Click 'Read Original' for details. Each stage has its own focus; as the saying goes, heroes are made by the times. Second-tier distributors have had their past glory and now face their own difficulties, but it is premature to say they are completely unnecessary. Once upon a time, second-tier distributors were an unavoidable term in our industry, especially for new product launches and township network coverage, where it was impossible to move without them. Now, e-commerce companies, waving the banner of disruptors, are calling for the elimination of second-tier distributors, and even traditional manufacturers are bypassing them through refined management to directly control terminals. Second-tier distributors have become a dispensable term, and many companies even regard them as the chief culprits hindering market development. So, what is a second-tier distributor? In simple terms, they are wholesalers who can undertake distribution, market coverage, and capital reservoir functions for first-tier distributors. In the past, what enabled second-tier distributors to exist and show vigorous vitality? 01 Distribution Capability Second-tier distributors each have their own small territory, and through diligent running and delivery, they have cultivated loyal network points in their area. Especially in the era of extensive management, first-tier distributors aimed for big profits and looked down on the small money from such small deliveries, so they were willing to let second-tier distributors do secondary deliveries to network points, forming a tacit understanding over time. Moreover, second-tier distributors do not specialize in a single brand; if they did, their competitiveness would be weak, and small regional network points would not recognize them. This is quite different from first-tier distributors who focus on one or two brands. Because of this, second-tier distributors do not pursue profit maximization for a single brand but focus on the overall profit of a delivery transaction—how much can I earn from delivering these goods to a network point as a whole? Not how much profit a single product delivery can bring. This reduces delivery costs, which first-tier distributors could not do before. Of course, there are also those who specialize in one or two brands as second-tier distributors; if so, the volume of that brand must be large and profitable enough to satisfy their profit pursuit, otherwise, it would not constitute a specific attraction. 02 Capital Recovery Capability When first-tier distributors cooperate with manufacturers, sometimes to complete tasks or achieve staged inventory pressure, the capital gap can be large. Relying solely on the first-tier distributor's own ability cannot meet the manufacturer's capital requirements. At this time, early payments from second-tier distributors can alleviate the first-tier distributor's capital pressure. Because first-tier distributors often collect payments from second-tier distributors in advance through promotions, and second-tier distributors, under storage pressure, also pay first to secure promotional policies, with goods actually stored in the first-tier distributor's warehouse. Using this time difference, first-tier distributors can use the pre-paid funds from second-tier distributors to pay the manufacturer, greatly easing their own capital pressure. If the product is fast-moving, with proper operation, first-tier distributors not only avoid using their own funds but can also use second-tier distributors' payments to temporarily cover the capital gap for less popular brands, thus expanding business and earning interest. One of our clients, while doing our product, also handled popular brands like Red Bull. Their Red Bull payments were entirely rotated through early payments from second-tier distributors, with almost zero use of their own funds. A few years ago, when I managed a health liquor brand, due to monthly limited supply and planned promotion, the first-tier distributor's payments were also the result of early payments from second-tier distributors, rarely using their own funds. These are examples of the capital reservoir function of second-tier distributors. There is also a capital advance function, where second-tier distributors provide credit to downstream customers, especially to hotels. This capital risk is borne by second-tier distributors. If first-tier distributors bypass them, they would be pulling the risk onto themselves. 03 Control over Hotel Terminals Second-tier distributors have a certain control over hotel terminals in their area. As delivery providers in this small region, many hotel goods are directly supplied by them, establishing good relationships. These relationships are very useful when second-tier distributors promote new products, much more effective than salespeople directly negotiating with hotel terminals. Most importantly, second-tier distributors control a few hotels in the area, allowing them to form deep relationships and develop these hotels more thoroughly than salespeople. 04 Faster Delivery and Greater Convenience Second-tier distributors' delivery is centered around their own stores in a small area, usually reaching network points within half an hour. This convenience is a hard requirement and pain point for small network points, which first-tier distributors find hard to achieve unless their vehicles and personnel can keep up, but after calculating, the profit loss might be significant, so they give up. This function is even more prominent for township second-tier distributors. In the past, when roads were not particularly smooth, it was unimaginable for first-tier distributors to achieve full coverage of township network points without the cooperation of second-tier distributors. 