Click 'Read Original' for details Do distributors need digitalization? New Distribution's '100 People' column has reported on over 60 outstanding large distributors, and the unanimous answer is: Digitalization is not a choice but a must-do. Let's look at two cases: Recently, I conducted research in a county-level market in Kaifeng and talked with two local daily chemical distributors about their businesses. The first distributor started business in 1995, reached 10 million yuan in sales by 2010, but by 2021, sales had dropped to 8 million yuan. The business has always operated with the old model, driven primarily by manpower. The second distributor, born in the 1980s, switched from being a truck driver to trading in 2014. By 2021, the business had grown to around 30 million yuan. In the second year of starting the business, he began digitalization, putting all business operations online. New Distribution has previously stated that traditional distributors are traditional because of their rigid models and low efficiency. This is not to say that the old business model is bad, but in the current market environment, human-driven efficiency cannot meet the needs of business development. For distributors, transitioning from human-driven to data-driven operations, replacing inefficiency with higher efficiency, is an inevitable path.
Digitalization Is an inevitable result of distributor development The granularity of data is often positively correlated with the scale of the business. In February and March this year, I visited frontline markets and visited a number of distributors. During the exchanges, I noticed some common phenomena. When communicating with distributors, I usually first understand their basic situation. What is your current annual sales? How many stores do you cover? How many of each store type? As managers of a trading company, these should be the most basic data, after all, they are the source of business. But from the answers, you can see some clues. Most distributors with sales of 10-20 million yuan have a vague understanding of their daily operational data. Typical answers are: no specific statistics, probably around 10 million, and about 500-600 stores. Distributors with a certain scale, around 50 million yuan, have a keen sense of their daily operational data. Before answering, their first reaction is to open their phones and check the data on the system. For example, annual sales of 80 million yuan, 1,392 traditional channel stores, 20 KA supermarkets, 300 convenience stores, etc. Distributors with business over 100 million yuan often answer in more detail. For example, 4,000 traditional channel stores, with proportions of A, B, C class stores; 50 KA supermarkets, with counts for each chain system, etc. They may even have deeper analysis, such as the cost-effectiveness ratio of each store, the SKUs tested in each store, and the effectiveness of store promotions. On the surface, it's about data granularity, but deep down, it's about the ability to acquire and apply data, and the depth of thinking about the business. From this perspective, for distributors to scale, digitalization is a must.
Common Misconceptions in Distributor Digitalization Distributor digitalization can be roughly divided into three stages. The first stage: Information digitalization. Distributors' use of digital tools is basically limited to simple inventory and financial management, as well as salary assessment and work check-ins. The second stage: Business digitalization. Distributors have linked daily business with digitalization: products online, personnel online, orders online, expenses online, customers online. Data granularity is finer, data has a basic accumulation, and simple analysis is done, such as sales proportion by channel, output per store, cost-effectiveness ratio, etc. The third stage: Operational digitalization. Business and data are highly integrated. All decisions are no longer made by "slapping the head" (i.e., gut feeling) but based on in-depth data analysis to formulate business strategies. Transform data value into business value, such as store classification and annual/quarterly/monthly business planning. In past visits and exchanges, New Distribution has seen that many regional leading distributors have reached the third stage with a high degree of digitalization. However, in lower-tier markets, many distributors are exploring digitalization and have fallen into some misconceptions, hindering progress. Common misconceptions include: 1) High employee resistance, slow progress Many distributors report significant resistance from employees during digitalization. Digitalization means business transparency, and past "money-making" tricks by salespeople, such as false orders or pocketing promotion fees, can no longer continue. As vested interests, digitalization reduces their income, so they naturally find various excuses to resist, such as not knowing how to use software, wasting time, etc. Some distributors lack determination when facing such situations and do not enforce requirements, leading to slow digitalization progress. This mindset is clearly wrong. When distributors recognize that digitalization is a must-do, they must anticipate short-term turbulence and implement with a "strong hand." For example, a distributor in Hubei faced resistance from almost all salespeople when promoting digitalization. His method was to give resistant salespeople two choices: transfer to warehouse management or resign. Thus, digitalization progressed quickly. 2) Treating digital tools as "surveillance machines" Distributor digitalization is about empowering tools to make daily work simpler and more efficient, improving business efficiency. But in practice, many distributors turn tools into "surveillance machines" to monitor salespeople: real-time location tracking, storefront photos, and timed check-ins. Salespeople's daily work is to visit customers, maintain relationships, and take orders, but now they must follow requirements: check in at 20-30 stores daily, take photos, and upload them. On the surface, the number of visits increases, and bosses can supervise in real-time, but in reality, a lot of effective time is wasted on useless work, order efficiency may decline, and salespeople become resentful. Digital empowerment is not about increasing employee burden but about using data to help employees serve the terminal faster and more efficiently. For example, for new product promotion, use store sales data to help salespeople select suitable stores for promotion. 3) Unclear leadership in distributor digitalization Distributor digitalization generally has two forms: manufacturer-led and distributor-led. If a distributor represents a single brand, all daily operations revolve around that brand, and manufacturer-led digitalization is fine. But most distributors operate multiple brands, each with different operational indicators. If brand manufacturers lead, data is hard to unify, which is not conducive to distributor digital operations. Secondly, distributors cannot ask salespeople and terminal owners to download dozens of brand apps on their phones. Therefore, for distributors, digitalization must be led by the distributor themselves, based on their own business digitalization needs.
