1. The FMCG B2B industry is undergoing a reshuffle, transitioning from rapid growth to rational development. Only those who survive can be considered true players in this field. This is destined to be a long-distance race with competition on multiple fronts; burning cash alone cannot secure the future. 2. Competition in FMCG B2B will center on business models, refined operations, and profitability.

  1. Model: Regional tonnage represents status; those who control terminal channels win.
  2. Refined operations: Focus on the refined management of "information flow," "logistics," and "capital flow" to secure stable, long-term transactions with small stores. This is the core competitiveness that truly tests whether a platform can survive long-term.
  3. Profitability: As store stickiness increases, platform profitability will rapidly improve, and digital empowerment of upstream and downstream is only a matter of time. 3. Small stores are the entrance to massive offline traffic, and FMCG B2B is the gatekeeper of this entrance, with enormous future potential.

1 Only After Survival Do You Qualify According to statistics, in 2017, the transaction scale of China's FMCG B2B market was 150.7 billion yuan, and it is expected to reach 391.6 billion yuan by 2020. Data source: iResearch "2019 China FMCG B2B Industry Development Research Report" In the future, as industrial internet and consumer internet continue to integrate, the development of the FMCG B2B industry chain will accelerate and deepen. In the domestic FMCG industry, mom-and-pop stores are at the periphery of the entire retail network, with huge volume, scattered demand, weak informatization, and inefficient distribution channels. Whether in marketing or supply chain transformation, a painful upgrade process is inevitable. Guangjue believes that the industry is undergoing a reshuffle, transitioning from rapid growth to rational development. Only those who survive can be considered true players in this field. From 2013 to the first half of 2017, dozens of FMCG B2B platforms successively received financing, including Zhongshang Huimin, which received over 2 billion yuan in cumulative funding, and Yijiupi, which recently received a D+ round. The rapid development of the industry also attracted internet giants: in 2015, JD.com formally established the New Channel Business Unit targeting traditional small and medium stores, while Alibaba launched the Retail Tong project for retail stores. The first half of 2017 saw the most intensive capital inflow, with a total of 15 investment and financing events. Capital acted as a huge driving force, pushing the industry to race recklessly, chasing market share, city coverage, and platform GMV. However, all this came to an abrupt halt as the overall capital market cooled. In April 2018, the star enterprise Dian Shang Hu Lian, with total financing exceeding 1.1 billion yuan, was reported to have ceased operations. In May 2018, Zhongshang Huimin, with total financing of nearly 2 billion yuan, also began to show signs of crisis. In February 2019, Hui Xia Dan, which had received investment from Tencent, ceased operations. The number of B2B platforms rapidly decreased from over 250 in 2017. Some industry insiders estimated that 90% of platforms would struggle to survive this capital winter. In Guangjue's view, FMCG B2B is destined to be a long-distance race with competition on multiple fronts. After the noise, true competition will ultimately return to business models, refined operations, and profitability. Burning cash alone cannot secure the future.

2 Tonnage Represents Status; Those Who Control Terminals Win The FMCG B2B track is full of excitement, and regarding all issues related to business models in this field, Guangjue Capital believes they all boil down to two core points: first, "regional tonnage represents status" in the traditional FMCG field; second, "those who control terminal channels win." Based on these two points, it is easy to see whether various strategic approaches in terms of models can stand firm and survive long. Regarding national vs. regional development, and self-operated vs. matching models, Guangjue elaborated as follows: National vs. regional development—Your tonnage in a certain region represents your status there, so you must first establish a foundation of "regional dominance" before gradually expanding "nationally."

  1. From the perspective of goods circulation, FMCG sales have strong regional characteristics, so the corresponding sales markets are usually divided by region. The sales volume of regional distributors is closely related to the policies they enjoy and the prices they obtain. Cross-regional flow of goods (parallel imports) is limited in volume and strongly suppressed by brand owners.
  2. From the perspective of logistics and delivery, the FMCG B2B business depends on density within a single city: due to the natural characteristics of FMCG—low value and heavy logistics—the higher the density from warehouse to store, the shorter the delivery radius, the higher the efficiency, and the lower the logistics costs. Long-distance delivery from large warehouses actually increases delivery costs.
  3. From the perspective of market competition, regional platforms have stronger density advantages: compared to national B2B platforms, regional platforms have a stronger ability to break into a single market in the early stages, as upfront investment is relatively small and resources are concentrated, making it easier to form regional scale advantages and control over the entire channel. Some platforms may appear to have high total GMV nationally, but when divided by city, they lack scale advantages.
  4. From the perspective of capital investment, platforms that directly go national are destined to endure long-term bleeding operations and rely on continuous capital infusion. However, if a certain amount of capital is invested deeply in a specific region, it is possible to become a regional leader, with promising future prospects. The following chart shows the monthly merchant procurement situation of Kuailai Zhanggui, a prominent B2B platform in the East China region, in Shanghai. From this chart, it can be seen that Kuailai Zhanggui's merchant density and transaction frequency in Shanghai are relatively high, giving them advantages in logistics supply chain, market cooperation capabilities, and capital utilization efficiency over other competitors in the same region.