05 Faster New Product Market Coverage In the past, manufacturers often required 80% network coverage within a week or half a month. How to achieve this? Usually, they would gather the second-tier distributors in the area, allocate network points, set coverage rewards, and once the second-tier distributors' enthusiasm was mobilized, with the manufacturer assigning a salesperson to assist and supervise one or two second-tier distributors, the weekly coverage target was easily achieved. Some might say, holding order meetings can also achieve fast coverage! But who will notify all these network points? Can salespeople do it? Why would network points trust a salesperson they barely see once a month? So, for fast and effective new product coverage, you really cannot do without second-tier distributors! 06 Market Promotion Effect is Also Obvious The previous points were about passive cooperation from second-tier distributors, based on the requirements of first-tier distributors and manufacturers. Second-tier distributors sometimes also have their own promotions. For example, if they have a good relationship with a manufacturer's salesperson or a first-tier distributor, that manufacturer's or first-tier distributor's products will be promoted by the second-tier distributor, resulting in much better performance than similar competing products. Therefore, manufacturers or first-tier distributors also compete for second-tier distributors, and sometimes, for market needs, they will replace the second-tier distributor in the area to cooperate with them. This is a game process, not elaborated here. But the promotion by second-tier distributors is limited to their own small area; without linkage from other areas, the overall market impact is limited, which is also the fundamental reason why second-tier distributors cannot fundamentally shake a manufacturer's brand foundation. We often see a very common phenomenon: if the second-tier distributor for Wanglaoji is strong in a certain area, then Wanglaoji's sales in that area will definitely be better than JDB's, and vice versa. To put it bluntly, if the second-tier distributor for Dongpeng Special Drink is strong in an area, Red Bull's sales in that area will not have an advantage. This is the endorsement effect of strong second-tier distributors on brands and a clear manifestation of their market promotion effect. The above lists some of the responsibilities that second-tier distributors once undertook. In today's context, some are outdated or less important. If a thing's existence cannot reflect value or significance, its disappearance is only a matter of time. Currently, companies like Niulanshan and Luzhou Laojiao are implementing channel reforms to de-second-tier, weakening their functions and roles; platform merchants and e-commerce like Yijiupai are even more vocal about eliminating second-tier distributors. Why has the once-flourishing second-tier distributor come to this current situation?
1. Weakening of the Capital Reservoir Function First-tier distributors, through years of accumulation, are now financially strong, and capital is not a problem. Moreover, credit is becoming more relaxed, and many first-tier distributors now have money but nowhere to put it. In this case, their thirst for capital from second-tier distributors is increasingly fading compared to before. Another aspect is the weakening of the inventory pressure function at network points. With information transparency, network points are reluctant to stock up, preferring to buy only what they sell to avoid capital occupation. When second-tier distributors cannot collect payments, they naturally will not proactively pay deposits to the upper level due to profit constraints, and some even demand credit terms from first-tier distributors, further losing the value of the capital recovery function. 2. Information Transparency Forces Chain Shortening Previously, second-tier distributors profited from the price difference between upstream and downstream. With the spread of mobile internet, the price difference from manufacturer to consumer has been repeatedly compressed, and second-tier distributors cannot find a profitable position in the middle. First-tier distributors' profits are reduced, but they can rely on manufacturer subsidies and small profits from many network points to accumulate; what can second-tier distributors rely on? The price difference is too small to cover the interest on capital turnover, and they also need to provide credit to terminals, so the pressure is immense. If they do not do it, their network points will shrink day by day, and eventually, they will be abandoned by both manufacturers and terminals. The prices that second-tier distributors give to network points cannot be as high as in the era of information opacity due to e-commerce influence, and the price difference that first-tier distributors can offer is fixed; they cannot sacrifice their price system for second-tier distributors, affecting the overall market. In this dilemma, first-tier distributors either reluctantly cancel second-tier distributors and supply directly, or compress their profits, letting them earn a bit of transport fees to maintain the fragile cooperative relationship. 