On the afternoon of June 4, in the B-end e-commerce discussion group organized by New Distribution, well-known domestic marketing experts and founders of FMCG B2B platforms discussed whether B2B will eliminate distributors. The views were insightful and highly relevant to the industry, so we have compiled the content to share with you. Feel free to leave your comments below.
Zhao Bo: Let me ask everyone a question: Will B2B eliminate distributors? Currently, the industry seems to be divided into two camps: one believes it will, the other believes it won't. Those who think it will believe that the total supply of consumer goods in China is limited. With B2B's large-scale operations and increasing transaction volumes, it will inevitably squeeze the living space of distributors. Moreover, the inefficiency of distributors makes them a natural target for revolution. Those who think it won't argue that the industry's existing scale is so large that the capital from the internet is nothing. Distributors are not pushovers; they are also transforming themselves, so it's still uncertain who will win. Today, I chatted with a friend who raised an interesting point: originally, those entering B2B were from the internet industry, thinking they could leverage information, technology, and capital to disrupt the industry. Unexpectedly, they didn't disrupt the industry but woke up its practitioners, who then used internet tools to transform their own industry. The internet people became martyrs and cannon fodder.
Zhang Guangtao: The disappearance of an industry should occur when the division of labor or efficiency changes; in the long run, it will disappear. However, distributors themselves are also the market for manufacturers, so they won't disappear; they will change.
Xingaoqiao Wang - Lao Tang: B2B replacing distributors is a matter of time, but it won't lead to extinction. Just like bicycles evolved from a means of transportation to fitness and now to sharing, wholesale markets and second-tier wholesale departments are doomed to disappear.
Zhao Bo: The question is whether the distributor industry is a norm under a market economy. What do distributors look like in mature markets in Europe and the US? With information technology enhancing China's channels, will it follow the same path of transformation as in Western market economies? If distributors go B2B, they must change their business models. The current single-brand agency model within small regions is definitely not suitable for B2B platform attributes. Distributors are like the puppet army of manufacturers; how can a puppet army have its own will? Currently, it's a single-brand exclusive agency system, so it's difficult for distributors to transform into B2B. The question is, if they don't transform, will B2B kill off small regional distributors? How? It's certain that the transformation cycle for this industry won't be that fast. For the cycle and time of industry transformation, I think we can use the turning radius of a ship to explain: the industry is like a ship. With constant speed, the larger the ship (industry), the larger the turning radius. FMCG is a market worth tens of trillions, a giant ship. Its transformation path will be a huge, gentle curve, not a sharp turn. Moreover, the growth of this industry is linear, and costs and benefits are linear, which means the market is too large. Spreading pancakes and sprinkling sesame seeds won't achieve short-term benefits in any market. As scale grows, investment per point increases, and the loss period becomes particularly long. Regardless of whether B2B will eliminate distributors, we can foresee several scenarios for China's supply and marketing channels in the coming years: First, B2B platforms are aggressively signing up stores, converting a large number of quality retail stores to their control, ultimately leaving distributors with no stores to supply. Currently, all mainstream B2B platforms in China are doing this. Even JD.com proposed the Million Small Stores Plan, and Meiyijia just opened its 10,000th store. Xingaoqiao, Furong Xingsheng, etc., also have nearly 10,000 stores each. Whether they can intercept distributors through store signing depends on how long it takes for the convenience store franchise model under the B2B system to penetrate the retail industry and what the penetration rate will be. The second way is industry upgrading. Low-cost, high-efficiency ordering brought by large-scale operations changes the ordering habits of small stores. The unstable service from distributor sales staff leads small stores to refuse ordering from distributors. I had a viewpoint before, not sure if it's correct: First, distributors won't die; they will evolve into provincial or national agents, becoming larger to match the scale of B2B platforms, and focus on being the puppet army of manufacturers. Another possibility is that they become insignificant, marginalized in the local market, becoming small wholesalers selling niche products. Third, some strong channel-driven brands, like Liu Ge He Tao, refuse to cooperate with platforms and build their own channels, keeping distributors in their original state. Technology drives business; logically, efficiency can be improved. The problem lies in human nature and the interest game with existing stock. From the perspective of B2B platforms, deeply binding with small stores, focusing on loose or tight franchising, providing collective procurement and distribution for small stores, and offering services, they can reach a compromise with distributors in a sense. I've noticed that everyone has basically reached a consensus: self-operated platforms that purely do collective procurement and distribution, not relying on either end, are definitely not viable. Supply chains like Eton's, which only do services and transactions with all assets securitized, are models that both service-oriented platforms and distributors in China need to study carefully. Any role that touches the flow of goods is essentially the most miserable, at the bottom of the food chain.
Lu Dexing: A few days ago, I chatted with a distributor surnamed Liang from Shenzhen. In my eyes, he was very successful (earning several million a year, doing Fengtong and systems). He said: "Being a distributor is tough; you need five sets of capital: one for advance payment to the manufacturer, one for operations, one for your own warehouse, one for the customer's warehouse, and one for customer receivables." So, at this stage, distributors generally have four functions: 1. Capital function, 2. Business management function, 3. Logistics function, 4. System function (information). Will distributors disappear? I think they will focus on one or several of these functions in the future. In other words, their roles will still change.
Zhao Bo: Social division of labor, specialization, and verticalization, from handling five sets of capital and four functions to becoming a full-industry-chain service provider. Can we understand it that way? @Lu Dexing I think B2B must cut into services and transactions, but currently, the infrastructure is insufficient. At the service level, B2B hasn't added enough value at this stage.
