Amid the wave of digital transformation in FMCG channels, the industry has almost reached a consensus: distributors may disappear, but intermediaries will remain. This is because the existing functions of traditional distributors are not irreplaceable. As retail scenarios become more diverse and fragmented, most existing distributors lack basic digital service capabilities. What will the future intermediary look like? It will certainly not be as simple as providing financing, logistics, and sales visits for brand owners. The role of distributors has existed for nearly 30 years, backed by historical factors such as demographic dividends and market dividends. But when the market enters a saturation period and competition shifts to grabbing business from existing volumes, the promotion and operation capabilities of intermediaries will be tested. With traditional B2C e-commerce platforms like JD.com and Tmall experiencing the disappearance of online traffic dividends and rising customer acquisition costs, intermediaries between platforms and brand owners are the first to bear the brunt of challenges. As online intermediaries, how should they respond? This article may provide a reference for traditional offline distributors. Recently, New Distribution interviewed Mr. Wu Kun, Deputy General Manager of Lujie Kunchi Group. As the largest distributor in China's beauty category, Lujie Kunchi positions itself as a chief brand operator and believes this will be its core competitiveness in the future. 1 Who is Lujie Kunchi? Founded in 1999, Lujie Kunchi Group achieved sales of 3.8 billion yuan in 2018. It primarily deals in personal care, beauty, maternal and baby products, and food categories. It is currently the largest service provider for beauty agency in the Chinese market, selling over 100 million products annually. It is the largest partner of Shiseido, Henkel, and Lion in China, and the largest (JDP) for JD.com's beauty and personal care products. Its average annual compound growth rate is 240%, with growth exceeding 12 times from 2014 to 2018. It serves over 160 well-known global brands. Wu Kun told New Distribution that Lujie Kunchi Group currently has six functional modules: 01 Lujie (offline agency) Distributes Shiseido, Lion, and Henkel, covering over 3,600 Watsons stores nationwide, as well as some KA hypermarkets like RT-Mart, Walmart, and Carrefour. In addition to providing financing and warehousing functions like traditional agents, it also offers partial retail terminal management. 02 Kunchi (online agency) Unlike traditional TP operators that mainly operate platform stores for a service fee, Kunchi combines distribution and operation. It does not simply provide operation or customer service; it helps brand owners plan annual/quarterly marketing campaigns, from planning to distribution, and takes responsibility for final sales. 03 Meiqike (marketing creativity) This is an independent marketing creative company, akin to an online 4A agency. It not only provides marketing creative services for Lujie Kunchi itself but also accepts third-party social orders. For example, during the 11.11 period last year, Meiqike provided marketing creative services for JD.com's beauty category. 04 Galaxy (brand management) Although Galaxy mainly provides distribution services for brands and platforms, Wu Kun admitted that since the brands and channels are not their own, they hope to make their own achievements at the brand level in the future. They have already started trying to become the general agent in China for some foreign brands with potential and a positive outlook on the Chinese market. Based on Chinese market consumption needs and insights, they assist foreign brands in product development, and after introducing products to China, they design brand and marketing strategies themselves. Therefore, in the medium to long term, Lujie Kunchi hopes to own its own brands. 05 Miracle (big data company) Currently, Lujie Kunchi has over 140 IT engineers. Besides developing the company's own management systems, they have accumulated relatively rich consumer purchase data through nearly 10 years of online operations. By collecting and organizing this data, they build the group's database to provide basic data services for later marketing planning. 06 SmartGo (smart supply chain) This function is similar to traditional agents, providing basic warehousing and distribution functions for brand owners, including purchase orders and inventory management. Currently, Lujie Kunchi has 70,000 square meters of warehouses distributed across various locations. After understanding the six functional modules of Lujie Kunchi, it should be clear that Lujie Kunchi is no longer a traditional distributor but a comprehensive brand operator. Behind brand operations, Lujie Kunchi always focuses on female consumers, with women as the core users, distributing and representing brands. Therefore, it has gradually expanded from personal care and beauty categories to maternal and baby, fashion, and food categories. 