---
title: "5 Key Factors for Successfully Upgrading to a Platform-Based Distributor"
description: "In recent years, the transformation of distributors into platform-based models has become a hot topic in the FMCG distribution sector. Traditional distributors face squeezed profit margins and shrinking opportunities, making transformation urgent. At the 9th China FMCG Innovation Conference held in Chengdu from March 14-16, Mr. Cai Zhicheng, founder of Laiken Information Technology, shared his insights on the five key factors for successfully upgrading to a platform-based distributor, sparking lively discussions among attendees."
author: "蔡志成"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-03-29"
language: "en"
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# 5 Key Factors for Successfully Upgrading to a Platform-Based Distributor

> In recent years, the transformation of distributors into platform-based models has become a hot topic in the FMCG distribution sector. Traditional distributors face squeezed profit margins and shrinking opportunities, making transformation urgent. At the 9th China FMCG Innovation Conference held in Chengdu from March 14-16, Mr. Cai Zhicheng, founder of Laiken Information Technology, shared his insights on the five key factors for successfully upgrading to a platform-based distributor, sparking lively discussions among attendees.

In recent years, a very hot topic in the field of commercial circulation has been the platform-based development of distributors.
The traditional distribution model has reached a point where distributors' living space is continuously squeezed, and the opportunities they can seize are becoming fewer. It can be said that the traditional distributor group stands at a turning point of fate, but not every distributor can achieve transformation and move towards platform-based development.
From March 14 to March 16, the 9th China FMCG Innovation Conference with the theme "Supply Chain Revolution" was held in Chengdu. During the conference, over a hundred sharing guests and more than two thousand manufacturer representatives and FMCG professionals from across the country explored how distributors and brand owners can seek growth and solutions in the current environment.
Among them, **Mr. Cai Zhicheng, founder of Chengdu Laiken Information Technology Co., Ltd. and original technical co-founder of Huijinhuo, delivered a heavyweight sharing at the main forum titled "5 Key Factors for Successfully Upgrading to a Platform-Based Distributor"** , which sparked lively discussions among many manufacturers and distributors present.
Mr. Cai Zhicheng has over 20 years of experience in the FMCG distribution industry, providing operational consulting services to thousands of FMCG distributors. He has helped nearly a hundred FMCG trading companies, including Huijinhuo, Shenzhen Su's Brothers, Guangdong Xiaoboma, Mr. Raccoon, and Haoxing Trading, achieve digital upgrades in warehousing processes.
"New Distribution" specially reports on its essence for the benefit of readers.
**************The Internet Era**
**Distributors Urgently Need Transformation**
As the industry develops to this day, traditional distributors generally face several major problems: price involution, with increasingly lower gross margins; new business models and formats emerging endlessly, further squeezing the market share of traditional distributors; increased difficulty in developing customers and serving customers; industry shrinkage and declining business; head concentration and compressed living space; heavy tasks and high pressure from manufacturers; many debts and difficult collections; difficult management and high costs...
There are three reasons for this:
> **1. In a stock market, the overall market grows slowly, and homogeneous competition is the cause of price wars and the emergence of various new models.**
>
> **2. The internet compresses offline market share, making offline business growth difficult.**
>
> **3. The iteration speed of management itself has not kept up with the pace of market development.**
So what is the current state of the entire market? We all know that the three carriages driving China's economy are **investment, export, and consumption**. Investment is also called "iron, public, and infrastructure"—railways, highways, and infrastructure. So far, China has the world's longest high-speed rail mileage, the longest highway mileage, and the most skyscrapers. In the short term, it is difficult to imagine stimulating the Chinese market through investment.
Next is export. The current trade wars between China and the US, and China and Europe, are evident to all. Global competition is fierce, and the situation is not optimistic.
Finally, consumption. Whether consumption grows or not directly determines the development pattern of the FMCG industry. The two core factors affecting consumption are, first, growth brought by population consumption, and second, consumption growth brought by purchasing power, which is the common issue of consumption upgrading or downgrading.
From the population perspective, since the founding of the People's Republic, there have been three population declines: in 1990, 2022, and 2023. In 2022, the population decreased by 850,000, and this number jumped to -2.08 million in 2023, meaning the number of buyers will not grow in the short term, and competition will focus on existing customers.
From the purchasing power perspective, the total GDP in 2022 was 120.47 trillion yuan, and in 2023 it was 126.06 trillion yuan, an increase of 5.2%. But why do so many people still feel that business is difficult? Consider the exchange rates in 2022 and 2023 to understand. Although offline business is difficult, what about online?
