What Will Distributors Who Survive the Next 5 Years Look Like?

Click to read the original text for details As the title suggests, what will distributors who survive the next 5 years look like? In the past, the industry has constantly discussed that distributors' businesses are unsustainable, that distributors are oppressed by upstream and downstream partners, that distributors cannot be replaced... and a series of other irrelevant, long-standing judgments. These statements are factual and reasonable, but they are insufficient to drive the development of the commercial circulation field, or to support distributors in doing better and longer-lasting business. In October 2019, at New Distribution's "Distributor Landing Growth" course, we first proposed the future business directions for distributors, focusing on three types: First, brand distributors, who form strategic partnerships with a leading brand and provide localized marketing services for the brand; Second, category distributors, who focus on a specific category, combine brands and products, seize category shelf space, and squeeze out competitors; Third, channel distributors, who provide one-stop multi-category product procurement for small retail or catering stores. These three directions for distributor business were the result of discussions with over a hundred distributors in the past. However, we still feel it's not enough; the direction guidance only solves the big premise and provides very limited practical help for distributors' businesses. -01- What is the real lever for a distributor's business? At the beginning of 2020, due to the pandemic, most distributors were affected to varying degrees. New Distribution surveyed dozens of distributors, and during the research, we unexpectedly found that many distributors still achieved significant growth even under new environments and impacts, with a small number achieving 20%-30% growth. Exploring the reasons behind this, combined with discussions with other distributors, including those who have continued to grow rapidly in the past two years, we are confident that these distributors who grew against the trend all used digital tools to improve their business efficiency. Based on this insight and research, New Distribution judges that in the future commercial circulation field, "digital distribution" will be the core and only lever for sustained business growth for distributors. Without digital distribution, lasting business is impossible. This is the foundation for all distributors to firmly establish themselves in the local market over the next 5 years. In this era of stock competition where the strong get stronger and the weak get weaker, every distributor must use digital tools as a lever to improve business efficiency. Where can digital tools be applied? I believe the core is reflected in three levels: First, internal personnel management, process management, and warehouse and distribution management; Second, external business management, product distribution, and in-store sales promotion; Third, changing business models, such as category distribution and channel distribution. Let's discuss these three aspects one by one. 1. Internal Management Many distributors, regardless of size, mostly have basic financial inventory software, which is sufficient for those with revenue just over 10 million or below 30-40 million. However, once sales scale up, exceeding 50 million or involving categories like snacks, seasonings, and daily chemicals that require split-case picking, simple financial software is not enough. Using digital tools to improve warehouse, sorting, and delivery efficiency is something distributors must consider. At this point, efficiency not only refers to providing timely and accurate delivery services to front-end customers but also includes reducing labor costs, reducing personnel costs, and reducing reliance on the experience of old employees, all of which can be solved through digital tools. 2. External Management External management is easy to understand. Many distributors have already used tools like DingTalk, social groups, and SFA for daily salesperson execution management, but I think this is far from enough. If digital tools are only used to help distributors supervise whether salespeople are working or on duty, then spending money on tools is a pure waste. For external management, the real value of digital tools is not supervision and inspection, but truly integrating into business management and actual business scenarios, using tools to improve the distribution efficiency of daily visits and the sales efficiency of products in stores. At the same time, through digital tools, daily work actions and processes are turned into visualized and transparent data, using data to adjust salespeople's KPI assessments and enhance their work enthusiasm. 3. Business Model Regarding business models, if using digital tools to improve internal management and business management efficiency is the "low stage," then using tools to change business models is the "high stage," also commonly referred to in business as "digital business strategy." What specific business model changes? The simplest understanding is: large-scale distribution. In the past, distributors had very limited agency brands, with a few having one or two SKUs, and the most probably not exceeding 50 SKUs. Now, distributing 1000+ SKUs is not difficult. Distributors capable of distributing 1000+ SKUs are basically category distributors or channel distributors, and these types of distributors will far surpass ordinary distributors in future growth potential, risk resistance, and profitability. The above are the three levels of applying digital distribution to business. After understanding the value and significance of digital distribution, which is not just simple positioning, visits, and displays, let's look at how to digitize the business specifically, not just talk about concepts without specific paths and steps. -02- Digital Distribution: Network Digitization, Product Digitization, Personnel Digitization New Distribution talks about "digital distribution" rather than "digital management" , the core behind it is using data to guide operations, not data to guide management. We know well that for most distributors, the business model itself is relatively simple: selling products in and selling products out. At the same time, the business is limited to the local area, and the number of personnel is mostly within 50 people. At this point, talking about management is often unrealistic. Salespeople basically work under the boss's nose, and their capabilities are clear at a glance. Although management is important, the demand for business growth and profit improvement far outweighs management. Therefore, according to the order of business operations, "distribution quality" is the core concern of distributors, and everything else can be ranked after it. This is the essential reason why we talk about digital distribution rather than digital management. Since it is distribution, the three core elements that make up "distribution" are "network, product, and personnel" . Therefore, the concept of digital distribution is further broken down into network digitization, product digitization, and personnel digitization. Here is a formula that is the core of New Distribution's "digital distribution" concept: Order Digitization = Product Digitization x Network Digitization x Personnel Digitization x Unit Time All of a distributor's business comes from orders. Order digitization is the prerequisite for digital distribution. How to achieve order digitization is the superposition of network, product, and personnel. 