Click the image for details Introduction: The price hike wave at the end of 2016 was not yet settled, and at the beginning of 2017, notices of price increases from companies like Dali and JDB appeared. Big brands, distributors, and hypermarkets... can be said to be tied together like grasshoppers on a string. The arrival of 2017 suddenly increased the operating pressure on distributors, especially those of first-tier brands, and first-tier brands gradually withdrew from hypermarkets. 2016 was tough, but 2017 turned out to be even tougher! For distributors, selling prices below factory prices, rampant cross-regional selling, monthly losses, difficulty in reimbursing prepaid expenses, piles of old-date products, and endless returns... Prices are rising wildly, and the miscellaneous fees of hypermarkets are increasing day by day. Companies finally couldn't bear the pressure and raised prices. Some big brand manufacturers did not actively adjust their marketing plans and still followed the targets set at the beginning of the year. They put strong pressure on distributors, causing their inventories to be full, sales to slow down, product freshness to decline, creating a vicious cycle, and ultimately leading them to make up their minds to "cut off" big brands. 1 Why do distributors hate big brands? In the past, big brands could bring distributors huge commercial profits and "face" (big brands became traffic drivers, allowing small brands to be sold alongside them). In that era, all Chinese enterprises, whether manufacturers or merchants, were growth-dependent. As long as sales grew, profits grew. All problems of the enterprise would be masked by sales growth. Distributors who only represented big brands could achieve a glamorous annual sales of tens of millions of yuan, but their profits were only a few hundred thousand, not including depreciation of fixed assets, bank financing costs, etc., making them mere loaders for big brands. Many distributors of big brands saw their sales increase significantly, but they occasionally suffered losses. How to rescue sales? There are roughly three methods: First, launch new products, but this is rarely done because new products "cannot quench immediate thirst," and the marketing system lacks the energy to promote them; second, increase pressure to stock up, such as increasing promotional efforts, which most companies have done; third, some grassroots marketing personnel, to save sales, open new accounts and implicitly encourage cross-regional selling. Especially in recent years, against the backdrop of economic downturn, reduced demographic dividends, and reduced channel dividends, when it comes to cultivating a completely new growth model versus the simpler and more convenient way of transferring pressure to the channel, many brands, including big ones, chose the latter. Manufacturers believe in one principle: sales are squeezed out. Pressuring stock and promotions can always squeeze out sales. Most marketing managers also support this choice. They prefer to use "short, flat, fast" tactics to quickly squeeze out the channel's limits, and distributors are the most important nodes for bearing and releasing their pressure, resulting in a bloodbath of distributor stock pressure. "Fee coercion" may squeeze out sales in the short term, but from a larger perspective, it will only deepen the contradiction between product sell-through and inventory until it collapses. But companies have completely misunderstood. The problem is not how strong their brand power is, nor that the growth rate is still high, but that this growth model comes at the expense of excessively sacrificing distributor profit margins, driven by stock pressure, and this is bound not to last. The more big brands they take on, the larger the sales volume, but the accompanying capital and costs also increase, while profit margins shrink. Therefore, low-cost, high-profit small brands are both a need for profitability and a need for changing their operational model. Gradually, distributors cut off big brands and shed the title of loaders. In addition, a common ailment of large enterprises is that as they grow, management levels increase, and no one wants to tell leaders what they don't want to hear. Many grassroots employees know the truth, but no one reports the actual problems to the leaders. The reason is that leaders are blinded by their years of success, thinking their company is invincible, acting arbitrarily, and not listening to "loyal advice," causing the company to take many detours. Some companies do not strive for innovation and rely on low-price stock pressure, a short-sighted behavior that harms distributors and also destroys themselves. To seek profits from sales, they offer prices to large online chain suppliers that are far lower than those to physical distributors, which is an important reason for the breakdown of manufacturer-distributor cooperation. After years of grievances, distributors finally said no to big brands! They turned to more profitable growth brands! 2 Why do large distributors represent growth brands? Large distributors represent small brands for the need of greater development, which can be reflected in several aspects. 01. The need for profitability A considerable number of large distributors take on more and more big brands, with increasing sales volume, but the accompanying capital and costs also increase, while profit margins shrink. Therefore, low-cost, high-profit growth brands are both a need for profitability and a need for changing their operational model. 02. The need to dialogue with big brands No matter how large a distributor is, they are always weak in front of big brand manufacturers and must follow the manufacturer's "baton." If a distributor is not careful and makes the manufacturer unhappy, they may be told "goodbye." Considering the sales volume and influence of big brand products, distributors are reluctant to give them up easily. The contradictory feeling of "love and hate" makes them suffer and torment. Therefore, distributors can use their existing advantages to choose small brands with development prospects in the same category, consciously cultivate small brands into "reserve brands" to replace big brands, and use this as a "trump card" in dialogue with big brand manufacturers. On the offensive, they can counter the "arrogance" of big brand manufacturers, making them look at you differently; on the defensive, if they fall out with big brand manufacturers, small brands can smoothly take over the position of "leading brand," without affecting overall sales. 03. The need to strive for manufacturer resources When large distributors represent growth brands, they are often the stronger party and can have a certain say in cooperation with manufacturers, making it easier to obtain more preferential policies from manufacturers, which is beneficial for market operations. 04. The need to adjust product structure Even the largest distributors have limited capital. Because big brand products occupy a lot of capital, large distributors cannot represent big brands in every category. Representing growth-oriented small brands is a better choice that does not occupy too much capital and allows for reasonable adjustment of the product structure. 05. The need to alleviate capital pressure Big brand products often require payments of hundreds of thousands or even millions, and some manufacturers even "force" distributors to prepay and pay deposits. The huge capital pressure often makes distributors feel suffocated. In contrast, small brand products do not occupy too much of the distributor's capital. 3 Why do big brands hate hypermarkets? After Lotte Group reached an agreement with the Korean government on the "THAAD" site, which was boycotted by Chinese people, it was further exacerbated by supplier disputes. Recently, more than 120 suppliers from the Beijing Supermarket Supply Association (hereinafter referred to as the "Association") jointly issued a proposal, mentioning issues such as Lotte Supermarket's illegal collection of high entry fees and barcode fees in China, and suggested that national commercial associations take unified action to protect rights together. But it's not just Lotte; high entry fees and barcode fees have become unspoken rules in hypermarkets, and companies find it hard to speak out. The entry fee is actually like a ticket or admission pass, just like needing a ticket to watch a movie or visit a tourist attraction. Now, in many cases, if suppliers don't pay the entry fee, supermarkets won't sell their products. Many supermarkets, in order to compete, squeeze profits to the minimum, so they can only earn meager profits, hoping to compensate by charging entry fees. Many corporate managers even complain: "With millions of yuan in entry fees each year, it would be better to open our own chain stores. Even if the commercial channel doesn't make money or even loses money, at least we can earn profits from our industrial manufacturing." In addition, in recent years, rents in core business districts have been rising year after year, and the impact of e-commerce on physical channels has become increasingly prominent. Offline hypermarkets are not having an easy time. Previously, news that retail giants such as Carrefour and Tesco closed hypermarkets in multiple regions in China sounded the alarm for the retail downturn. Moreover, with the change in consumption habits, offline hypermarkets are receiving less and less favor from consumers. In an era where every industry talks about "Internet+", convenience stores may eventually evolve into a comprehensive life service platform. Through this platform, small convenience stores can infinitely expand their categories. In the future, everything you need will be available in a convenience store of just a few dozen square meters. Big brands hate hypermarkets; this is just the beginning! Source: Food Industry Entrepreneur -END-