---
title: "Disrupting Prices, Ruining the Market: Can Distributors Transform into Regional B2B Platforms?"
description: "In recent years, more distributors are transforming their businesses due to sluggish growth and external changes. One distributor, Wang Hua (pseudonym), who transitioned to a regional B2B platform in 2018, found that after a year, he lost profits and disrupted his market. The key to successful transformation lies in the category structure, with a focus on non-head brands and diversified categories to maintain profitability."
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-07-10"
language: "en"
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# Disrupting Prices, Ruining the Market: Can Distributors Transform into Regional B2B Platforms?

> In recent years, more distributors are transforming their businesses due to sluggish growth and external changes. One distributor, Wang Hua (pseudonym), who transitioned to a regional B2B platform in 2018, found that after a year, he lost profits and disrupted his market. The key to successful transformation lies in the category structure, with a focus on non-head brands and diversified categories to maintain profitability.

Click to read the original article for details.
In recent years, affected by sluggish business growth and changes in the external environment, more and more distributors are embarking on the path of transformation. Previously, Wang Hua (pseudonym), a distributor in eastern Guangdong with annual sales of 200 million yuan who transformed into a regional B2B platform, chatted with the author about whether distributors are suitable for transforming into B2B platforms.
At the beginning of 2018, impacted by Alibaba's Retail Link, JD's New通路, and other regional B2B platforms, Wang Hua began his transformation. However, after one year, he found it extremely painful: he lost profits and disrupted his market.
Wang Hua told New Distribution that when planning the transformation, he considered that he had agency rights for a large number of first-tier brand products, so a localized platform would definitely have advantages. But after the transformation, he found that to promote the platform and get small shop owners to accept the ordering app quickly, they could only attract them through price discounts. In three months, although they secured 800 outlets, when they calculated the accounts, problems emerged. After transforming to a B2B platform, through subsidies and discounts, the distribution business only earned 3-4 percentage points. In traditional distribution, there were over ten percentage points, and now these few points couldn't even support the team.
Transforming to a B2B platform, he ended up disrupting his own distribution system. For small shop owners, they don't care whether your ordering app is local or national. Even if you tell them that your platform can't offer subsidies and discounts like Retail Link or Zhang Gui Bao, they won't understand; they only care about whether the product prices are competitive enough, and they'll buy from whoever is cheaper.
To gain registrations and repeat purchases from small shops, local platform distributors have to benchmark against national B2B platforms. Small shop owners are very shrewd; with Retail Link on one side, Zhang Gui Bao and Yi Jiu Pi on the other, and a bunch of platforms, profit decline is natural.
**Lost Profits, Disrupted Market**
"I'm not a middleman; I'm a legitimate distributor. To get small shop owners to order on my platform, I lowered my gross margin, which is essentially disrupting my own market. This seems quite different from the initial plan of transforming into a regional B2B platform to expand the distribution business and achieve regional monopoly..." Wang Hua said to the author with a bitter smile.
This made the author ponder: Can distributors build their own regional B2B platforms locally, and what type of distributor is suitable for building a B2B platform?
To resolve these doubts, the author asked several distributors who had relatively successful transformations if they had similar issues. The answer was yes; profits do decline during the transition. **But why did some distributors have relatively smooth transformations? The key lies in the category structure of their distribution.**
For distributors holding a large number of head brands, during the platform transformation, a slight reduction in gross margin can win over terminal owners. But it's like "killing one thousand enemies and losing eight hundred of your own"—you make small shop owners happily order on the app, but in the end, you can't sustain yourself.
According to New Distribution's observations, distributors who transformed relatively successfully, in addition to having first-tier products, hold a large number of non-head brand products, with average gross margins of 16%-17% or more. For transforming distributors, first-tier products are just "cannon fodder" to attract small shops to use the platform.
Li Bin, the operator of Hebei Dunjie Supply Chain Company, told New Distribution, "Most of the brands we represent are second- and third-tier brands, which Alibaba and JD don't have. The purpose is simple: to prevent price hedging by national platforms. In the 2019 plan, we specifically set KPI assessments for the operations department to strictly maintain a 15% gross margin, preventing the pursuit of scale at the expense of profits during the transformation. For some categories like snacks and daily necessities, gross margins can even reach over 30%. **Therefore, during the transformation and expansion, although we sacrifice some profits from first-tier products, we compensate for these losses by increasing the scale of distribution.**"
Qin Xian, CEO of Rongcheng Yigou, told New Distribution that whether distributors transform to B2B platforms or not, profit decline is an inevitable trend. As product distribution information becomes transparent, it will be difficult for distributors to survive with traditional methods. In the future, to establish a foothold, distributors must break through by considering both scale and cost: increase scale and reduce costs.
**What Type of Distributor Is Suitable for Building a Platform?**
> First, regional "head" distributors with multiple brands, multiple SKUs, and comprehensive trading companies;
>
> Second, distributors of snacks, condiments, daily care, home care, personal care, frozen foods, etc., with a large number of SKUs, where upstream brand owners have weaker control over distributors compared to beverages and alcohol. Most distributors have independent distribution capabilities and strong links with small shops;
