Over the past year, snack discount stores have sprung up across the country like mushrooms after rain, especially in central and southern regions, occupying almost every corner of the market. In this retail transformation storm, everyone talks about 'disintermediation,' leaving many distributors at a loss.
"I feel very confused now. If I were an older distributor willing to muddle along, it might be okay, but for the younger generation like us, it's too painful. Competition is getting fiercer. I've invested a lot of money in innovation, but the returns are pitifully low. With no profits, we still have to endure various pressures from manufacturers. Some brands even impose non-compete clauses on us, making it hard to breathe."
A distributor boss said this.
The entire industry is hotly discussing: where should distributors go from here?
From New Distribution's perspective, besides anxiety, we have also witnessed some distributors swimming against the current, developing steadily, and even leveraging the wave of snack stores to explore new growth points.
"Snack stores are taking business away; this macro environment is irreversible, so we have to find ways. To increase sales, we guide our stores to proactively change, setting up 9.9 discount zones to counter snack stores. This model has been very effective, not only helping partner stores increase foot traffic but also effectively boosting sell-through," shared a distributor from Rizhao.
In this storm, are distributors facing a disruptive threat or an opportunity for transformation?
Snack Stores Are Not a Fatal Factor
"To be honest, even before snack stores became popular, I felt business starting to decline," said a snack food distributor from Chengdu. "I've been in this business for over a decade. In 2018, business was quite good, with revenue reaching 80 million yuan. But by 2022, it had declined to 60 million yuan."
Business changes are not caused by a single factor. The impact of snack stores has indeed had some effect, but even without them, many distributors were already facing considerable operational pressure.
New Distribution's Mr. Yuan Lai once summarized the current business revenue structure of mainstream distributors.
Distributors' businesses have been plagued for years by inherent problems in various sales channels.
Take the supermarket channel: high market expenses, coupled with payment terms of two to three months or even half a year, put enormous pressure on distributors. One supplier reported that Yonghui Superstores charges 2,400 yuan for a single bulk item barcode entry fee, and 800 yuan for a fixed-weight item barcode.
With numerous and high fees, some distributors have to use lower-quality bulk products to offset high costs.
Distributors in the convenience store channel are also struggling, facing various unequal treaties, and some stores implement a rating system. For example, Hongqi Chain charges an annual service fee of 40,000 yuan per SKU. Although this fee is borne by the manufacturer, distributors still face the risk of unconditional returns.
Some distributors reported that products supplied to convenience stores like FamilyMart, Lawson, and 7-Eleven face the risk of being completely delisted if they are rated as C-class for three consecutive months.
During prosperous market times, these pressures seemed insignificant, but once the market turns sluggish, the same pressures feel multiplied, making business even harder.
Currently, the glory days of physical retail are over. According to Tonghuashun inFinD data, in 2019, 62 A-share retail companies had a total net profit of 24.463 billion yuan, but by 2023, that figure had shrunk to just 5.127 billion yuan, a decline of nearly 80%.
With the shrinking retail market and industry evolution, the pressure on distributors has shifted from profitability to survival.
The industry is undergoing a major restructuring. Stronger supermarkets have accelerated the removal of distributors, and more and more distributors are being eliminated. Meanwhile, the snack store market, from 3.7 billion yuan in 2017 to 80 billion yuan in 2023, represents more distributors' business being snatched away.
It can be said that the market reshuffle is an unavoidable hurdle for distributors, and the rise of snack stores has only accelerated the pace.
Accelerated Reshuffle
During market visits, New Distribution noticed that areas concentrated with snack stores have a very obvious impact on traditional retail formats.
According to feedback from some distributors, small stores generally see a 20-30% decline in business, supermarkets see a 10-20% drop in standard packaged snack food sales, and bulk weighed food sales have plummeted by about 30%.
When traditional terminal business declines, all links in the supply chain are affected.
Distributors face pressure from both ends of the supply chain.