1. Network Digitization What is network digitization? Simply put, all information about the network is organized in the form of classification labels. Regarding network digitization, in fact, many digital tools are already very mature, so I won't elaborate further. However, here I hope distributors have a complete understanding of network digitization. The core digital information here includes three categories: First, basic information. Store name, address, phone, channel attributes, area, etc., similar to a person's ID card; Second, exclusive information. The salesperson serving the network, route number, cooperation level, etc., which is key for matching networks with personnel; Third, operational information. The products, investment, orders, gross profit, net profit, etc., corresponding to the network, which is key for matching networks with products. 2. Product Digitization Product digitization is similar; each product has an ID. Product digital information also includes three categories: First, basic information. Product name, specification, flavor, brand, etc.; Second, exclusive information. The status and level of the product and its corresponding brand in the distributor's business, whether it is a strategic brand, a general brand, or a marginal brand; Third, revenue information. Corresponding unit price, quantity, cost, expenses, etc. 3. Personnel Digitization Personnel digitization has been less involved compared to networks and products in the past, but I think it cannot be ignored. If the value contribution of a salesperson cannot be visualized, it is impossible to effectively adjust daily management strategies, let alone efficiently design salespeople's KPIs. In daily operations, networks and products are relatively fixed, while personnel are the variable. If personnel cannot be visualized, there is no talk of improving business efficiency, and there is no handle for management. Use measurable numbers to identify excellent salespeople, summarize and refine their daily work methodologies, replicate and promote them, and truly improve the business. At the same time, visualized and real-time performance comparisons can further create a competitive PK atmosphere internally and enhance salespeople's fighting enthusiasm. When these three points are achieved, the smallest business unit can be queried at any time: data such as salesperson-SKU-store-sales-gross profit-net profit-cost can all be obtained. From a salesperson's perspective, daily/weekly/monthly sales rankings, gross profit rankings, and net profit rankings of target networks; from a network's perspective, sales rankings, gross profit rankings, and net profit rankings of products in the store; from a product's perspective, sales rankings, gross profit rankings, and net profit rankings of distributed networks, all at a glance. If viewed solely from external business, order digitization is a minimal closed loop of operations. Only when orders are completed does digitization have value and significance for analysis. Therefore, network digitization, product digitization, and personnel digitization are prerequisites, and order digitization is the result of a distributor's digital distribution. -03- Business-Oriented: Using Data to Find Solutions to Problems Some distributors may wonder: I have achieved digitization and have a bunch of data, but how does it create value for my business? What I want is not data, but the ability to find solutions to business problems behind the data. Of course, some distributors are glad to see this and think they have already achieved digital distribution. But the reality is that having digital distribution does not mean they know how to use data to guide operations. So all digital distribution must ultimately land in daily business. How to implement it specifically? Some excellent distributors hold business analysis meetings weekly or monthly, using data to observe the state of the business. They use the state to balance the quality of the business, and use data as a handle to adjust product structure, network structure, and KPI assessments accordingly, thereby solving corresponding problems. For most distributors, when just starting to use digital distribution and unable to achieve standardized and normalized data-driven business interpretation, start with problems: first find the problem, then use data. What does that mean? For example, when a distributor feels there is a problem with "monthly profit," through data analysis, they must first clearly know whether the poor profit is due to network structure, product structure, or personnel issues. First determine which level the problem is at. If it is found that high-quality profitable networks only account for 10% of the total networks, then the next adjustment strategy should be relatively clear; similarly, if there are only 2-3 profitable products; if there are only 2 salespeople contributing profit... Of course, this involves specific complex business details. But I believe that problems are never caused by a single point; distributors must identify and judge the key issue among them, which is also the distributor's own job. Admittedly, the "digital distribution" of trading companies cannot be fully explained in just one or two articles. Therefore, New Distribution will release the first national "Distributor Digital Distribution Report" at the "2020 (3rd) China FMCG Conference" in Shanghai from August 24-26. At that time, New Distribution will also invite excellent distributors of different categories from across the country to see how they conduct digital distribution in specific business scenarios. New Distribution hopes to help more distributors achieve digital distribution, scale distribution, profitable distribution, and more efficient distribution. We firmly believe that distributors will not disappear or be eliminated, but the distribution business must be upgraded and reconstructed. For more content on "digital distribution" , welcome all distributor friends to gather in Shanghai to discuss together.