In 2023, online retail sales were 15.43 trillion yuan, an increase of 11%. Competition in the stock market is a zero-sum game; one side's growth necessarily means the other side's decline. So, it's not that there is no growth, but that traditional offline business has not grown.
Why can online grow at a high speed? Many people think the reason for high-speed online growth is price, but in fact, even when online prices are the same as offline or even slightly higher, a large portion of people still choose to shop online.
In another five years, small shop owners born in the 1980s will be 50 years old, those born in the 1990s will be 40, and those born in the 2000s will be 30. They are the direct customers of distributors. For them, shopping, travel, ordering meals, ordering goods, and even some business transactions are conducted online. The internet has already become a way of life for modern humans. **Where are they? The answer is "online." So the first problem distributors need to solve is that wherever customers are, we should be there. We need to make it possible for customers to find us online.**
In this context, how to make customers find us? How to make customers favor us? For distributors, transforming into platform-based distributors is extremely urgent.
**Market Capacity and Target Setting**
After determining the general direction, we need to determine whether we can transform into a platform-based distributor from the perspectives of **market capacity and competitive landscape**. First, look at market capacity. Suppose a city has 5,000 small shops with an average daily turnover of 2,500 yuan. Remove 40% of cigarette sales, then multiply by 80% as the purchase amount, and you can roughly calculate the market capacity for all categories.
Then choose categories. For example, the market share of leisure snacks is about 25%, so you can calculate the market capacity for the leisure snack category. Distributors decide whether to enter based on this data.
From the competitive dimension, using Lancaster's Law, **market competition forms can be divided into four categories**.
> **1. Monopoly type,** where one company dominates. To achieve this goal, the market share needs to reach 73.9%. **2. Two tigers fighting.** The highest market share needs to reach at least 41.7%. **3. Tripod stand.** Market share needs to reach 26.1%. **4. Heroes contending.**
Therefore, if you choose to do a certain category, you should at least set the target at 26.1%. Only by reaching this proportion will your market position be relatively stable and not easily replaced by later entrants. Similarly, it also means that if someone in the local area has more than 26.1% market share in the category you choose, try to avoid it. If someone exceeds 41.7% market share, give up directly.
**The Operating Loop of Platform-Based Distributors**
After understanding the market situation, how to transform into a platform-based distributor? First, you need to understand the operating model of platform-based distributors, which is the **operating loop**. But before learning the operating loop, it is necessary to clarify the competition rules of the stock market, which helps us better grasp market dynamics and lay a solid foundation for the transformation path. **The competition rule in the stock market is to find increment in the market**. Either increase the number of customers or increase the number of products. In the stock market, the total number of customers is limited. To increase the number of customers, you can only take away competitors' customers while preventing your own from being taken away. **The essence of commercial activities is value exchange.** Bezos once said that customers' pursuit of lower prices will never change, their pursuit of more choices will never change, and their pursuit of faster delivery will never change. That is to say, if you can meet the needs of low prices, complete goods, and fast delivery, you can win the entire market. Many years ago, Taobao almost monopolized the entire e-commerce market, while JD.com differentiated by choosing home appliances and digital 3C categories; later, JD.com launched genuine product guarantees, selling good products to differentiate against Taobao's product quality issues at that time; then Alibaba launched Tmall to counter JD.com's genuine products; later, JD.com built its own logistics, establishing the differentiated advantage of fast delivery. This is the logic of differentiation. To be a platform-based distributor, you also need to focus on these three points. If you do one point to the extreme, you can survive; if you do two points to the extreme, you can become the regional leader; if you do three points to the extreme, you can win the entire market. To become a platform-based distributor, the operating loop roughly has two lines. **The first line is called the marketing and promotion system**, whose core purpose is to liberate salespeople: first, let customers place orders independently, with salespeople mainly focusing on development to increase customer volume. **The second is the operation and delivery system**, which improves the efficiency of warehouse management and distribution personnel. On this basis, achieve dual increases in revenue and profit, obtaining more expenses. The sources of expenses are: first, suppliers; second, expanding more SKUs; third, faster delivery speed. By meeting low prices, complete goods, and fast delivery, you can increase sales volume, average order value, and repurchase rate, forming a closed loop.
