-01- The concept of "category integrated distributor" is rarely mentioned in the industry, but a group of major distributors are already doing it. When a distributor holds a large share in a category (e.g., snacks) and has lower sorting and delivery costs due to scale, platform orders (e.g., from Retail Link or New Way) and orders from smaller distributors will concentrate on them, making them category integrated distributors. Category integrated distributors have two key words: First, thoroughly understand a category. The more focused on a single category, the easier it is to find professional tricks in sorting, delivery, and other links, especially for categories with long-tail characteristics, such as snacks. Because categories have long-tail characteristics, brands are relatively fragmented. Because brands are fragmented, the market share of individual brands and distributors is fragmented, and the warehousing and delivery capabilities of individual distributors are poor. Second, integrated distribution. When a major distributor has strong warehousing and delivery capabilities, orders of the same category are handed over to them for fulfillment, forming integrated orders. That is, orders from different distributors are fulfilled by the same distribution platform. Current category integrators play a dual role. First, they are themselves major distributors. Because they are major distributors with scale advantages, they invested early in B2B warehousing and delivery, and have strong warehousing and delivery capabilities. Second, they are also third-party warehousing and delivery providers. As third-party warehousing and delivery providers, they are attractive for platform orders. Currently, although third-party platforms have overall scale advantages, they may not have scale advantages in a specific category, so platform orders tend to be handed over to advantageous third parties for fulfillment. Once they have platform fulfillment orders, orders from other small distributors will gradually concentrate, making them category integrated distributors. Major distributor + third-party delivery brings lower warehousing and delivery costs, forming a positive cycle. Case 5 of marketing digitalization and Chengdu Xingrenxing Trading, which we will introduce this time, are doing the business of category integrated distribution. Image: Chengdu Xingrenxing Trading warehouse (photo by author on April 2, 2021) -02- Digitalization is the prerequisite for category integrated distribution It may be hard to imagine that the earliest category integrated distribution was done by traditional second-tier distributors, but they were small in scale, had limited reach, and lacked digital capabilities. Twenty years ago, there was a saying: first-tier distributors do brands, second-tier distributors do categories. Digitalization makes it possible for major distributors to become category distributors for two reasons: 1. Major distributors have a large amount of terminal order data; 2. Digitalized integrated warehousing and delivery management provides solutions for B2b "wholesale + retail". For example, SFA (Sales Force Automation) systems can complete real-time collection of on-site orders, sales, inventory, and other data, as well as work order reception/feedback, and interact with backend systems in real time, allowing category integrated distributors to predict replenishment cycles and shipping times in advance and prepare stock ahead of time. Integrated warehousing and delivery management solutions, through full-chain system integration of warehousing and delivery operations, enable category integrated distributors to complete sales forecasting, improve warehousing and delivery execution efficiency, and save management costs. At the same time, by creating diverse and personalized services, they provide small stores with a better service experience. Image: Integrated warehousing and delivery management system (photo by author on April 2, 2021) Traditional second-tier distributors need to meet the customized needs of small-batch terminals, while category integrated distributors need to meet the customized needs of large-batch terminals. Whether it is an SFA system or an integrated warehousing and delivery management system, in the end, they are efficiency systems. Improving efficiency saves costs, and digitalization is an indispensable tool for improving warehousing and delivery efficiency. -03- The advantages of category integrated distribution are efficiency and cost The advantages of category integrated distributors come from three aspects: 1. Scale advantage; 2. Sorting efficiency; 3. Delivery efficiency. 1. Scale advantage. Only with scale advantage can scale efficiency be improved; otherwise, the scale efficiency of category integration is out of the question. Backend data from integrated warehousing and delivery shows that for long-tail categories like snacks, a category integrated distributor only has scale advantage when they have 4,000-15,000 SKUs. Generally, small distributors find it difficult to achieve this. 2. Sorting efficiency. Sorting efficiency is the most important link solved by the integrated warehousing and delivery system. According to the relevant person in charge, debugging sorting efficiency must be done in a "manual + intelligent" way, continuously exploring and debugging, and must be humanized. Therefore, there are countless small techniques formed from understanding human nature. Image: Sorters sorting goods (photo by author on April 2, 2021) For example, in the warehouse of Chengdu Xingrenxing Trading, based on the characteristics of many snack SKUs, each picking channel only places 300-500 SKUs. This design is not because there is not enough space to place more, but because it needs to be based on humanized design. Sorters should walk no more than 12,000 steps per day to avoid fatigue. Therefore, based on digital statistics of the steps taken by sorters each day, it is calculated that placing 300-500 SKUs per channel allows sorters to better complete their work while maintaining physical strength. There are many such examples, such as different sorters in different sorting areas, popular SKUs placed in front, how to design order balance, etc., all of which improve sorting efficiency while ensuring sorters work efficiently. 3. Delivery efficiency. Taking Chengdu Xingrenxing Trading as an example, their average delivery efficiency is 15 stores per truck, with 2 deliveries per day. The delivery efficiency of category integrated distributors has greatly improved compared to traditional delivery, but there is still much room for improvement. How to use digital analysis to increase delivery efficiency by 1-2 times compared to the current level is something we need to explore in the future. -04- Category integrated distributors: the first stop for major distributor transformation There are two directions for major distributor transformation: one is digitalization of existing business; the other is transformation to channel digital platforms, such as becoming third-party warehousing and delivery providers. For major distributors to transform to platforms, category integrated distribution can be the first stop. Why?

