Why Leading Beverage Brands Are Dropping Second‑Tier Distributors: The Shift in Channel Power

In recent years, fast‑moving consumer goods (FMCG) companies have felt the erosion of the traditional "brand‑>first‑tier‑>second‑tier‑>retail" structure. Yuanqi Forest weakened the second‑tier role from its inception, Nongfu Spring has reduced its second‑tier network in many regions, and Dongpeng Special Drink now connects directly with retailers, bypassing the second tier entirely.

Historical value of second‑tier distributors – Decades ago, poor transportation and limited information made the four‑level chain the only way to achieve rapid market penetration. Second‑tier distributors provided local market knowledge, warehousing, cash‑flow financing, promotional execution and acted as a crucial conduit for product rollout.

Why the value is disappearing – The market has shifted from “incremental competition” focused on coverage to “stock‑competition” emphasizing efficiency, terminal control and cost. Upstream pressure from brands (higher concentration, stricter control, task allocation to first‑tier partners) squeezes cash flow, while downstream pressure (price transparency, B2B platforms, instant‑retail) eliminates the information advantage that second‑tiers once held. Moreover, second‑tiers lack core capabilities such as digital data collection, shelf‑management and customized product mixes.

The drag on brands – Each additional layer adds markup (e.g., a 1 ¥ bottle can end up at 1.4 ¥ for the retailer), creates data blind spots, and causes promotional spend to be intercepted before reaching the outlet. Brands therefore view second‑tier distributors as a cost and information burden.

Digital reconstruction as the enabler – Brands now use “one‑code‑per‑item” technology to trace product flow, capture real‑time sales data and allocate promotional funds directly to retailers. This replaces the three core functions of second‑tiers: (1) real‑time logistics tracking, (2) terminal‑level sales data, and (3) precise promotional funding. B2B platforms further allow retailers to order directly from brands or first‑tier partners, while instant‑retail services (e.g., Meituan Flash, JD Seconds) bypass second‑tiers entirely.

Implications for mid‑size brands – The transition should be staged: first build digital foundations (one‑code, B2B portal), then pilot removal of second‑tiers in core markets, and finally upgrade remaining second‑tier partners into “terminal service providers” that retain local delivery capability but operate under brand‑controlled digital oversight.

Conclusion – Eliminating second‑tier distributors is not a punitive move but a strategic response to channel efficiency demands. Brands that master digital traceability, direct terminal engagement and cost‑effective logistics will regain channel power, while those clinging to the legacy hierarchy risk being outcompeted.