To cut costs, small store owners often choose to buy from wherever is cheapest, and they also demand more flexibility in purchasing.
At the same time, supermarket return rates are rising. One packaged food supplier reported that the return rate for distributor-run sections was about 1% previously, but now it has risen by 1 to 2 percentage points, making the previous joint operation model plus fixed costs prone to losses. Distributors who solely run supermarket sections may even face bankruptcy.
On the other hand, manufacturers, in order to maintain performance in traditional channels, continue to push inventory onto distributors.
Manufacturers keep increasing the amount of goods they push, but the channels' ability to absorb them cannot keep up. In this predicament, the low-price strategy of snack stores further exacerbates the pressure on distributors.
Well-known big brands already have very thin profit margins, and snack stores use these big brands to wage price wars. Many snack stores sell products at prices even lower than the supply price distributors give to channels. To cope with competition, distributors even have to subsidize terminal sales out of their own pockets.
With thin profits on big brands, some distributors pin their hopes on white-label products.
Although white-label products offer higher profits, they carry dual risks for distributors: insufficient sales volume and low market acceptance. Their sales and market traffic are far lower than those of snack stores, so the gross profit often cannot cover the costs of team promotion and new product operations.
Moreover, with the sluggish market, small store owners are reluctant to try new products. To incentivize them to stock up, distributors have to provide additional services, including return and exchange policies, which undoubtedly increases their own operational risks.
The pressure that should have been shared by the entire supply chain now falls almost entirely on distributors' shoulders.
Opportunities for Quality Distributors
The market environment is showing two extremes.
On one hand, ordinary distributors see no future.
During market visits, New Distribution encountered a case: a distributor primarily serving community group buying channels had to continuously increase staff to maintain the existing business scale to alleviate the pressure from involution. As a result, the scale was maintained, but rising labor costs severely squeezed profit margins.
Continuing to operate yields no profit, but giving up is hard to accept, leaving them in a dilemma.
Unfortunately, compared to other peers, this distributor's situation, maintaining business without shrinking, is already considered quite good.
On the other hand, some quality distributors are seeing their businesses rise steadily.
"Although the overall environment is poor and our per-store output is declining, our total business volume has actually increased, probably because we've taken business from competitors," shared a major snack food distributor we visited earlier.
How exactly did they do it?
First, expand channel coverage. This distributor previously covered mainly BC-type medium and large supermarkets, but now is gradually penetrating downward, moving into small stores.
Second, while most distributors are still waiting or even resisting snack stores, he had already seized the initiative, not treating snack stores as competitors but turning them into partners—wholesale clients—with supply prices 5-6 percentage points lower than regular stores.
And as snack discount stores gain a larger share, they also apply to brand owners for resources to lower prices for the stores they cover.
These major distributors have strength and market influence. Instead of being impacted by the rise of snack stores, they have expanded their business scale and gradually absorbed the market share of smaller distributors.
For distributors without strong strength, it's not entirely hopeless; every stage has its own opportunities.
For example, becoming a service provider for snack stores. Snack stores cannot make advance payments, while brands require payment before delivery. Due to these institutional constraints, they need a service provider to advance funds. Although the profit for distributors is very low, it requires little effort and is hassle-free.
Conclusion
Currently, distributors do face numerous challenges, but this does not mean that everyone's prospects are bleak.
In fact, many distributors were already experiencing operational difficulties before the rise of snack store channels. The rise of snack stores has not brought only challenges; although it has seized market share, it has also created new demands and brought new opportunities for some distributors. They have explored new growth points against the trend and developed steadily, including some smaller distributors who seized the opportunity to turn things around.
However, only a portion of distributors can adapt to the changing market environment and seize opportunities. Many others, as mentioned earlier, try hard to reform but with little success, plagued by confusion and anxiety. If this continues for years, it might be wise to consider exiting the market at the right time.
Dear distributor bosses, how is your business doing recently? Feel free to leave a comment below to share.