The distribution chain is the heart of the CPG industry, and at the center of that chain are distributors. Distributors are responsible for moving approximately $6 trillion in goods between manufacturers and consumers but have recently been struggling to remain profitable.
The global pandemic has only accelerated market trends that put more pressure on distributors. Slower economies mean reduced demand for distribution services, amplifying the forces that have eroded the margins of leading distributors over the last two decades. To remain competitive, it’s more crucial than ever that distributors learn how to adapt to the changing marketplace, and that starts from understanding the reasons for the decline of the distribution chain.
Examining the decline in the distribution industry
Given the important ‘middleman’ position that distributors occupy in the industry, you would expect them to benefit greatly from the relatively strong economic growth that has been seen in the past few years. Unfortunately, this is not the case as key metrics show that traditional distribution models have been challenged by the changing marketplace, eroding the financial health of distributors.
Looking at gross margins and EBITDA margins, we can see a decline over the past 5 years, which is worrisome as companies go through the economic effects of the pandemic with reduced margins.
The distribution chain is the heart of the CPG industry, and at the center of that chain are distributors. Distributors are responsible for moving approximately $6 trillion in goods between manufacturers and consumers but have recently been struggling to remain profitable.
The global pandemic has only accelerated market trends that put more pressure on distributors. Slower economies mean reduced demand for distribution services, amplifying the forces that have eroded the margins of leading distributors over the last two decades. To remain competitive, it’s more crucial than ever that distributors learn how to adapt to the changing marketplace, and that starts from understanding the reasons for the decline of the distribution chain.
Examining the decline in the distribution industry
Given the important ‘middleman’ position that distributors occupy in the industry, you would expect them to benefit greatly from the relatively strong economic growth that has been seen in the past few years. Unfortunately, this is not the case as key metrics show that traditional distribution models have been challenged by the changing marketplace, eroding the financial health of distributors.
Looking at gross margins and EBITDA margins, we can see a decline over the past 5 years, which is worrisome as companies go through the economic effects of the pandemic with reduced margins.
