Recently, I've been visiting the front lines and talking with many regional distributors. 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 struck me deeply, hoping to bring you some inspiration and food for thought.

At the end of 2024, I met a distributor from a third-tier city, Mr. Wang (pseudonym). When talking about business, he sighed constantly: "Scale has gone up, but profits are getting thinner, and often we're even losing money." Over the past year, 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 boost performance by covering more markets. They even extended credit terms to expand into channels that previously paid cash, such as flash warehouses and snack stores. On the other hand, to meet the needs of different terminals, they kept expanding SKUs, even introducing many low-margin or slow-moving products. Initially, this approach did relieve some pressure, but soon Mr. Wang noticed problems:

  1. Even though they did multi-channel, it was just doing it—more but not refined, costs kept rising, and cash flow became increasingly tight.
  2. To accommodate terminal needs, they kept expanding products, the SKU count in the warehouse surged from 2,000 to 5,000, and a large number of near-expiry or expired products had to be written off.
  3. The expansion of credit terms further dragged down capital turnover. While 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 declining performance, he didn't rush to expand SKUs or new projects, but chose to "seek inward" and solidify the existing business. 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 bestsellers. In terms of channels, he didn't rush to open new stores, but instead strengthened terminal services and improved sell-through rates, seeking quality over quantity. Additionally, he used digital tools for real-time monitoring, successfully reducing inventory turnover days from 80 to 50. In the end, despite the overall poor market environment, Mr. Li's profit margin remained very stable, even achieving slight growth.

Facing growth anxiety, Mr. Wang and Mr. Li's approaches form a stark contrast:

One seeks outward, constantly adding to the business, but ignores the weak links in internal management, leading to "the busier, the messier." The other seeks inward, focusing on existing resources, optimizing internal management and product structure, and steadily securing the foundation of the business.

During the exchange with Mr. Li, he mentioned a viewpoint: "Distributors must seek outward only after stabilizing their own business. If your own business is still bleeding, rushing into new projects is like drinking poison to quench thirst." In today's increasingly competitive market environment, focusing and deepening resources is particularly important. Only by first 'seeking inward' and solidifying the foundation can you better 'seek outward.'

Many distributors, in their 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 expanding new channels or adding SKUs can easily fail due to scattered resources and low efficiency. Based on past exchanges with many regional top distributors, I'd 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, warehouse and delivery teams often argued over responsibility, and employee turnover reached 45%. In 2023, Mr. Yang formulated a job responsibility chart and a responsibility tracking mechanism, assigning responsibilities to individuals and clarifying management divisions. At the same time, he reformed compensation and performance, raising base salaries, conducting result-oriented assessments, and introducing a digital system. Within one year, employee turnover dropped from 45% to 12%, and per-capita efficiency increased by 30%.

Small scale can rely on personal connections, but large scale must rely on systems. As business scale expands, the complexity of internal management increases, and the boss cannot do everything personally. It is necessary to establish corresponding organizational structures and clarify management divisions. Replace verbal instructions with systems to reduce execution deviations; activate employees' intrinsic motivation through interest alignment.

Business Process Optimization

Case: A dairy distributor had a 17% order omission rate due to manual order taking, leading to constant customer complaints. After mandating an APP ordering system, orders were automatically generated, routes intelligently planned, and accounts locked within 48 hours. This combination not only reduced errors to zero but also shortened the payment collection cycle to 35 days.

Many distributor teams still habitually rely on "feel" when working, 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 to reduce information loss, improve operational efficiency, and allow new employees to get up to speed quickly. At the same time, be adept at using digital tools to improve efficiency and accumulate experience.

Warehouse Optimization

Case: A distributor adopted sales-based tiered management for products: S-level items are stored within 5 meters of the loading area, while long-tail items are moved to high shelves. They introduced a digital system to improve picking efficiency and monitor inventory 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 expiry write-off rate to 3%, releasing a large amount of cash flow.

Warehouse management is an important part of a 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, dragging down the entire business system. In warehouse management, space is cost—shelf placement determines capital turnover efficiency; data is foresight—dynamic monitoring is better than firefighting after the fact; efficiency is money—every day faster in 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 bestsellers, with profits increasing by 15%.

The rationality of the product mix is crucial to a distributor's profitability. Many small and medium distributors face the problem of having many SKUs but not refined ones. It seems to increase choices, but in reality, it scatters resources and increases operational burden. In product management, seek quality over quantity, concentrate resources on products that can win battles. It's not that more SKUs are safer, but that stronger bestsellers 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 don't 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 cooperating with a dozen inefficient, debt-owing stores, focused resources on core channels contributing 80% of profits, and formed a dedicated service team. He also assigned merchandisers to provide "restock every three days, display every seven days" services for key stores to improve sell-through rates. Within a year, core customer churn dropped to 5%, and channel sales increased by 20%.

The core of channel optimization lies in 'focus and deep cultivation.' Many distributors fall into the trap of "wanting more and more" when expanding channels, thinking that more channels mean broader 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 show through the difficulties of "Mr. Wangs" and the breakthroughs of "Mr. Lis" that—seeking outward is not wrong in itself, but in today's 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 successful cases of "seeking outward" have a very solid business foundation and well-developed internal organization management, almost reaching the ceiling of their own business.

Every distributor has different resources, capabilities, and market environments. Blindly imitating others' successful experiences often doesn't work. The key lies in deeply analyzing your own strengths and weaknesses, and clearly knowing what you can and cannot do. At the same time, after analyzing the development paths of dozens of excellent large distributors, it's not hard to find a common pattern: those distributors who thrive do not win by expansion speed, but by achieving excellence in operational quality. In today's uncertain market, the greatest sense of security for distributors actually comes from control over their own operations: knowing the cost baseline of each link, clarifying the profit contribution of each product, and mastering the true value of each channel. Only when the existing business operates healthily can the success rate and survival rate of new projects be greatly improved. Stop the bleeding where it's bleeding, and create blood where it's healthy. You have to survive first before you can think about living better.

Distributors' "seeking inward" and "seeking outward" are both choices, with no right or wrong. But through the essence, we must see that the current market is undergoing tremendous changes, and the traditional business models of the past are gradually failing in the new environment. Against this backdrop, distributors really need to seriously think about what the future direction of survival is. What development path is suitable for their own enterprise? And how should they implement specific landing strategies?

From March 17 to 19, the 10th China FMCG Innovation Conference will be held in Chengdu, and the [4th China FMCG Distributor Conference] will be held concurrently. We will invite more than ten outstanding distributors from the industry, including cases of deep operations in different categories such as snacks, daily chemicals, and seasonings, as well as benchmarks of transforming to B2b and deeply cultivating small stores, to share how they do trading business well and how to highlight their industry value in a changing market environment!

[New Order · Symbiosis] The 10th China FMCG Innovation Conference Time: March 17-19, 2025 Location: Chengdu, China