2 Lujie Kunchi is more than a distributor Wu Kun told New Distribution, "Lujie Kunchi is not just a distributor; our core competitiveness comes from brand operations. With the increasing fragmentation of online traffic and the rising cost of traffic within platforms (Tmall, JD.com), we are required to conduct refined operations, improving conversion rates and average order value within existing traffic. There is a lot of detailed work here. Additionally, we must capture traffic from outside platforms (Xiaohongshu, Douyin, WeChat, Weibo) through seeding, promotion, and other forms to achieve sales conversion." How to capture traffic? According to Wu Kun, Lujie Kunchi has formed two teams for external traffic operations: one is the media buying team, which maintains connections with external influencers and KOLs. Currently, the company has stable cooperation with nearly 300 internet celebrities. The other is the content marketing team, which, besides meeting daily content creativity, production, and placement needs for represented brands, also tries to incubate its own IPs. For example, "Face Big Meow Sauce" has nearly 1.3 million followers. We hope to use excellent content to help brands reach consumers." In 2018, Lujie Kunchi achieved sales of 3.8 billion yuan, and in 2019, it is expected to reach 6 billion yuan, nearly doubling. Where does Lujie Kunchi's confidence for this growth come from? "In the past two years, we have focused on deep operations in women's personal care and beauty categories, without aggressively expanding categories. Besides doing business well, we have continuously built internal company functions. Even when brands invited us to represent and distribute, we restrained ourselves and did not open up rashly. After the fourth quarter of 2018, we believed the functions of each module were basically formed. In December, Lujie Kunchi took over the sales of Yili milk powder on the JD.com platform. This year, we will further expand in directions like maternal and baby and fashion. Therefore, from 3.8 billion to 6 billion, we did not set this arbitrarily but had a complete sales forecast plan," Wu Kun explained. Of course, Lujie Kunchi has not stopped at traditional B2C e-commerce channels. In the era of new retail and borderless retail, Lujie Kunchi is constantly exploring and trying new distribution formats such as Hema Fresh, 7-FRESH, Retail Link, and New Channel. Wu Kun admitted, "The biggest pain point for agents is that they are too replaceable. Lujie Kunchi must always be vigilant. One day, a better operator may emerge, providing better services, higher efficiency, and lower costs. Perhaps brand owners will also take back distribution authorization one day. There are too many uncertainties here. What Lujie Kunchi can do is only run all the way, staying ahead of competitors. When you are strong enough with core competitive advantages, no matter how external channels or brands change, you can survive and not live too badly." 3 What are the shortcomings of traditional distributors? When discussing the difference between Lujie Kunchi and traditional distributors, Wu Kun told New Distribution, "Perhaps more traditional distributors only provide basic logistics and financing services for brand owners, lacking communication and understanding of the users (small shops) they serve. In the current era, a pure sales mindset or order mindset cannot meet the needs of brand owners, while an operational mindset considers the source of business from the user's perspective. Lujie Kunchi's users are always female consumers, and we proactively think about where our value lies around users and brands." Recently, I contacted a traditional distributor, Wang Hua (pseudonym), who previously focused on beverages and snacks. Since 2018, he cut the beverage category and focused on snacks. He told New Distribution, "Our positioning is simple: be a distributor in the snack category, focusing on distribution within this category. For downstream small shop users, I don't pay much attention to single-store sales; I consider how to fill the snack shelves of small shops and increase the SKU share. For upstream brands, besides holding a few core mainstream brands, I focus on which products are popular in the snack category. Continuously introducing new products to meet the profit needs of small shops also meets the diversified needs of consumers." I remember a remark by Mr. Tu Mingyu from Chongqing Lingyu Supply Chain that left a deep impression: "The threshold for the distributor industry was too low in the past; as long as you had money and goods, it was enough. But now it's definitely not enough. Doing business is like high jumping. In the past, everyone could jump over a one-meter bar, and it was hard to tell who was strong and who was weak, with a mix of good and bad. Now that the market has changed and the bar has risen to two meters, the strong and weak are immediately distinguished." In the past, distributors could "open the door to welcome customers" by providing warehousing and capital. Now, when all your peers can do the same, what is the reason for brand owners to choose you? When capital and warehousing become basic indicators, whether you have marketing and promotion capabilities becomes the key for brand owners to choose. Frankly speaking, both Uni-President and Master Kong emphasize internally, "Shift from believing in the power of the office to believing in the power of distributors," fully promoting the distribution and promotion functions of distributors in regional markets, rather than simply being logistics movers. With rising labor costs and the emergence of FMCG B2B, brand owners can no longer emphasize building independent distribution networks as in the past; instead, they coordinate with platforms and distributors to distribute goods. Future distributors will take over the functions of past factory salesmen, going out to do marketing, promotion, and social interaction with consumers. Distributors will disappear; what will disappear are those that can only provide basic functions. Intermediaries will exist; what will exist are those that can help brand owners execute marketing and promotion effectively. FMCG Industry Analyst Focusing on new distribution for FMCG distributors and new marketing cases for brand owners Related content for extended reading: Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to channel digital solutions and transformation for FMCG manufacturers and distributors