Recently, I have been visiting the front lines and communicating with many regional distributor bosses. One deep impression is that distributors are very anxious, and when anxious, they tend to seek external solutions—without asking about results, they just start moving. Today's article begins with two distributor stories that left a deep impression on me, hoping to bring some inspiration and reflection to you all.
At the end of 2024, I met a distributor from a third-tier city, Mr. Wang (pseudonym). When talking about business, he sighed constantly: "The scale has gone up, but profits are getting smaller and smaller, and often we are even losing money." In the past year, in order to maintain market competitiveness, Mr. Wang and his team have been "going all out." On one hand, they continuously develop new stores and channels, hoping to improve performance by covering more markets. They even opened credit terms to expand cash-settlement channels such as lightning warehouses and snack stores; on the other hand, to meet the needs of different terminals, they continuously expanded SKUs, even introducing many low-margin or slow-moving products. At first, this approach did relieve some pressure, but soon Mr. Wang discovered problems:
- Even though they did multi-channel, it was just doing; more but not refined, costs kept rising, and cash flow became increasingly tight;
- To cooperate with terminal needs, they kept expanding products, the number of SKUs in the warehouse surged from 2,000 to 5,000, and a large number of near-expiry and expired products had to be written off;
- The expansion of credit terms further dragged down capital turnover. Although business scale was growing, profits were repeatedly compressed.
But in the same market environment, another distributor, Mr. Li (pseudonym), took a different path. Mr. Li's business scale is about 50 million. Facing the pressure of declining performance, he did not rush to expand SKUs and new projects, but chose to "seek inward" and make the existing business solid. It is understood that Mr. Li spent two years cutting 70% of inefficient SKUs, reducing SKUs from 3,000 to 800, concentrating resources on creating and promoting best-selling products; in terms of channels, he did not rush to expand new stores, but instead strengthened terminal services and improved sell-through rate, seeking quality over quantity. In addition, he used digital tools for real-time monitoring, successfully shortening inventory turnover days from 80 to 50. In the end, even though the overall market environment was poor, Mr. Li's profit margin was very stable, and even achieved slight growth.
Facing growth anxiety, the practices of Mr. Wang and Mr. Li form a sharp contrast:
One seeks outward, constantly doing "addition" to the business, but ignores the weak links in internal management, leading to "the busier, the more chaotic"; The other seeks inward, focusing on existing resources, and by optimizing internal management and product structure, he is steady and stable, securing the foundation of the business.
When communicating with Mr. Li, he mentioned a viewpoint: "Distributors must seek outward only on the premise of stabilizing their own business. When your own business is still bleeding, rushing to start new projects is like drinking poison to quench thirst." In the current increasingly competitive market environment, focusing and deepening resources is particularly important. Only by first 'seeking inward' and consolidating the foundation can you better 'seek outward.'
Many distributors in anxiety often rush to "make moves," but the premise of seeking outward is the perfection of internal management and operational systems. If the foundation is not solid, even if you expand new channels and increase SKUs, it is easy to fail due to resource dispersion and low efficiency. Based on past exchanges with many regional large distributors, I would like to share five directions for seeking inward for your reference.
Organizational Optimization
Case: Distributor Mr. Yang (pseudonym) had annual sales of 80 million but was on the verge of collapse due to management chaos—salespeople had to both visit customers and handle returns and exchanges, warehouse and delivery teams often argued over responsibility, and employee turnover rate was as high as 45%. In 2023, Mr. Yang formulated a job responsibility table and responsibility tracking mechanism, assigning responsibility to individuals and clarifying management division; at the same time, he reformed salary and performance, raised basic wages, conducted assessments based on results, and introduced a digital system. Within one year, employee turnover rate dropped from 45% to 12%, and per capita efficiency increased by 30%.
Small scale can rely on personal relationships, but large scale must rely on systems. As business scale expands, the complexity of internal management also increases, and the boss cannot do everything personally. It is necessary to establish corresponding organizational structures and clarify management division. Use systems to replace verbal instructions to reduce execution deviations; through interest binding, activate employees' internal drive.
Business Process Optimization
Case: A dairy distributor had a manual order-taking process with a 17% order omission rate, leading to constant customer complaints. After forcibly implementing an APP ordering system, orders were automatically generated, routes intelligently planned, and accounts locked within 48 hours. This combination not only reduced error rates to zero but also shortened the payment collection cycle to 35 days.
Many distributor teams are still accustomed to working by "feel," but this is clearly no longer suitable for today's competitive market environment. The essence of trading business is a cash flow efficiency battle, and the standardization of business processes is the foundation for improving efficiency. From ordering, delivery, reconciliation to settlement, clear process templates should be established, which can reduce information loss, improve operational efficiency, and also allow new employees to get up to speed quickly. At the same time, be good at using digital tools to improve efficiency and accumulate experience.