Self-operated or Matching Model? Self-operated is superior; the greater the control over terminal channels, the more valuable the platform.

  1. Under the self-operated model, the platform can interact with small stores through multiple business links, building stickiness by offering better products, more punctual delivery, and better service. This is the foundation for the platform's future value.
  2. Under the matching model, the platform only links suppliers and small stores through information matching, without touching goods, controlling logistics, or involving delivery services. In this case, the relationship between the platform and small stores is very loose, making it difficult to truly generate "stickiness," and naturally the platform's value is hard to reflect. Many light matching models must find ways to become heavier to form their own barriers.
  3. In February 2019, Hui Xia Dan, a representative of the matching model, was reported to have ceased operations, demonstrating the enormous challenges faced by pure matching platforms.

3 The Core of Survival—Refined Operations to the Extreme FMCG distribution is an industry that competes on operational efficiency. Even within the traditional system, brand owners, distributors, and terminals have formed a relatively efficient distribution system through long-term competition and coordination. As a B2B platform, in addition to leveraging the internet to break information barriers, how to efficiently reshape capital flow and logistics, and how to secure stable, long-term transactions with small stores through the optimization of these three flows, is the core competitiveness that truly tests whether each platform can survive.

Capital Flow—Coverage of Online Payment with Payment Before Delivery Mobile payment is already the norm in today's business environment. In the B2B field, whether online payment with payment before delivery can be achieved is crucial for platforms. From a certain perspective, this "coverage" can serve as a reference indicator for measuring a platform's overall operational efficiency, with numerous benefits.

  1. Optimize cash flow: No downstream credit periods reduce a large amount of accounts receivable, significantly optimizing cash flow.
  2. Improve delivery efficiency: For drivers, online payment optimizes the product delivery process, eliminating cash transactions upon delivery, allowing them to unload and leave, saving delivery time and improving efficiency.
  3. Reduce returns and exchanges: The temporary returns and exchanges caused by offline cash transactions can also be improved, reducing returns and exchanges.
  4. Transaction compliance: All transaction data is clear and verifiable, transactions are authentic, and finances are compliant.
  5. Value of supply chain finance: With closed-loop transaction data, this can provide valuable references for advancing supply chain finance in the future. In Guangjue's industry research, platforms that truly achieve 100% online payment with payment before delivery, such as "Kuailai Zhanggui" in East China, have top-tier operational indicators in the industry, including vehicle order efficiency, full load rate, cash flow, and return/exchange ratio.

So why can't most B2B platforms achieve online payment? After analysis, Guangjue believes the following factors may exist:

  1. Promoting "online payment with payment before delivery" requires building trust with small stores, which requires substantial groundwork in the early stages, with high communication costs.
  2. For small stores to accept payment before delivery, they must be satisfied in other aspects, such as timely delivery, price discounts, and category diversity, which pose greater challenges to the platform's overall operations.
  3. In the early stages of development, driven by capital, other platforms tend to focus on rapid GMV growth, but this growth is not solid. Under the influence of GMV as a KPI, the "slow" strategy of "online payment with payment before delivery" is bound to be abandoned, naturally affecting many other refined operational aspects. In the long run, pure GMV numbers are not very meaningful.
  4. In rare cases, some platforms' so-called "scale" is not real. If 100% online payment were achieved, data on orders, delivery, receipt, and payment would form a closed loop, making the platform's true transaction situation very clear. This would be like slapping themselves in the face and would be hard to explain to investors.

Logistics—Maximizing Supply Chain Efficiency In the logistics and delivery segment, all operational control points of a B2B platform require corresponding system support, such as store expansion management, order management, warehouse management, scheduling management, picking management, capacity dispatch, and full monitoring of driver delivery. If full-process online digital management from procurement-warehousing-ordering-scheduling-picking-delivery can be achieved, it will greatly improve logistics delivery efficiency and reduce logistics costs. Each of these links' informatization is an important topic for platforms, requiring development and continuous optimization. Taking picking management as an example, how to use systems to control the status of each warehouse node, picking personnel, and drivers, how to reasonably optimize warehouse structure, and design personnel and vehicle routes—these are not achieved overnight. Whether there is system support and whether human-machine collaboration can be realized can lead to huge differences in operational efficiency. For instance, in terms of picking volume alone, a good FMCG B2B platform can achieve picking of 2,500+ items per person per day, with excellent employees achieving 7,000+ items, while platforms with low informatization find it difficult to pick even 1,000 items per day. Another example is capacity dispatch: some platforms already use systems to match product volume, weight, orders, and vehicles, enabling intelligent vehicle scheduling. With this system, thousands of orders per day can be optimally scheduled by one person within half an hour with AI assistance. As AI capabilities strengthen, future scheduling will become fully rapid, unmanned, and intelligent.

