooperate with distributors for mutual benefit, can they revitalize the terminal market, break the sales decline impasse, and achieve long-term stable development for both the brand and distributors.