Each stage has its own focus; as the saying goes, heroes are made by the times. Secondary 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, secondary distributors were an unavoidable and indispensable 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 clamoring to eliminate secondary distributors, and even traditional manufacturers are using refined management to bypass them and directly control terminals. Secondary distributors have become a dispensable term, and many companies even regard them as the chief culprits hindering market development.
So, what is a secondary distributor? In simple terms, they are wholesalers who can undertake distribution and market coverage functions for primary distributors, as well as act as a capital reservoir. In the past, what enabled secondary distributors to exist and show vigorous vitality?
1 Distribution Capability Secondary distributors each have their own small territory, and through diligent running and delivery, they have cultivated loyal outlets in their area. Especially in the era of extensive management, primary distributors aimed for big profits and looked down on the small profits from such small deliveries, so they were willing to let secondary distributors do secondary delivery to outlets, forming a tacit understanding over time.
Another point is that secondary distributors do not specialize in a single brand; if they did, their competitiveness would be weak, and outlets in the small area would not recognize them. This is quite different from primary distributors who focus on one or two brands. Because of this, secondary distributors do not pursue profit maximization for a single brand but focus on the overall profit of a delivery transaction—that is, how much profit can be made from delivering these goods to an outlet as a whole, rather than how much profit a single product delivery can bring. This reduces delivery costs, something that primary distributors could not do before.
Of course, there are also secondary distributors who specialize in one or two brands. If so, the volume for that brand must be large and the profit considerable, enough to satisfy the secondary distributor's pursuit of profit; otherwise, such specialization would not be attractive.
2 Capital Recovery Capability When primary distributors cooperate with manufacturers, sometimes to complete tasks or achieve phased inventory pressure, the capital gap can be large. Relying solely on the primary distributor's own ability cannot meet the manufacturer's capital requirements. At this time, early payment from secondary distributors can alleviate the primary distributor's capital pressure. Because primary distributors can often collect payment from secondary distributors in advance through promotions, and secondary distributors, under storage pressure, also pay first to secure promotional policies, with goods actually stored in the primary distributor's warehouse. Using this time difference, the primary distributor can use the prepaid funds from secondary distributors to pay the manufacturer, greatly easing their own capital pressure. If the product is a fast seller, with proper operation, the primary distributor not only avoids using their own funds but can also use secondary distributors' payments to temporarily cover the capital gap for less popular brands, thus growing the business and earning interest on funds.
One of our clients, while doing our product, also handled fast-selling brands like Red Bull. Their Red Bull payments were all turned over through early payments from secondary distributors, with almost zero use of their own funds. A few years ago, when I was managing a health liquor brand, due to monthly limited supply and planned promotion, the primary distributor's payments were also made in advance by secondary distributors, rarely using their own funds. These are examples of the capital reservoir function of secondary distributors.
There is also a capital advance function, where secondary distributors provide credit to downstream customers, especially to hotels. This financial risk is borne by the secondary distributor. If a primary distributor bypasses the secondary distributor, they are undoubtedly pulling the risk onto themselves.
3 Control over Hotel Terminals Secondary distributors have a certain control over hotel terminals in their area. As the delivery distributor for this small area, many hotel goods are supplied directly by secondary distributors, thereby establishing good relationships. These relationships are very useful when secondary distributors are placing new products, much more effective than salespeople directly negotiating with hotel terminals.
The most important thing is that secondary distributors control only a few hotels in the area, so they can form deep relationships and develop these hotels more thoroughly than salespeople.
4 Faster Delivery and Greater Convenience Secondary distributors' delivery is centered around their own store, covering a small area. Outlets can usually receive delivery within half an hour. This convenience is a hard requirement and pain point for small outlets, which primary distributors find hard to achieve unless their vehicles and personnel can keep up, but after calculating, the profit loss may be significant, so they give up.
This function is even more prominent for township secondary distributors. In the past, when roads were not particularly smooth, it was unimaginable for primary distributors to achieve full coverage of township outlets without the cooperation of secondary distributors.
5 Faster New Product Placement In the past, manufacturers often demanded 80% outlet coverage within a week or half a month for new products. How to achieve this? Usually, they would gather the secondary distributors in the area, allocate outlets, set placement rewards, and once the secondary distributors' enthusiasm was mobilized, with one or two salespeople assigned to assist and supervise, the weekly outlet coverage target was easily achieved.
Some might say that holding ordering meetings can also achieve fast placement. But who will notify all these outlets? Can salespeople do it? Why would outlets trust a salesperson they barely see once a month? So, for fast and effective coverage of new product placement, it really cannot be done without secondary distributors!
6 Significant Market Push Effect The previous points all describe the passive cooperation of secondary distributors, responding to the demands of primary distributors and manufacturers. Secondary distributors sometimes also have their own push efforts. For example, if they have a good relationship with a manufacturer's salesperson or a primary distributor, that manufacturer's or primary distributor's products will be pushed by the secondary distributor, resulting in much better performance than similar competing products. Therefore, manufacturers or primary distributors also compete for secondary distributors. Sometimes, for market needs, they may even replace the secondary distributor in the area to better cooperate, which is a game process, not elaborated here.
But the push of secondary distributors is limited to their own small area. Without linkage with other areas, the overall impact on the market is limited, which is also the fundamental reason why secondary distributors cannot fundamentally shake a manufacturer's brand foundation.
We often see a very common phenomenon: if the secondary 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 secondary 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 secondary distributors on brands and a clear manifestation of the market push effect of secondary distributors.
