Click 'Read Original' for details. On August 24, Mr. Ren Xiaodong, Secretary-General of the FMCG Industry Branch of the China Electronic Commerce Association, exclusively interviewed Mr. Jing Shi from Alibaba Retail Link's Operations Center, hoping his views on the industry could offer some insights. For readability, New Distribution has slightly edited and organized the content without changing the original meaning. Below is the transcript of the interview: Q: Welcome to the China FMCG Digital Innovation Conference. After several years of development, what stage is Alibaba Retail Link at now? Our strategy is to build a smart distribution network to help millions of small stores embrace the DT era. From this perspective, Retail Link has already passed the initial stage of connecting with stores, including establishing basic supply chain capabilities and industry influence within the sector. Our Q1 transaction volume grew nearly 700% year-on-year. If the industry's development is divided into four stages, we are already in the second stage. Q: From an industry perspective, what empowerment can Retail Link offer brand owners? Compared to other B2B platforms, Retail Link may not be a standard B2B enterprise. Our core is to provide an end-to-end solution for the circulation of goods from offline FMCG to consumers through digitalization. In fact, we are more of a new retail solution. From a B2B perspective, regarding the circulation of goods to small stores, Retail Link's help to brand owners is mainly reflected in the following aspects: First, a full-chain business digitalization solution. Over a long period, we have had clear and effective solutions for deep, medium, and shallow distribution. Our own supply chain capabilities are also gradually forming and developing, which is another area where we can empower brand owners. Retail Link can also help brand owners connect with small stores and conduct personalized marketing activities. The core driver of Retail Link's rapid growth over the past year has come from partner brands. For example, we once created over 43.8 million yuan in GMV for Hengan in a single day, and the ROI of online single-day marketing was many times higher than offline, while data on store coverage also hit a peak that day. Additionally, in distribution, we helped many medium- and shallow-distribution brands, such as a leading candy brand, contribute to over 30% of new store services and coverage. If brand owners, especially small and medium ones, want to build a nationwide distribution network, previously only large enterprises had such capability, but now through Retail Link, every enterprise can achieve rapid distribution possibilities. In the past, the core competitiveness of China's FMCG industry was at the channel level, which implied heavy investment in personnel, channels, and supply chain costs. This system was built when overall social labor and resource costs were low. In recent years, we have rarely seen emerging brands able to make such high-cost channel investments. Even brands that have established deep distribution channels face significant cost and efficiency pressures. On the other hand, the overall channel resources in the FMCG industry are now excessive, with many resources being duplicated and brands making repeated investments, especially deep-distribution brands. On a small street with hundreds of stores, they might be served by over a dozen distributors, with more than a hundred vehicles providing services. The result is that every single store has many people serving it. This is completely redundant construction and investment, resulting in significant waste. Q: With the platform's strong development, are brand owners worried about being constrained by the platform and losing initiative in marketing and market development? This needs to be viewed from several aspects:
Alibaba's mission is to make it easy to do business anywhere, not to do all the business itself.
If we talk about strength, Tmall and Taobao are already very strong today, with trillions of GMV. Brand owners are happily playing on these platforms; it's not that the platform eats anyone or does anything to them.
I think for brand owners, some paradoxes must be clarified. Many brand owners think that by going through original channels offline, they control the stores, but in reality, this is not controllable. For any business ecosystem, we must clearly understand who the customers are. For brand owners, the customers should first be small stores. In the offline channel system, I believe only a few brands have the ability to build a large proprietary sales force, and these brands will have control over stores. For the remaining over 80% of brands, their so-called channel control is a false proposition. Because they simply don't have the ability to reach small stores; they don't even know which stores they serve, their survival status, what the store owners are thinking, or what their competitors are doing. Retail Link itself is an open platform. Channel control, management, price control, and product control are all based on the brand owner. I believe that only when B2B systems like ours become larger, and only based on such a digital, open, and transparent platform, can brand owners truly establish influence and control over channels and stores. Q: Do you mean that brand owners trying to build their own independent traffic distribution system is a false proposition, and they actually can't achieve it? We must clearly see what the core demand of a brand owner as an independent entity is. I think the core demand is simple: to be closer to their core store customers, to better reach and operate these stores, even to directly contact and operate them. Of course, this contact and operation includes many capability modules, some of which are bound to be socialized, such as supply chain, warehousing, and distribution. Brand owners either go through distributors or other supply and distribution systems; it will definitely be socialized, and no brand will do it themselves. But some work, such as marketing, direct store operations, and reaching consumers through stores, should be the focus of brand owners' work. There are over 6 million stores in China. No brand owner can solve this problem through independent traffic. Brand owners must use platforms to help solve many problems, such as the most basic warehousing and distribution construction. If brand owners want to reach consumers through stores, they need to help digitize the 6 million stores, establish consumer profiles, and build consumer indicator databases. These are tasks that brand owners cannot accomplish independently and must rely on platforms to fill these capabilities. For brand owners, the business itself won't change; the main body remains the brand owner, but they need to change their approach. In the new era, brand owners need to shift from offline operations to digital-era operations. Everyone has to change their way of survival. Brand owners also need to think about how to survive in the digital era. The logic of business won't change; the main body will always be brand owners and stores, but the way of linking and doing business will change. Brand owners must make changes to their capabilities and core competitiveness, and their operational methods and store management methods need to change. The core of a brand owner is definitely products and brands, followed by channel operation capabilities. What we need to improve now is just the brand owner's operational methods. Q: Do you think unified warehousing and distribution is a false proposition? I don't think it's necessarily a false proposition, but the FMCG industry has many different categories, and warehousing and distribution perform differently across categories, so unified warehousing and distribution is not always valid. The cost of a vehicle per day, a driver per day, plus fuel, is all clear, and the remaining calculations are simple. In some categories, distributors' warehousing and distribution combinations are already well done, so I don't think there is room for efficiency improvement by entering these industries from warehousing and distribution. Through visiting distributors, we found a phenomenon: many distributors' efficiency is already at its peak, but they lack internet technology to drive connections. This is something many enterprises need to pay attention to. I have also visited many distributors, and I found that many water and beverage distributors have warehousing and distribution costs of just over one percentage point, which many B2B companies cannot achieve. These distributors are already doing very well, and I don't think building more warehouses and using more vehicles can reduce costs to a few tenths of a percentage point. From another perspective, why hasn't such efficient warehousing and distribution brought them significant development space and opportunities? The core issue is that they need to integrate into a larger ecosystem. It's not just about connecting with stores; they should become part of a larger ecosystem. The FMCG industry has a market size of over a trillion yuan annually. In this vast system, goods circulate to small stores and then connect to consumers through stores. This is a large ecosystem, and we should give more capable distributors more opportunities; they should integrate into such an ecosystem. How to integrate? I think digitalization is the foundation. First, digitize, then it's possible to be connected and integrated, and only then will there be better development space. So, purely in terms of warehousing and distribution capabilities, I believe distributors have the potential for revolution. Some excellent warehousing and distribution service providers and distributors have the opportunity to gain greater development opportunities and space through warehousing and distribution, even to seize opportunities from distributors with weaker capabilities. Q: What do you think the future development pattern of the industry will be? Will Retail Link dominate, or will there be multiple industry participants competing? First, 'regional kings' is a completely unfounded assertion. Because brand owners view the business on a national scale, and all resources are distributed nationally. Second, the circulation of goods also requires a national solution. Especially when B2B is helping brand owners solve data, marketing, consumer connection issues, and even more digitalization problems in the future, we will find that the value and growth space of regional platforms are limited. So I don't think regional platforms will have great opportunities in the future, but they can become regional distributors.