  1. Major distributors in a category have strong channel capabilities. They have years of experience in warehousing, circulation, delivery, and service, and their basic scale is their advantage.
  2. Small distributors have some difficulty in transformation because manufacturers that can create big brands in small categories must have strong channel capabilities themselves, so distributors do not need strong channel capabilities. Moreover, such products usually have obvious channel and regional characteristics, so it is challenging for them to transform into category integrated distributors.
  3. Small brand collection retailers. The biggest advantage of this type of second-tier distributor is small batch, can be broken into pieces, and can meet customized needs. However, due to small scale and obvious regionality, they are not suitable to be category integrated distributors. Image: Chengdu Xingrenxing Trading warehouse (photo by author on April 2, 2021) Without basic scale, category integrated distribution cannot be done. The final result of category integrated distribution is that other platform orders are forced to be handed over to you because your fees are "low enough". How important is this "low enough"? In the cases we visited, due to the low fee rates of category integrated distributors, they became "super second-tier distributors" or "super 1.5-tier distributors". For example, the warehouse of Chengdu Xingrenxing Trading simultaneously receives orders from Alibaba Retail Link and JD New Way, and Alibaba Retail Link and JD New Way have become just order system channels for the category integrated distributor. As the first stop for major distributor transformation to platforms, category integrators can advance or retreat. They can retreat because category integrated distributors are not completely third-party distribution platforms; they gradually become third-party platforms by leveraging their own scale and digital advantages. Platforms need scale, but building a platform from scratch without scale in the short term means burning money. Category integrated distributors do not need to burn money at all. They can advance by relying on third-party distribution platforms to become regional professional platforms. Even because of platform advantages, they can become "super second-tier distributors" for many leading brands in the category. According to Ren Xiaodong, an expert in "New Business", there will be no more than 3 "super second-tier distributors" in a region, and whoever takes the position first has the advantage. Before the rise of full-category third-party warehousing and delivery platforms, category integrated distributors are the first stop for major distributor transformation. Even if full-category warehousing and delivery platforms become mainstream in the future, brand integrated distributors can still become "regional landing operators" for large platforms. Of course, category integrated distribution is difficult to work in industries with high category concentration, because leading big brands exclude each other. Even if a major distributor has advantages, competitors will avoid them. Therefore, it is better for category integrated distributors to choose long-tail categories. -05- Small distributors are suitable for warehousing and delivery outsourcing For a long time, Chinese distributors have adhered to a principle: scale can be small, but warehousing and delivery must be in their own hands. Some even say, rather lose some profit, but do warehousing and delivery. In the digital era, the circulation function of distributors will shift from "small but complete" to "large and specialized". Teacher Liu Chunxiong said that in the future, the channel will have four major platforms: order platform, warehousing and delivery platform, capital platform, and operation platform. The four platforms form a channel ecosystem, coexisting and prospering together. Small distributors extricating themselves from warehousing and delivery functions, focusing on product promotion and operation, and outsourcing warehousing and delivery to category integrated distributors is a future direction. First, small brands' offline channel expansion must find category integrated distributors. There are two reasons: 1. Customized delivery. In traditional channels, only second-tier distributors have piece-picking delivery, but now category integrated distributors can achieve full-channel customized delivery (including piece-picking, sorting, combined packing, and integrated delivery). This replaces most of the functions of second-tier distributors, who only need to focus on customer contact and service. 2. High turnover cycle. Now urban land prices are getting more expensive, and small stores' storage space is extremely limited. Traditional delivery cycles are long and lack timeliness, sometimes relying on personal relationships as a bargaining chip for limited delivery. The high turnover cycle of category integrated distributors effectively solves the problems of timely replenishment, storage, and overstocking for small stores, achieving high timeliness of ordering the same day and delivery the next day. Image: Sorters sorting goods (photo by author on April 2, 2021) Second, category integrated distributors will definitely promote small brands, mainly for two reasons: 1. High gross profit. Because small brands have low communication costs and opaque prices to consumers, what is left for category integrated distributors is high gross profit, which is the most important point for them. 2. Personalization is an inevitable development in the digital era. Data shows that personalization always has a considerable number of buyers on the shelf, and this group is enough to support the survival space of small brands. -06- The value of category integrated distributors Category integrated distribution is hard and tiring work, and few major distributors are willing to do it. But it is precisely this seemingly low-tech "distribution" that, with the wings of digitalization, has taken off. So finally, let me summarize where the value of category integrated distributors lies. I think it can be summarized in three sentences: help small brands solve channel problems, help small b solve turnover cycle problems, and help themselves solve transformation problems. Source: Teacher Liu's Digital New Marketing, Author: Liu Xinyi Tips will be paid 400-2000 yuan once adopted.