>
> Third, comprehensive large wholesalers.
In summary, for distributors transforming into regional B2B platforms, first, in terms of product categories, in addition to regular high-frequency categories (such as water and beverages, dairy products), they must configure diversified categories spanning snacks, daily necessities, condiments, daily care, home care, etc. Regular high-frequency categories ensure small shop owners' daily attention; low-frequency categories, with relatively low brand concentration and larger gross margins, ensure the company's revenue and profit.
In terms of distribution brands, having too many first-tier brands makes it easy to be impacted by national B2B platforms. Pay more attention to non-first-tier long-tail products to achieve product differentiation. Non-first-tier products are often not available on national B2B platforms, or the brands are different. Use brand differences to achieve high gross margins.
For example, a distributor with annual sales of 100 million yuan locally, where over 50% of revenue comes from the Mengniu brand, is not suitable for transforming into a B2B platform. The high proportion of first-tier brand revenue makes it easy to be affected by price disruptions from national B2B platforms after transformation. **Similarly, the key reason these distributors face profit decline or even losses after transforming is that they have too few non-first-tier products. Although they hold a large number of first-tier products, this becomes a shackle for transforming into a regional B2B platform.**
Distributors transforming into regional B2B platforms should also focus on: **the configuration of frontline sales staff.** Because the core profit source is non-first-tier and long-tail products, this requires distributors to have independent distribution capabilities, and the key to independent distribution is frontline sales staff. Don't fantasize about giving up frontline sales and using B2B + subsidies to drive small shop owners to order. This works for first-tier products, but it cannot promote non-first-tier products.
**If You Can't Build a Platform, How to Use B2B?**
In a regional market, very few distributors can meet the above conditions for transforming into a regional B2B platform—maybe less than 10%.
In a prefecture-level market, there are many distributors with agency rights for first-tier products and revenues of tens of millions. How should they use B2B, or leverage B2B to improve their distribution business?
New Distribution suggests that distributors first treat B2B as a tool, just like the inventory management software they used in the past. **When you view B2B as a tool, not a source of business, you can think clearly about how to use B2B to enhance your distribution business.**
**The essence of a tool is not empowerment, but it's not a source of business either. The business is still the same; it hasn't changed, only the operational methods have been adjusted.** Here's how to use B2B tools specifically:
**Step 1: Achieve Paperless Sales**
What is paperless sales? A simple example: A beverage distributor, by cooperating with a third-party SaaS service provider, moves all product distribution work online. In the past, sales orders and sales rebates were recorded by sales staff in sales ledgers and then entered into financial software. Now, with B2B tools, sales orders and rebates are directly entered into the B2B system in one go, eliminating paper records and reducing secondary handling.
**Step 2: Data-Driven Business Improvement**
After completing the first step of paperless sales, all relevant sales data is online. Fully utilize the accumulated data for digital business analysis. Focus on the following key metrics:
> **1. Outlet Metrics**
>
> 1) Classification: by GMV/gross margin contribution;
>
> 2) Type: CVS/traditional grocery/BC supermarkets/KA hypermarkets/A-class restaurants/B-class restaurants/C-class restaurants;
>
> 3) Tags: location (station/community/office building), area, etc.;
>
> 4) Activity: weekly/monthly/quarterly/yearly purchase frequency;
>
> 5) Relationship: display/exclusive/regular.
>
> **2. Product Metrics**
>
> 1) Sales volume;
>
> 2) Gross margin;
>
> 3) Turnover;
>
> **3. Minimum Unit Metrics:** daily/weekly/monthly... single product * single store * sales volume * gross margin * net profit
**Step 3 Goal: Data Insights for Business Growth**
With the above data, start trying to guide operations based on data to achieve distribution business growth. **Core strategy: Preserve existing volume + Create incremental volume.**
> **1. Preserve existing volume:** First, set standard metrics for single-store sales to increase per-store sales; second, set standard metrics for single-store profit to increase per-store profit.
>
> **2. Create incremental volume:** First, increase the number of outlets; second, increase the product mix. In terms of product mix, focus on introducing new product distribution, and use data to screen potential stores/relationship stores/opportunity stores/TPO50 stores, etc.
**Step 4 Goal: Drive the Transformation of the Overall Trading Company's Organization, Business, or Commercial Model Through Data**
After completing the above three steps, by the fourth step, distributors can basically consider the direction of transformation. **There are roughly three types of transformation paths for distributors:**
> **First, Organizational Innovation:** Upgrading and transforming the internal organization and management of the distributor. Common examples include "Amoeba" and "platform + partner" organizational innovation.
>
> **Second, Business Model Innovation:** Distributors distribute products to small shops without changing the original distribution business structure, only changing the distribution method. For example, building a self-owned B2B to meet small shops' "one-stop ordering"; using B2B to outsource or upgrade certain functions, focus on core functions, and improve distribution efficiency.
>
> **Third, Commercial Model Innovation:** Distributors completely change their past main business, no longer relying on purchase-sale price differences as a source of income. For example, joining a B2B platform and earning income through commissions or points; third-party warehousing and logistics, where income is no longer from product distribution but from service fees for providing warehousing and distribution; chain franchising, store income, etc.


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