**Positioning: The Way of Differentiated Competition**
After deeply understanding the operating loop of platform-based distributors, **differentiated competition becomes the key strategy for us to achieve transformation and upgrading.** To engage in differentiated competition, we first need to **clarify our market positioning.** Many platform-based distributors give up midway, and many have been doing it for years without seeing profits. In fact, most of them start without positioning and act blindly. In today's severe homogeneous competition, remember the wise saying: "If positioning is wrong, all efforts are in vain." In the short term, positioning can form differentiated competition and establish competitive advantages; in the long term, it can occupy customer mindshare and form "specified purchase," such as "Afraid of getting heaty? Drink Wanglaoji." Take a client served by Laiken as an example. Min'ao Ingredients is a frozen food distributor in Chengdu. When it determined the frozen food category, it also meant that before reaching a market share of 26.5%, it would be difficult to adjust positioning. Its value positioning is to be the frozen food distributor with the most complete categories in Chengdu. This is not a simple statement; it means that the entire company's core resources, funds, and manpower will be invested in building the frozen food supply chain to solve the problem of complete goods. The trust certificate is to solve the trust issue during promotion: a 6,000-ton self-built warehouse, nearly 10,000 active customers with sales of nearly 300 million yuan, and the main product is frozen food. Since the quality of the frozen food industry is uneven, its advertising slogan was formulated as "Better, More Complete, More Affordable," making the advantage clear at a glance. **Laiken Cloud Business is a digital SaaS software specifically for distributors, integrating inventory, finance, B2B mall, business field, warehouse WMS, distribution, and many other functions.** Its positioning is a B2B digital service provider exclusively for FMCG distributors, which means Laiken only serves FMCG industry customers, positioning itself as B2B and digital, focused and professional. Laiken Cloud Business only focuses on the upgrading and transformation of FMCG distributors, having served more than ten B2B platforms with over 100 million in revenue and over a hundred B2B platforms with tens of millions in revenue. With successful case support, it launched the slogan "Platform distribution digitalization, Laiken helps you safeguard." I strongly suggest that all leaders **engage in differentiated competition through carefully planned positioning, rather than blindly imitating and copying, ultimately turning a good track into a price battlefield.**
**Growth Curve and Profit Planning**
After understanding the operating model and differentiated competition, what is the development cycle of platform-based distributors? The development of platform-based distributors is divided into three stages. **Months 1-12 are the strategic investment period**, with large initial investment but fast growth, usually greater than 25%. The main core work is to expand user volume and cultivate users' ordering habits. Even extending to 18 months is reasonable. **Months 13-18 are the model stabilization period**, where monthly profitability is unstable, and it is necessary to strictly operate according to positioning without blind action. The main core work is to solve the problem of unstable profits through supply chain + efficiency improvement + adjusting salary structure, changing warehouses, etc. **After 18 months is the platform development period**, where the model is formed and profitability is stable. The work focus is to continuously negotiate with brand owners to prepare for the second curve. Many platform-based distributors end up not making money for a long time because they fail to plan profits and lock in profits. Take leisure snacks as an example: in the leisure snack industry, the gross profit for small shop business must be locked at ≥12%, but for platform-based distributors, it is already good to have a gross profit of more than 10 points. How to lock in gross profit? **First, integrate the supply chain to control back-end costs; second, classify and grade products into four categories such as must-sell items and limited items, with targeted strategies.** From the perspective of personnel efficiency, if a salesperson's personnel efficiency is 200,000 yuan and sales expenses are less than 2%, that means a person's disposable expenses are only 4,000 yuan, not even enough for salary. Under such personnel efficiency, the platform-based distributor model cannot run; the only way is to improve sales personnel efficiency. A salesperson develops 3 customers a day and can develop 1,100 users a year, with a conversion rate of over 25%. With 260 customers, each generating about 1,500 yuan per month in revenue, a single person can achieve 400,000 yuan, which is also the minimum business requirement for platform-based distributor salespeople. Second, warehouse costs should be controlled at 3%, rent should be controlled at 1-1.75 points or 2 points depending on the city, and personnel costs must be controlled at 1.25 points, meaning per capita output must be at least 600,000 yuan. Multiplied by 1.25%, per capita disposable expenses of 7,500 yuan are enough to pay salaries, which is definitely not achievable under the traditional model. Due to space limitations, the calculation methods for distribution costs and management costs are similar. Interested friends can calculate for themselves. At present, more than a hundred FMCG distributors across the country have chosen to build B2B platforms through Laiken Cloud Business and successfully achieved transformation. Finally, use one sentence as today's summary: If you want to run like a cheetah, you must change the physiological structure of a sloth. **Digitalization and artificial intelligence will disrupt the vast majority of industries in the near future. The question is only whether you are the disruptor or the disrupted.**
 _PS: Friends interested in the on-site speech content can follow the recent push of the "New Distribution" WeChat official account. We will organize and publish all guests' speeches for the benefit of readers._
 _Click **Read Original** to see more about the 9th China FMCG Innovation Conference and the 2nd China FMCG Hard Discount Conference & the 2nd China FMCG Distributor Conference..._


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