Lu Dexing: The value chain of commodity circulation is actually defined by producers, so the entrepreneurial logic of "adding value" is a bit far-fetched. In an environment where total value remains unchanged, there are only two paths for "adding value": one is "rebellion" (self-operated expansion), and the other is "disruption" (service matching). Currently, disruptors are further from their goal; the final victory should go to the rebels. But since it's a rebellion, we must distinguish who are our comrades and who are our enemies. Among manufacturer sales reps, store owners, distributors, and second-tier wholesalers, who are comrades? I never consider store owners as comrades.
Zhao Bo: Let me extend the previous question of whether B2B can eliminate distributors to discuss your point: If B2B cannot eliminate distributors, will B2B die? If not, what is the relationship between B2B and distributors? Is it supply or competition? I think this topic needs discussion. If it's a supply relationship, and all the distributor's terminals are taken by the platform, can the assumption that distributors order from B2B hold? If not, is it possible that distributors both supply B2B platforms and directly supply terminals themselves? If they both supply B2B and directly supply terminals, will there be competition? If B2B platforms eliminate distributors, can they solve the problem of five sets of capital and four functions you mentioned? If they can't, distributors won't die either. In a competitive environment, will it be integration or a life-and-death struggle? Can the puppet army and the Communist Party wear the same pants? So, whether it's rebellion or disruption, we must first define whether distributors are comrades or enemies of B2B platforms. This is a proposition that rises from business to philosophy.
Lu Dexing: There's already an answer on Taobao. The paths of ROMSS, Anker, and many internet brands in mobile peripherals are the future version of FMCG. The conclusion is: Distributors will definitely not disappear, but they will be optimized.
Zhao Bo: But we must define the relationship with B2B: enemy or friend. This is the foundation of values.
Lu Dexing: Distributors in third- and fourth-tier cities and below are not enemies; second-tier wholesalers in first- and second-tier cities are comrades.
Zhao Bo: When comrades come, we have good wine; when enemies come, we have shotguns. Once defined, it's easier to judge when handling issues.
Lu Dexing: The layer above terminals is comrades. We should strive to keep the puppet army neutral, and we should win over or eliminate manufacturer sales reps.
Wen Hui: Extending from Mr. Lu's point, it's not B2B replacing distributors; perhaps B2B wants to replace brand owners. Recently, I read an article by Teacher Fang Gang that said the current terminology in the circulation field is from the industrial civilization era, and it's time to reconstruct it.
Lu Dexing: Any brand owner has a market cap of tens of billions or hundreds of billions. What is the sum of the market caps of us struggling entrepreneurs who took venture capital? We shouldn't be fooled by our own sentiments. Our enemy is the manufacturer! @Wen Hui B2B will inevitably create one or more enterprises with a market cap greater than Yili or Wahaha.
Wholesale Market E-commerce Platform Zhangshang Hongcheng Guo Huixiong: B2B platforms are grabbing existing stock. If you want to eliminate someone, you become the new plus that someone. B2B platforms, like existing business forms, will also survive in diversity, with space for both large and small.
Wang Jianjiang: Regardless of who is eliminated, the road is still long. First, expand effective scale and improve supply chain efficiency.
Lu Dexing: The aircraft carrier that won the Falklands War was repaired on the way. The relative silence of B2B this year may indicate that the battlefield is within range.
Liu Chunxiong: The conclusion isn't important; what's important is the argument for the conclusion. Often, we're not arguing viewpoints but positions. Traditional people have positions, and B2B has positions. So sometimes, debates are actually about positions. Once you have a position, the debate is just finding favorable evidence. In fact, evidence is always two-sided. First, we must acknowledge that some public functions of distributors will definitely be stripped away by B2B, such as distribution, order systems, and big data. Fragmented distributors, if they don't strip these public systems, are inefficient systems. The current inefficiency of distributors is because fragmented distributors bear all channel functions. This system is unscientific. Conversely, if distributors are eliminated by B2B, can B2B assume all the functions of distributors? If not, then there are functional deficiencies, and a system with functional deficiencies is also unscientific. Chinese distributors are actually an extension of manufacturer functions, hence the term "management of distribution." In Chinese marketing, channels are so important because Chinese marketing emphasizes channel-driven strategies. If the distributor group is eliminated, then B2B must assume all channel functions for all manufacturers. That's impossible. It's impossible for one platform to assume all manufacturers' functions, especially since manufacturers are in competition with each other. Just as Tmall cannot assume the promotion functions of all merchants. Tmall only promotes based on how much money you pay. If a B2B platform like Alibaba emerges, then Chinese enterprises are doomed because they would have to surrender to a certain platform and pay according to its will. There's a saying I'm also promoting: All 4Ps are channels. Channels are also important internet promotion drivers. My recent practice is validating this. This wasn't in past internet thinking. I've always believed that the internet cannot be unrelated to channels. Current practice confirms it's feasible, which makes me a bit excited. So, what function can distributors never be replaced in? It's interpersonal relationship capability. The internet cannot be completely virtualized, and interpersonal relationships won't disappear. Customer relationships can never be replaced. No matter what new tools, in terms of relationships, they're fresh for a while. A few years ago, wasn't there a saying that all experiences are better offline? Why isn't that said now? As closely related parties to manufacturer profits, distributors' role in interpersonal relationships cannot be replaced by platforms or big data. When talking about B2B now, there's an important related party absent or silent: manufacturers haven't spoken. Others' words can't be taken seriously. Because manufacturers control consumers through backend systems, the remaining question is choosing who plays the channel role. As a channel party, B2B can be constrained by manufacturers through backend systems. My conclusion is: Distributors, as members of the channel system, cannot be completely replaced, but public functions will be stripped away.
Do you think B2B platforms will eliminate distributors? Feel free to vote and leave a comment below about your views.
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