Same-Day Delivery—The Ultimate Goal of the Three Flows, the Agile Era of B2B Platforms If we explore the ultimate goal of the integration of the three flows and refined operations in FMCG B2B, there is only one—achieving "same-day delivery" for FMCG B2B distribution. Guangjue believes this will be an important milestone for the industry's comprehensive upgrade, redefining the value of FMCG B2B platforms:

  1. "Same-day delivery" will help small stores achieve "cloud inventory," significantly reducing capital occupation, allowing store owners to optimize SKUs, and significantly improving store efficiency.
  2. The frequency of procurement between platforms and small stores will greatly increase, and increased stickiness will make the relationship between platforms and small stores closer.
  3. Based on agile urban distribution supply chains, platforms can empower small stores to carry out more business. The goal of "same-day delivery" also poses enormous challenges to platforms, especially in the supply chain, which must rely on more advanced methods such as big data and AI to comprehensively optimize the existing urban distribution system. Fortunately, Guangjue has seen companies like "Kuailai Zhanggui" already attempting to implement "same-day delivery" services with black-tech companies in the logistics field. We believe that in the future, countless mom-and-pop stores will completely break free from inventory constraints and be able to compete with chain convenience store giants like FamilyMart and 7-Eleven.

4 Profitability Under Refined Operations Is Only a Matter of Time Since the early development of FMCG B2B, the biggest challenge has been skepticism about whether FMCG B2B can achieve profitability. Guangjue believes that business models not aimed at profitability cannot last long. So how can FMCG B2B platforms achieve break-even? Guangjue believes that as scale increases, as long as the gross profit from basic service segments can roughly cover related costs, break-even can be achieved.

1. The gross profit of basic service segments can be improved through the following methods: A. For high-volume products, directly source from manufacturers or first-tier distributors; B. Optimize product mix, appropriately raising selling prices for price-insensitive categories; C. Expand long-tail categories with high gross margins; D. Leverage channel value to introduce new categories and brands, obtaining high gross margins.

2. After platform scale increases, costs can be continuously optimized As platform scale expands, fixed costs such as warehousing and headquarters costs will decrease as a proportion. A. With increased store density and higher average order value, logistics delivery costs can continue to decrease; B. As platform scale expands, warehousing costs will also decrease; C. As the competitive landscape changes and a monopoly forms in a certain region, market promotion costs will also decrease.

How can FMCG B2B platforms achieve profitability? Guangjue believes the core of FMCG B2B lies in controlling channel terminals, just like the convenience store industry that capital is currently chasing. When a platform forms a certain monopoly effect in a region, it can provide two-way empowerment to upstream brand owners and downstream small stores, bringing enormous value. To make a simple comparison, FamilyMart has over 2,000 convenience stores in Shanghai. In the same city, the B2B platform "Kuailai Zhanggui" has nearly 10,000 monthly active small stores, with an average of nearly 6 purchases per month. Among them, the top 2,000 small stores purchase on Kuailai Zhanggui every 2 days. Such high frequency already demonstrates strong stickiness. Relying on highly sticky small stores, platforms can gradually increase profits from upstream and downstream empowerment:

1. Empowering upstream: Provide channel digitalization services for upstream brand owners, such as terminal data analysis, consumer profiling and behavior analysis, helping brand owners promote new products, and providing more timely analysis of brand marketing strategies.

2. Empowering downstream: Add more service attributes to small stores, helping them improve store efficiency and earn more money. For example, installing unattended vending machines to enable 24-hour operation; adding express delivery drop-off services to increase interaction between stores and community users, monetizing idle time; integrating community group buying, making store owners group leaders and stores front warehouses, etc.

The above monetization and profitability capabilities will be magnified dozens of times in the future establishment of the "same-day delivery" model in FMCG B2B.

Millions of small stores are the entrance to massive offline traffic, and FMCG B2B is the gatekeeper of this golden entrance. Guangjue is very optimistic about this track with enormous future potential and will continue to pay attention to high-quality companies in this field.

Source: Guangjue Capital (ID: gh_74091b5de1c2)

-END-