Click to read the original article for details. Chinese FMCG distributors often find it difficult to grow into regional supply chain companies, especially those that distribute categories requiring deep distribution. At the same time, because FMCG basically adopts a regional agency system, limited by factors such as the population and economic scale of the region they represent, a pond of a certain size can only support fish of a certain size. Besides geographical constraints, capital and category are also key factors. FMCG distribution is an industry with heavy capital requirements and low returns, making it difficult to bear high borrowing interest rates for rolling development. This means capital is unlikely to flow into the industry, so distributors generally rely on their own funds plus a small amount of loans to achieve capital turnover. At the same time, most FMCG products require fine terminal operations. Distributors invest a lot of manpower and time in terminal and personnel management, but they often lack professional management capabilities, further limiting the scale of their operations. Finally, there is a shortage of talent. Daily loading, unloading, and handling, plus bargaining with small shop owners, and limited income, make it difficult for distributors to retain excellent talent to help them break through the aforementioned operational ceiling. The combination of these factors ultimately results in very few distributors achieving annual sales exceeding 10-15 million. Of course, if they represent high-value categories such as grain and oil, washing and chemical products, or milk, they might break through this ceiling, but for food, beverage, and snack categories, distributors at the ten-million scale are basically the mainstream in the industry. Such distributors often exhibit the following common characteristics:
Just emerged from individual business, finally becoming a small boss;
High survival pressure, weak risk resistance, often hovering between profit and loss at year-end;
In the local market, they can only represent second or third-tier brands. In local trade, they also belong to the second or third tier;
Channel coverage and products have not yet fully penetrated the market, and they may even need some secondary wholesalers to assist in distribution coverage;
Intense competitive pressure, especially if they represent beer or beverage categories, often facing competition and squeeze from first-tier brands;
Constrained by capital, even if there are good products and opportunities to represent, they are powerless due to insufficient funds;
Generally younger than first-tier distributors, but with relatively lower education levels;
Lack standardized operational and marketing systems, making management more laborious;
In business management, usually the boss and his wife work together, and personnel turnover is relatively high;
Have certain social connections locally, but lack learning ability and rarely take the initiative to go out and learn. These 10 points basically represent the actual situation of mainstream distributors in China. But in the past two years, as the big FMCG industry faces drastic changes, the online shift of consumption, digitalization of distribution, and chain retailing have further exacerbated the operational difficulties of distributors. Facing difficulties, mainstream distributors often find themselves in an awkward position. They cannot, like large distributors, have the capital and strength to transform into urban distribution, retail, or B2B, nor can they jump out of the distribution circle and transform into other industries. Constrained by local talent and their own capabilities, they cannot take the professional route to become online distributors. Even their own business management faces various pressures. A few days ago, the author communicated with a distributor of Snow Beer in a county in the Jiaodong region of Shandong. This distributor has been representing beer for 13 years, has 10 vehicles, and annual sales of over 10 million. Performance has not grown for many years, and he has not done particularly well in the local market. He told New Distribution, "I've been very tired these past two years and can't see the direction for future development." The author uses this distributor as a case study to share with you how distributors at this stage can break through the ceiling in the future, complete operational upgrades, and digital transformation. Look at the Big Picture First, from the external environment, the geographical location of this distributor determines that distributing the beer category will inevitably be very hard: his area is near Qingdao, the headquarters of Tsingtao Brewery. Tsingtao Brewery cannot tolerate its competitors growing big in the local market. No matter what he does, he will become the target of Tsingtao's frontal suppression. From the perspective of brand owners, in market advancement and strategic layout, they basically will not consider investing too many resources to compete head-on in a competitor's home market. Distributors neither receive strategic investment support from brand owners nor face the competitor's "imperial guards" conducting market purges every now and then; pain is inevitable. Given the above, distributors must clearly see the current battle situation of various brands in their industry, and whether their region is a strategic investment area, a strategic support area, or a "no-man's land" in the medium and long term. Especially for distributors in the early stages of development, if they do not receive strong support from brand owners, it is very difficult to break through the market ceiling through their own efforts. In addition, when selecting products, clearly see whether the distributed category is in an upward or declining phase in the larger consumption cycle. For example, gift-type products such as eight-treasure porridge and walnut milk will gradually enter a declining phase as national consumption habits change, so be cautious when selecting such products. Of course, there are also categories with high online penetration rates that increase year by year. If you do not have online operational capabilities