Warehouse Optimization
Case: A distributor adopted sales-volume-based classification management for products, placing S-level products within 5 meters of the loading/unloading area, and moving long-tail products to high shelves; introduced a digital system to improve picking efficiency; and monitored inventory status in real time, establishing a "30-day expiry warning" mechanism to promote bundled promotions in advance. This not only greatly improved warehouse picking efficiency but also reduced the expiry write-off rate to 3%, releasing a large amount of cash flow.
Warehouse management is an important part of the distributor's operational system and a key link affecting capital flow and profit margins. If warehouse management is not in place, it can easily lead to inventory backlog or low turnover efficiency, thereby dragging down the entire business system. In warehouse management, space is cost, and shelf placement determines capital turnover efficiency; data is foresight, and dynamic monitoring is better than firefighting after the fact; efficiency is money, and every day faster inventory turnover increases profit margin by 0.5%.
Product Mix Optimization
Case: Distributor Mr. Li (pseudonym) spent two years cutting 70% of inefficient SKUs, reducing SKUs from 3,000 to 800, and successfully created 3 best-selling products, with profits increasing by 15%.
The rationality of the product mix is related to the distributor's profitability. Many small and medium-sized distributors face the problem of having many SKUs but not refined ones. It seems to increase choices, but in reality, it disperses resources and increases operational burden. In product management, seek quality over quantity, concentrate resources on products that can win battles. It is not that more SKUs are safer, but that stronger best-sellers are more resistant to risks; regularly review the entire SKU list, screen out high-margin, high-sell-through products for key promotion; eliminate SKUs that do not make money or even lose money to reduce resource waste.
Channel Optimization
Case: Distributor Mr. Chen (pseudonym) had a core customer churn rate as high as 20% due to scattered channels and rough management. Last year, Mr. Chen stopped cooperation with more than a dozen low-efficiency, indebted stores, focused resources on core channels contributing 80% of profits, and formed a dedicated service team. He also equipped merchandisers to provide "replenishment every three days, display every seven days" services for key stores to improve sell-through rate. Within one year, core customer churn rate dropped to 5%, and channel sales increased by 20%.
The core of channel optimization lies in "focus and deep cultivation." Many distributors easily fall into the misconception of "wanting more and more" when expanding channels, thinking that the more channels, the wider the market coverage. But not all channels are worth doing; instead, you should do the right channels thoroughly.
"Seek inward" or "seek outward"? There is no absolute right or wrong. The purpose of this article is not to dampen distributors' enthusiasm for "seeking outward," but to use the difficulties of "Mr. Wangs" and the breakthroughs of "Mr. Lis" to tell everyone—seeking outward itself is not wrong, but in the current highly competitive market, if your own business foundation is not yet solid, blind expansion will only backfire. Through continuous exchanges with distributor groups in recent years, "New Distribution" has found that most of those who successfully "seek outward" have a very solid business foundation and perfect internal organization management, and can be said to have reached the ceiling of their own business.
Each distributor's resources, capabilities, and market environment are different. Blindly imitating others' successful experiences often does not work. The key is to deeply analyze your own strengths and weaknesses, and clearly know what you can and cannot do. At the same time, after analyzing the business development paths of dozens of excellent large distributors, it is not difficult to find a common pattern: those distributors who live well do not win by expansion speed, but by achieving excellence in operational quality. In the current market full of uncertainty, the greatest sense of security for distributors actually comes from their control over their own operations: knowing the cost bottom line of each link, clarifying the profit contribution of each product, and mastering the true value of each channel. Only on the premise of healthy operation of the existing business can the success rate and survival rate of new projects be greatly improved. Stop the bleeding where it is bleeding, and create blood where it is healthy. First, let yourself survive, then think about how to live better.
Distributors' "seeking inward" and "seeking outward" are both choices, with no right or wrong, but through the essence we must see: the current market is undergoing tremendous changes, and the traditional business models of the past are gradually failing in the new environment. Under such a background, distributors really need to seriously think about what the future survival direction is? Which development path is suitable for their own enterprise? How to implement specific landing strategies?
On August 19-21, the 7th China FMCG Conference will be held in Shanghai, and the [5th China FMCG Distributor Conference] will be held concurrently. "New Distribution" surveyed nearly 500 distributors and will release the "2025 China FMCG Distributor Operating Conditions Survey Report" at the conference, to see who is growing and who is being eliminated among distributors this year? Where is the focus of operations? Where are the business opportunities? At the same time, at the distributor conference, we have invited Li Jinji China Distribution Operations Center Vice President Cheng Feiyu, Chichi Holding Group General Manager and Founder of Zuolin YouShe/Shenghuo Yizhan convenience stores Zhu Jun, Shenzhen Yataixuan Industrial Chairman Li Yong, Tianjin Shicheng Bofa Trading Co., Ltd. General Manager Zhang Shicheng, Jiecang Wanggou General Manager Zhong Xiaoping, Zhengzhou Dapeng Trading Co., Ltd. General Manager Zhang Gaifeng, etc., to jointly discuss how distributors should go, transform, and win in the new demand and new supply market environment!
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