In the early years of the Ming Dynasty, Zhu Sheng, a seasoned strategist for Zhu Yuanzhang, devised the clever plan of 'building high walls, storing abundant grain, and delaying kingship,' which laid the foundation for the 276-year Ming Dynasty. 'Storing abundant grain' meant expanding war reserves, essentially inventory, a strategy still adopted by the food industry at the beginning of this century. But in recent years, inventory has suddenly become a headache for distributors. Especially since last year, the problem of product backlog has become an unavoidable reality in the industry. Whether small or medium-sized distributors or those with assets over 100 million yuan, inventory pressure has left many gasping for air. According to Sugar Tobacco Wine Weekly, there are four main reasons for this phenomenon. Macro Impact Adjustment of Food Industry Structure In recent years, China's economy has entered a new normal, and the food industry has also entered a period of structural adjustment. Specifically, the direct impact of food industry structural adjustment on distributor inventory can be summarized in three words: 'reduce, adjust, and accelerate.'

  • Weakened consumer purchasing power. During the survey, Qin Zhijun of Henan Jiaxian Chenxu Trading Co., Ltd. stated: 'Economic downturn means that for ordinary people, money is worth less, and both their actual spending power and expectations are suppressed. For example, this year, sales of Master Kong series products in our supermarket channels have dropped nearly 40% compared to the same period last year.' Higher targets and harder sell-through naturally lead to product backlog.
  • Retail transformation, terminal formats becoming more diverse. Whether inventory can be reasonably allocated is closely related to how many channels a distributor controls. In recent years, China's retail terminal formats have developed rapidly, with a number of new terminals emerging, which has had a huge impact on the domestic food industry and posed more challenges to distributors.
  • Take Tongbai, Nanyang, Henan as an example. The local population is about 400,000. A distributor controlling 200 terminal outlets plans to achieve an annual target of 1 million yuan, meaning each terminal store needs to bear an average of 5,000 yuan in product inventory. With the diversification of channels, the same consumer base and purchasing power, more new terminals not controlled in time are covered by competitors, naturally dividing the inventory digestion capacity of the original 200 outlets.
  • Rapid replacement of new products, consumer needs difficult to grasp. In recent years, the food industry has entered a period of structural adjustment, showing severe overcapacity. In this situation, most food companies generally experience squeezed growth, and product competition intensifies. To achieve sustainable development, companies are accelerating the launch of new products year by year, and the phenomenon of category following is becoming increasingly serious. This often leads to two situations: first, when category heat declines and new product sales drop, companies often abandon and start over; second, cultivating Chinese consumers' habit of frequently abandoning old for new makes core purchasing needs difficult to grasp. Direct Causes Enterprise Overcapacity, Marketing Concepts Need Improvement For a long time, driven by China's rapid economic development, the industry's overall growth rate has remained above 30% through a 'force-feeding' approach. In the early 20th century, the domestic food market was a seller's market with longer product life cycles, which benefited many companies. In today's buyer's market, following hot categories to layout production capacity has become a normal phenomenon. Take the dairy industry as an example. Currently, China's milk powder production capacity, including production by Chinese and foreign companies in China and by Chinese companies abroad, is about 1.5 million tons, but current milk powder consumption is only 600,000 to 700,000 tons. With the full implementation of the two-child policy, demand is estimated to reach 800,000 tons, indicating obvious overcapacity. In recent years, with intensive advertising for pre-mixed cocktails, sales have exploded. Many people saw this category as profitable, and both manufacturers and distributors rushed in. But the pre-mixed cocktail market was not that big, ultimately leading to overcapacity and severe distributor inventory. In addition, products like oat chocolate, steamed cakes, energy drinks, and black water are also 'frequent visitors' in distributor inventory. However, compared to previous years, the overall inventory level of distributors has decreased. This is mainly due to two reasons:
  • First, with rising rent and labor costs, terminal stores are constrained by capital and input-output ratios, making it much less likely for them to become 'reserve warehouses' for distributors;
  • Second, over the years, secondary distributors have been marginalized. Many have sought transformation, no longer delivering but trying to build their own terminals and transform into supermarkets, so their inventory digestion capacity has greatly weakened compared to the past. Despite the overall inventory reduction, the inventory pressure on distributors has not eased, mainly because manufacturers and distributors have misjudged the rhythm of inventory in peak and off seasons. For years, the '1.5 times safety stock method' has been the main standard for task allocation and distributor inventory management. But perhaps few realize that the '1.5 times safety stock method' was calculated 20 years ago during the early development of the food industry. Channel management expert Li Linchun said: 'With changes in delivery cycles, enterprise production capacity, distributor inventory, and other factors, this management method is no longer applicable. In the era of Wahaha's rise, deliveries were based on railway transport, and distributors needed to reserve 15-20 days. But today, it can be completed in basically 3 days. Coupled with the general overcapacity of food companies, the significance of stockpiling products has diminished.' Self-Analysis Profit System Restructuring, High Operating Costs Distributors are units that have sales in a certain region and field, with an independent operating system, operating multiple product categories to obtain intermediate profits. Simply put, distributors buy goods not for their own use but to resell, focusing on the price difference. In this regard, practical marketing expert Shi Shunkuan said: 'At present, most distributors, from their educational level, management level, and their environment and position, have problems of 'waiting, relying, and demanding,' which indirectly or directly lead to large inventory backlogs.'