or cannot become a monopolistic operator in that category, be careful when taking on such products. If you see an opportunity, some categories will neither be eroded by online channels nor have weak brand power. At this time, you should study the company's development in recent years and the current operating situation in your region before considering. For example, room-temperature milk and high-sugar beverages have entered a mature stage, the market is already fully saturated and a stock market, and competition is already very intense. Do you have the ability to resist fierce confrontation from competitors? Many categories are currently in a declining phase, and brand owners' executives are under tremendous pressure, which inevitably transfers task pressure to distributors. A while ago, a large distributor from Jilin communicated with the author that his inventory had already exceeded the Spring Festival level, and the inventory pressure was high. It was also because his volume was large that he could bear it a bit better, but many distributors, unable to withstand the pressure from manufacturers, directly gave up representing first-tier brands. Make a Small Game What does "making a small game" mean? There are two very important competitive strategies: First, as a distributor, regardless of the category, opening up channels is the duty of every distributor and a manifestation of strength; there is no reason not to do it well. If you do not have direct control over local terminal outlets, especially more than 90% of core outlets, whether launching new products or conducting activities, it is difficult to achieve significant results, let alone distribute products well. Second, strive to be NO.1 in a certain category; even if you cannot be first, at least the gap with the first should not exceed 20%. If the gap with the leader is too large, your competitive advantage at the terminal will be very weak, and you will often be beaten by the leader. Summarizing the above two points: In the external environment, distributors cannot do without manufacturer support in the short term, so they must clearly see the strategic focus of brand owners, understand the positioning of their region in the manufacturer's eyes, actively cooperate with manufacturers, and do well in the local area; in internal operations, open up channels and strive to be the first or second in the category. In product selection, be cautious with high-maturity and declining categories, and find categories in an upward cycle. Grasp the Key Points Only by choosing the right products can distributors have the possibility of further development. Based on future consumption demand changes, in summary, categories in an upward cycle generally present three characteristics: low temperature, short shelf life, and multiple SKUs. These three words also represent the overall consumption trend. As people's consumption levels rise, the freshness, healthiness, and future diversity of tastes are increasingly valued. Distributors need to view product selection from the perspective of future consumption trends and make product layout in advance based on demand. Undoubtedly, the cultivation of such products will be a long cycle. Many distributors are accustomed to operating big single products, and when facing complex categories like low temperature and short shelf life, they inevitably cannot find the feeling. For example, Taishan Original Draft Beer has a 7-day shelf life, and the backend supply chain management is extremely complex. Ordinary beer distributors basically cannot operate it. But in a sense, this is also a competitive barrier. Of course, when distributing such products, one cannot ignore an important dimension: market capacity. Market capacity determines the scale that can be achieved. From a channel perspective, while doing the main business well, distributors should also learn multi-channel operations, using local communities, social networks, O2O, and other diversified online and offline three-dimensional channels to complete coverage of local consumers. Most traditional distributors, apart from hypermarkets, small supermarkets, and restaurants, basically do not know how to do other channels. In today's diversified channels, if they still stick to their own small patch, survival may be very difficult. Various innovative online internet companies will intercept consumers through various forms of social networks and e-commerce platforms, diverting offline traffic. As for the emergence of B2B, whether it will replace distributors depends on the category. Categories that require fine terminal operations, especially those with multiple temperature layers and high return rates, are difficult to replace in the short term, and distributors still have enough time to develop and scale up. Gather Talent All market competition ultimately boils down to talent competition. The weakest point for most distributors is insufficient organizational drive. A large number of young people leave their hometowns for higher-tier cities; even if they stay locally, recruiting, managing, and retaining these post-90s and post-00s young people is a challenge. New Distribution has previously reported a large number of cases and suggestions on future distributor organizational transformation. We have always advocated that distributors should achieve platform-based operations, turn employees into partners, and turn workers into small shareholders. Only when employees feel they are working for themselves can their own drive be maximized. This article analyzes the problems distributors face at this stage from the external environment and the product cycle, and how to adjust strategies for the future. In the end, all problems lie with the boss himself; the height of the boss determines the height of the enterprise. Therefore, during the industry's major transformation period, if the boss does not take the initiative to go out and learn and communicate, actively learning from peers with advanced productivity and upstream, he will soon be eliminated by the rapidly developing industry. Lifelong learning has become the most important part of gaining competitiveness for distributors in this era!