3. Increasingly Fierce Competition Among Manufacturers Squeezes the Living Space of Second-Tier Distributors Competition among manufacturers is multifaceted; product cost-performance is one aspect, but more comes from the competition of frontline market teams. Wars are still fought by people; no matter how advanced the weapons, without people to operate or develop them, they are just scrap metal. The ultimate goal of manufacturer competition is to control network points and terminals, even directly control consumers. Directly controlling consumers is, of course, the best, as Xiaomi, JD.com, and Jiuxian.com are doing; but directly controlling network points and terminals is what most liquor companies in the industry are doing, especially in the past two years when government consumption has shrunk and civilian consumption has risen, making it a key action for liquor companies. Even Maotai and Jingjiu cannot withstand the wave of channel flattening and have successively moved away from large dealer cooperation models, let alone ordinary small and medium-sized liquor companies. Therefore, under the wave of refinement, it is not surprising that second-tier distributors are left high and dry again. What is refinement? Refinement emphasizes the manufacturer's direct control over all network points, including small and medium ones, achieving one-step from manufacturer to network point. First-tier distributors have also been reduced to delivery providers, earning a bit of logistics and delivery fees. Previously, direct distribution and deep distribution considered leveraging the combined strength of first-tier and second-tier distributors to develop the market, but now manufacturers are directly entering the ring. For example, the US's Asia-Pacific rebalancing strategy used to instigate Japan, the Philippines, and Vietnam to be at the forefront of confrontation with China. After the South China Sea arbitration, no other country dared to enter the South China Sea militarily to confront China, so the Americans, to save face, had to send two aircraft carriers to directly confront China. Second-tier distributors are like Japan and the Philippines under the Americans; when they cannot win, manufacturers have to bypass them and directly enter the market for a decisive battle. That's the idea. 4. Intensified Competition Among Second-Tier Distributors Weakens Their Control Over Small Areas Second-tier distributors are also developing; some have grown and become first-tier distributors, and the small profits once given by first-tier distributors no longer satisfy their appetite. Where there is profit, there will be a flow of people! If you, as a second-tier distributor, are doing well in this small area, new challengers will inevitably rise in that area, and this is exactly what first-tier distributors and manufacturers urgently need, especially new brands that want to support loyal second-tier distributors to counter the old ones. As a result, the appetites of small network points in the area are also whetted. Previously, there was only one delivery provider, and there was no room for negotiation; now, with so many people coming to me, I can be picky and make demands. The control ability of a single second-tier distributor over regional network points is clearly weakened, and some even lose their voice. Do you think such second-tier distributors are still useful? Are they still worth reserving a portion of profits for? 5. Inability to Keep Up with Learning, Disappearing in the Tide of the Times In the industry, those said to be eliminated are basically second-tier distributors who do not learn or adapt, always lying in the glory of the past, reminiscing and begging for life. The times have changed; if you do not change, your past advantages become your disadvantages, trapping yourself in a circle. Those with strong learning ability and courage to adapt are actually still doing well, but their identity as second-tier distributors has changed, becoming first-tier distributors, franchisees, liquor specialty stores, e-commerce partners, custom product exclusive distributors, or shareholders/partners of second-tier alliances, etc. One thing must be confirmed: major changes inevitably give rise to major development! The elimination of second-tier distributors means more new models will emerge to replace them. Just as the decline of mobile information made WeChat flourish. According to the law of conservation of energy, the disappearance of an energy does not mean its death, but another form of conversion. Therefore, your learning ability determines the height of your conversion, and the same applies to second-tier distributors. The discussion on second-tier distributors should be viewed objectively. Each stage has its own focus; as the saying goes, heroes are made by the times. Second-tier distributors have had their past glory and now face their own difficulties, but it is premature to say they are completely unnecessary. How to break through the current bottleneck of second-tier distributors and make their development smoother? This is not the scope of this article and needs to be discussed in another chapter. Disruptors' words are sometimes alarmist, aimed at establishing their image; as bystanders, we can listen and not take them seriously. But since they can disrupt you, they must have some skills. As a party involved, you cannot be as leisurely as a bystander; you must seriously think about countermeasures, how to amplify your advantages, or even jump out of the original competitive deadlock. In martial arts, there is a technique called "returning the opponent's own move against them," which means using your opponent's skill to defeat them. I think it is very good. Isn't your skill very powerful? I will use your skill to defeat you! At this time, it is a contest of internal strength and foundation. So, second-tier distributors with good internal strength and foundation do not need to worry about threats from manufacturers and e-commerce, because the space for conversion is too large! Tang Jianghua. Industry veteran, author of "The First Book on Baijiu Marketing" and "The First Book for Baijiu Distributors." Currently serving at Kaikouxiao Sales Company under Jindong Capital (Huaze Group). -END-