  • First, excessive pursuit of trends. For distributors, product mix determines the speed of inventory sell-through. But in reality, many distributors are still in a chaotic state regarding product selection, positioning, and elimination. Especially, many distributors fail to stay alert to products in the peak sales period, catching the last wave and failing to digest in time, leading to backlog. This has happened frequently in the cocktail and short-shelf-life baking industries in the past two years, with many cases of distributors being trapped at high levels.
  • Second, difficulty resisting manufacturer preferential policies. Many distributors, in order to obtain rebates and support, often purchase large quantities from manufacturers at once, leading to higher inventory and less cash. Once products are 'not adapted' to the market or their sales forecasts are inaccurate, it is easy to have large backlogs that are hard to clear in time.
  • Guo Xiaojuan, owner of Sanmenxia Huimin Supermarket, said: 'Before 2016, Evergrande Spring Water held an ordering meeting. At that time, I didn't consider comprehensively and ordered a lot. But this year, Evergrande Spring Water has high sell-through pressure, and the local price system is chaotic. Currently, the products on our market are basically from January this year.'
  • Third, chaotic warehouse management. Receiving goods according to order quantity is basic common sense in warehouse management, but many distributors rarely strictly implement it, signing orders and delivering goods casually. In the end, distributors themselves don't know how much has been shipped and how much is still in the warehouse, resulting in a large number of near-expiry and losses. In this situation, when distributors next order from manufacturers, they still don't know how to combine products reasonably, and products easily go to the extremes of stockout or backlog. Objective Factors Three Years of Cool Summers, Beverage Industry Encounters 'Black Swan' In 2016, the sudden heavy rain in the south caused great losses to all walks of life, and the beverage industry also suffered from sales decline due to the rain. 'This year's beverage industry is relatively flat; all passion has been extinguished by the rain,' a beverage industry practitioner said, pointing out the crux. After last year's off-season, beverage companies had hoped for a big year this year, but bad weather disrupted their plans. In recent years, although the beverage industry has maintained positive growth, the growth rate has declined significantly. In 2015, national soft drink sales grew only 4% year-on-year. In 2014, the growth rate was 13%. In the decade from 2001 to 2011, the average annual growth rate of national soft drink sales exceeded 20%. In the past two years, large companies such as Coca-Cola, Uni-President, Master Kong, and Wahaha have all experienced varying degrees of performance decline. Regarding the slowdown in beverage industry growth, Li Linchun said: 'Weather factors are a very important reason, especially the 'cool summers' and 'rainy weather' in the past two years have had a significant impact on this industry.' From a human perspective, when the outdoor temperature exceeds 33°C, the urge to replenish water becomes very strong, and beverage products naturally sell quickly. But from the weather data of the past four years, the number of days above 33°C in summer is decreasing year by year. Take Mizone, the leading brand of light beverages, as an example. Its main sales areas are concentrated in South China, East China, and Central China. In 2016, it rained in South China and Central China, leading to sales decline. In the first half of this year, Mizone's sales declined 4% compared to last year. Taking Hangzhou as an example, the number of days above 33°C dropped from 72 days in 2013 to 21 days in 2015, confirming the impact of weather factors on the beverage market in the past three years. With pressure from manufacturers to stock up, risks of terminal sales performance, and the impact of a sluggish industry environment, distributors are in a difficult position. Severe inventory pressure can cause many problems and become a stumbling block to distributor transformation. Reasonable inventory planning and expanding overall market demand are important methods to reduce inventory. As the domestic economy enters the 'new normal,' food distributors should treat the market rationally and maintain a balance between supply and demand to ensure their healthy development. Source: Food Business (ID: tyjzksp) 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 on August 15-18 to inspect Qianmi Network 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: On-site inspection of Qianmi Network, then high-speed rail to Hangzhou in the afternoon; 17th: Participate in the 'FMCG Distributor B2B Transformation Exchange Summit'; 18th: On-site inspection of Alibaba Retail Link in Hangzhou; Distributor friends interested in transformation are welcome to join us to learn and inspect on-site: Organization Form ************1. Company visit

  1. Actual market case visit
  2. On-site explanation
  3. 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 Distributor friends interested can register by long-pressing the QR code below. When adding, please note: 'Fourth Phase Registration'. Non-participants, please do not disturb Group Photos of 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. -END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Distributor market operation | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brand | 016 Distributor B2B transformation | [Long press QR code to follow]