Key Capabilities for Distributor Digitalization A couple of days ago, I saw a post on WeChat Moments from Sun, the head of Nanjing Aiyou, previously reported by New Distribution: "The mask created a crisis, causing many industries to fall into difficulty, but it is also the beginning of opportunity. Traditional distributors need digital transformation to achieve: I have what others don't, I excel where others have, I am faster where others excel!" Indeed, in the current market environment, many distributors have realized the importance of digitalization. So, what capabilities should distributors focus on building? Based on New Distribution's past interviews with over a hundred outstanding large distributors, I have summarized several key points. 1. Strong channel control capability In a sense, digitalization helps distributors break free from dependence on manufacturers. In the past, distributors relied on brands, and stores valued brands because big brands sell well. This led many distributors to be held hostage by brand owners, forced to execute their requirements and bear enormous sales pressure. Digitalization is gradually changing this. Distributors can analyze store data to see which products are suitable for promotion, not necessarily big brands, but brands consumers are willing to buy. Through such data analysis, distributors can proactively source products from the upstream supply chain. These products need not be first-tier brands; they can be lower-tier brands or even private-label products. This is why in recent years, we've seen many distributors no longer dependent on brands, cutting off overly dominant brands, and even starting to develop their own private labels. 2. Platform-based distribution capability Adding a brand will inevitably increase sales; this logic holds. But at the distribution level, without digital empowerment, most distributors do not have the capability to distribute 100 brands. Why? Distributing 10 brands can be managed through salesperson management and manpower. Distributing 100 brands by manpower is basically impossible. Some distributors might say that each manufacturer provides sales support, so distribution is not a problem. But even with enough salespeople, distributors would struggle to find time and energy to manage them. The role of digitalization is to help distributors establish platform-based distribution, making products online, and in a sense, infinitely amplifying distribution capability, so distributors do not need huge manpower to maintain market operations. What distributors need to focus on is online management of categories and brands, accurately matching products for terminals, and timely order fulfillment. 3. Market service capability In the past, distributor market services were mostly about distribution and selling, and at best, some visual merchandising. But now, that's far from enough. They cannot rely solely on traditional promotion actions like distribution and display; they must shift the focus of market service to using new digital methods to effectively help terminal sales. For example, how to classify stores? What products to test? What promotion strategies to use? How much to invest in expenses? These deeper issues require distributors to analyze, decide, and serve the market through digitalization.
Final Thoughts In the current market environment, distributors really must use technology to transform their own businesses and then achieve expansion. China's commercial distribution field is highly competitive under the trend of big fish eating small fish. Digitalization is also an opportunity in this process. The sooner, the better; whoever does it first can establish user experience earlier and stay ahead of competitors. How can distributors do digitalization well? At the (7th) China FMCG Channel Innovation Conference (July 12-14, Chengdu), New Distribution will invite outstanding large distributors to share their digitalization practices in two forums: "Distributor Model Transformation" and "Distributor Category Growth." Interested friends should not miss it. Good article! Must like, watch, and share.