The Vietnamese consumer goods industry has operated for decades on a familiar model, and when pet food boomed, that model was simply carried over without much questioning whether it still fits. This article doesn’t revisit the links in the chain, but goes straight to the less-discussed aspect: what limitations the traditional distribution model is revealing as the industry grows.
The five tiers and the buy-sell rules of the old channel.
The familiar structure of the traditional distribution model in the consumer goods industry is a five-tiered chain: importers bring goods across the border, deliver them to regional distributors, regional distributors sell them to first-tier dealers, first-tier dealers further distribute them to second-tier dealers, and finally, the goods reach the retail outlet and the end consumer. The rules of the game between these tiers are summarized in three characteristics. First, buy and sell outright: whoever’s warehouse the goods leave owns them; the source of supply is no longer responsible. Second, discounts are based on volume; those who buy more get better prices, regardless of who actually sells the goods. Third, the binding agreements are very loose, mostly limited to verbal agreements or rudimentary framework contracts. For dealers, the first thing to do is determine which tier they belong to, as that position almost entirely determines their cost of goods and remaining bargaining power.
First limitation: each tier adds an extra layer of intermediate costs.
A multi-tiered distribution structure has an unavoidable mathematical consequence: each tier must survive, so each tier adds a margin to the price of goods. This added cost includes not only profit, but also warehousing costs, inline transportation costs, capital tied up in inventory, and losses. Four or five layers of intermediate costs piled on top of each other create a huge gap between the cost of goods imported and the price at the final point of sale. This gap must go in one of two directions, and both are disadvantageous. Either the retail price is pushed up, making the product uncompetitive in a market where buyers compare prices over the phone at the counter, or the retail price remains unchanged, and the entire difference is squeezed into the margin of the final point of sale, where capital is thinnest and overhead costs are highest. Dealers should calculate it straight: each tier they buy through typically represents a permanent loss of several percent of their profit margin.
Second limitation: nobody knows where the goods are going anymore.
Once goods have gone through three or four buy-and-sell transactions, no link in the chain knows which province the final shipment is in or at what price. This is where the ability of the source to control retail prices effectively crumbles. A first-tier distributor holding excess inventory in their area will try to offload it to another province to recover capital, usually by lowering prices close to cost. Such cross-regional sales directly impact established retailers, forcing them to lower prices as well, and the overall price level of the product line plummets to an unmanageable level. The serious issue is that in the old model, no one took responsibility for this: the source claimed the goods were sold, while the middlemen claimed they were only clearing inventory. Therefore, distributors should consider written commitments to protect their territory as a negotiating condition, not a secondary one.
Third limitation: sales data blindness in the area closest to the buyer.
In a multi-tiered supply chain, each link only sees the orders from the immediately below it. The importer knows how much the regional distributor is taking, but doesn’t know how much of that has actually left the shelves and how much is sitting in the warehouses of the intermediate tiers. In other words, what the source measures is the amount of goods being pushed out, not the amount of goods being sold. These two figures are vastly different, especially after end-of-quarter sales targets. As a result, sales data used for forecasting is distorted from the very beginning: the source assumes a product is performing well and orders more, while in reality, that product is just sitting idle in the intermediate tier. Incorrect orders lead to incorrect inventory, which then leads to selling off excess stock, creating a vicious cycle. Dealers should proactively share sales data at the counter with reputable suppliers, because in return, they can place orders that truly reflect demand.
Fourth limitation: importing based on inertia once demand has shifted.
A data-blind system inevitably reacts slowly to market changes, and pet food is changing faster than most consumer goods industries. According to Mordor Intelligence, the cat food category is growing at approximately 8.27% annually, while the nutritional supplements and functional products category is growing the fastest at around 11.62% annually. Demand shifting at that rate requires quarterly portfolio adjustments. But in a multi-tiered system, signals from the counter travel back up through multiple layers of intermediaries, each filtering and slowing them down further, so by the time they reach the decision-maker, they are months outdated. As a result, the system continues to import based on last year’s momentum, pouring capital into stagnant stocks while lacking stock in the growing categories. Dealers should monitor their own sales share by pet and functional product categories at their counters, instead of waiting for the source to identify trends for them.