The above lists some of the responsibilities that secondary 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-secondary-distributor, weakening their functions and roles; platform companies like Yijiupi and e-commerce companies are even more vocal about eliminating secondary distributors. Why has the once-flourishing secondary distributor come to this current situation?
1 Weakening of the Capital Reservoir Function Through years of accumulation, primary distributors are now financially strong, and capital is not a problem. Moreover, credit is becoming more relaxed, and many primary distributors now have money but nowhere to invest. In this case, their demand for secondary distributors' capital is increasingly fading compared to before.
Another point is the weakening of the inventory pressure function at outlets. With information transparency, outlets are reluctant to stock up, preferring to buy only what they sell to avoid capital occupation. When secondary distributors cannot collect payments, they are naturally reluctant to pay advance funds to the upper level due to profit constraints. Some even ask primary distributors for credit terms, further losing the value of the capital recovery function.
2 Information Transparency Forces Chain Shortening Previously, secondary 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, leaving no profitable position for secondary distributors in the middle. Primary distributors' profits can be supplemented by manufacturer subsidies and the accumulation of small profits from many outlets; what can secondary distributors rely on? The price difference is too small to cover the interest on working capital, and they also have to provide credit to terminals, so the pressure is immense. If they don't do it, their outlets will gradually shrink, and eventually, they will be abandoned by both manufacturers and terminals.
The prices that secondary distributors give to outlets cannot be as high as in the era of information opacity due to e-commerce influence, and the price difference that primary distributors can offer is fixed; they cannot sacrifice their own price system for secondary distributors, affecting the overall market. In this dilemma, primary distributors either reluctantly cancel secondary distributors and supply directly, or compress the profits of secondary distributors, letting them earn a bit of transportation fee to maintain the fragile cooperative relationship.
3 Intensifying Competition Among Manufacturers Squeezes the Living Space of Secondary Distributors The competition among manufacturers is multifaceted. Product cost-effectiveness is one aspect, but more comes from the competition between 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 outlets and terminals themselves, even directly control consumers. Directly controlling consumers and winning them over is, of course, the best, as Xiaomi, JD.com, and Jiuxian.com are doing; but directly controlling outlets 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 Moutai and Jingjiu cannot resist the wave of channel flattening and have successively adopted models that reduce cooperation with large distributors, let alone ordinary small and medium-sized liquor companies.
Therefore, under the wave of refined management, it is not surprising that secondary distributors are left high and dry again.
What is refined management? It emphasizes the manufacturer's direct control over all outlets, including small and medium ones, achieving one-step from manufacturer to outlet. Primary distributors have also been reduced to delivery distributors, earning a bit of logistics and delivery fee. Previously, direct distribution and deep distribution considered leveraging the combined efforts of primary and secondary distributors to develop the market, but now manufacturers are directly fighting on the front lines.
For example, the US implemented the Asia-Pacific rebalancing, previously instigating Japan, the Philippines, and Vietnam to stand on the front line against China. After the South China Sea arbitration, no other country dared to use force to confront China in the South China Sea, so the US, to save face, had to send two aircraft carriers to directly confront China. Secondary distributors are like Japan and the Philippines under the US; when they cannot win, manufacturers have to bypass them and enter the market for a decisive battle. That's the idea.
4 Intensified Competition Among Secondary Distributors Weakens Control over Small Areas Secondary distributors are also developing; some have developed well and become primary distributors. The small profits that primary distributors once gave them no longer satisfy their appetites. Where there is profit, there will be a flow of people! If you, as a secondary distributor, are doing so well in this small area, new challengers will inevitably rise in that area, and this is exactly what primary distributors and manufacturers urgently need, especially new brands that want to support loyal secondary distributors to counter the old ones.
As a result, the appetites of small outlets in the area are also whetted. Previously, there was only one delivery distributor, and there was no room for negotiation. Now, with so many people coming to them, they become picky and make demands. The control of individual secondary distributors over regional outlets has significantly weakened, and some have even lost their voice. Do you think such secondary distributors are still useful? Are they worth reserving a portion of profits for?
5 Inability to Keep Up with Learning, Disappearing in the Tide of the Times The secondary distributors said to be eliminated in the industry are basically those who do not learn or adapt, always lying in the glory of the past, recalling life and begging for life. Times have changed; if you don't change, your past advantages become your disadvantages, trapping yourself in a circle. Those secondary distributors with strong learning ability and courage to adapt actually still live well now, but their identity as secondary distributors has changed, becoming primary distributors, franchisees, liquor specialty stores, e-commerce partners, custom product exclusive distributors, shareholders or partners of secondary distributor alliances, etc.
One thing must be confirmed: great changes will inevitably give rise to great development! The elimination of secondary 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 one energy does not mean the death of that energy, but just another transformation of energy.
Therefore, your learning ability determines the height of your transformation, and the same applies to secondary distributors.
The discussion on secondary distributors should be viewed objectively. Each stage has its own focus; as the saying goes, heroes are made by the times. Secondary 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 secondary distributors and make their development smoother? This is not the scope of this article and needs to be discussed in a separate chapter.
The words of disruptors are sometimes alarmist, aimed at establishing the image of a disruptor. As bystanders, we can listen but 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 other's skill to defeat him," which means using your own skill to defeat you. I think it's very good. Isn't your skill very powerful? I will use your skill to defeat you! At this time, it's a contest of internal strength and foundation. So, secondary distributors with good internal strength and foundation need not worry about threats from manufacturers and e-commerce, because the space for transformation is too vast!
Tang Jianghua. Industry veteran, author of "The First Book on Baijiu Marketing" and "The First Book for Baijiu Distributors." Currently serves at Kaikouxiao Sales Company under Jindong Capital (Huaze Group).
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