Fifth limitation: shelf life is eroded with each layer of storage.
This is what makes simply transferring the old formula to Pet Food much riskier than with household goods or cosmetics. Pet food is food with a limited shelf life from the date of manufacture at the foreign factory, and that shelf life continues throughout the entire process of transportation, customs clearance, and storage in warehouses at each level. The longer the chain, the greater the cumulative storage time, so the product sometimes only has half its shelf life remaining by the time it reaches the counter. The final point of sale bears the brunt of the consequences: near-expired goods are difficult to sell, forcing deep discounts or discarding them, and without a return mechanism, all losses remain there. In a buy-and-sell model, such a mechanism is virtually nonexistent. Therefore, distributors should include two clauses in every agreement: a minimum remaining shelf life at the time of delivery, and rules for handling near-expired goods due to allocation errors at the source.
Sixth limitation: there is no reverse investment mechanism for points of sale.
In the traditional distribution channel, value flows only in one direction, from top to bottom in the form of goods, while money flows upwards. Besides discounts, the source of supply invests almost nothing back into the point of sale: no nutritional counseling training, no provision of standardized sales materials, no display support, and no shared risk of inventory. Discounts are also the easiest thing to copy; a competitor adding just one or two percent is enough to make a distributor consider switching suppliers. The lack of reciprocal investment also means a lack of commitment, which explains why relationships in traditional distribution models are often short-term, revolving around price fluctuations. Distributors should understand the true nature of the situation: a partner who only offers discounts is the easiest partner to lose. Compare suppliers based on their sales support capabilities, which accumulate into assets for the point of sale.
Why do models that were once effective lose momentum when they scale up?
To be fair to the old channel: it used to be a sensible option. In the early stages of the market, with limited supply and scattered outlets, no importer had the resources to cover every single store in every province. Multi-tiered chains then outsourced coverage at near-zero fixed costs, in exchange for a fraction of the profit margin. The problem is that the conditions that made it sensible have disappeared. The Vietnamese pet food market is projected to reach approximately $167.98 million in 2026 according to Mordor Intelligence, large enough to support disciplined direct distribution systems. Prices are transparent online, so the dark areas that once concealed price differences between tiers are gone. At the same time, specialty stores still account for about 72.44% of industry revenue, meaning relationships with retail outlets are more important than ever. In short, the limitations of the traditional channel aren’t new; they’ve simply grown to the point where they can no longer be hidden.
Modernizing the distribution channel begins with four specific changes.
Modernizing the distribution channel doesn’t mean eliminating intermediaries, but rather fixing four things that are failing. First, shorten the tiers, bringing sales points as close to the source as possible so that the margins that previously supported the redundant tiers become a price advantage or a budget support. Second, standardize pricing according to a publicly available tier system with geographical constraints, so that retail price control is based on principles rather than goodwill. Third, collect sales data directly at the counter, not just order records, because only sales data will tell what to import for the next three months. Fourth, shift the focus from volume-based discounts to supporting sales capacity, including training, materials, buffer inventory, and near-expiry date policies. These four changes don’t require expensive technology; they only require the source to accept the short-term benefits of pushing inventory.
How does Petkin view the limitations of the traditional distribution model?
Petkin is an importer and distributor of pet food for a dealer network, not a direct retailer, so we read the aforementioned limitations as a to-do list rather than a critique. With pet food imports increasing by approximately 69% in five years, according to the Ministry of Agriculture and Rural Development, the industry’s difficulty no longer lies in sourcing the product, but in how many layers the product goes through and how much margin is lost along the way. We believe the traditional distribution model won’t disappear, but the increased market share will go to shorter chains with more transparent pricing and a clear understanding of what their point-of-sale is selling. If you’re running a pet shop or a dealer, start with something very small: count how many times your most recent batch of goods went through resale before hitting the shelves.