The rise of B2B e-commerce is bringing change to the FMCG distribution industry. Centralized e-commerce platforms, represented by JD.com, claim they will bypass distributors, directly supply retail terminals, and become national general agents. So, can the "JDs" of the world really replace traditional distributors? In my view, in the FMCG distribution industry, e-commerce cannot replace distributors; instead, it will be distributors who revolutionize the industry!

As traditional distributors, their business activities mainly include: order collection, warehousing and delivery, handling slow-moving inventory, terminal maintenance, promotional activities, and daily management. Behind these activities lies a repetitive, high-intensity, labor-intensive operational mechanism, and a distribution model that is inefficient, costly, and multi-layered. The current state of distributors' operations determines that change in the distribution industry is inevitable!

So, can centralized e-commerce easily disrupt the entire traditional distribution industry by leveraging internet technology, capital, and brand advantages? I believe not!

Centralized e-commerce's advantages can easily replace individual distributors, but its disadvantages determine that it cannot disrupt the entire industry.

First, centralized e-commerce faces difficulties in integrating both ends of the distribution industry (manufacturers and retailers).

We know that centralized B2B e-commerce, like traditional e-commerce, emphasizes disintermediation, replacing distributors and directly controlling terminals. However, replacing a group is easy to say, but taking on the functions of that group is not so simple. For example, for manufacturers, distributors act as a capital pool, handle marketing and promotion, and coordinate within complex local relationships. If product packaging or quality issues arise, distributors are the ones who deal with industry and commerce, and tax authorities. If centralized e-commerce cannot take on all the functions of distributors, it cannot truly replace them.

Second, the core method for centralized e-commerce to enter the market is price comparison. What is the result of price comparison? It leads to a transfer of existing volume between different distributors under the same brand, or between different brands of homogeneous products. If price comparison only brings about a transfer of existing volume and contributes little to incremental growth, why would manufacturers abandon their cooperative distributors and choose an e-commerce platform?

Third, the diversity of terminal demand and the complexity of regional distribution determine that centralized e-commerce will inevitably face difficulties in integrating both ends. A terminal supermarket needs not just 30 or 50 products, but thousands. How can an e-commerce platform integrate upstream manufacturers for so many products? On the other hand, the regional and geographical distribution of terminals is very complex—in cities, rural areas, mountainous regions, office buildings, trains, restaurants, gas stations... Does an e-commerce platform have the capability to develop and maintain these terminals?

Second, burning money on subsidies in B2B e-commerce is ineffective and only benefits others.

The traditional distribution industry, especially the production and service sectors, is enormous—not 1 billion, 10 billion, or 100 billion, but tens of trillions. If you adopt a subsidy approach, how much capital is needed to leverage this market?

A terminal store in a county-level market, considering personnel, utilities, rent, taxes, and other costs, needs monthly sales of at least 100,000 yuan to barely maintain daily operations. Currently, some centralized e-commerce platforms claim to have nearly 10,000 SKUs, supply hundreds of thousands of terminals, and have monthly transaction volumes of several hundred million. That seems huge, but think about it: how much transaction volume does each SKU average? Just tens of thousands of yuan! What proportion of terminal sales does that account for? Less than 1% or even 0.1%! And this is data and results achieved by burning money!

We say that B2B e-commerce serves retail terminals, and the essence of retail terminals is that they are merchants, and merchants are profit-driven, squeezing the "purchase-sale price difference" as much as possible. If you can give them one cent more today, they will cooperate with you; if you don't have that cent tomorrow, they may not cooperate. Therefore, retail terminals will constantly shift to platforms that maximize the purchase-sale price difference; they are "fluid" rather than "fixed." Subsidy methods cannot cultivate retailer loyalty; they only train them in using e-commerce platforms, which gives truly value-creating e-commerce platforms the opportunity and space to "take over."

Third, after reaching a scale threshold, centralized e-commerce does not have economies of scale but rather a scale burden.

What are the characteristics of FMCG? First, fast-moving; second, short radius; third, high frequency; fourth, high density; fifth, numerous products. These five characteristics determine that once centralized e-commerce reaches a scale threshold, unit costs become relatively fixed or even increase inversely.

For example, when a brand manufacturer delivers products in full truckloads at the most economical tonnage to JD's warehouse, the cost is the same as delivering to a distributor's warehouse, and distributors can easily achieve a delivery unit. Similarly, the cost of JD's delivery vehicles delivering to each terminal is the same as a distributor's delivery cost. However, due to the timeliness of FMCG procurement, requiring short transaction cycles and rapid delivery, centralized e-commerce that directly controls terminals must establish a huge number of warehouses nationwide. Therefore, compared with distributors, centralized e-commerce not only fails to achieve economies of scale but also incurs incomparable management costs.

Thus, in the face of the distribution landscape formed over 30 years of reform and opening-up, and with nearly 90% of FMCG sales still offline, centralized e-commerce cannot rely on its own strength to disrupt and reconstruct the industry.

Distributed e-commerce, that is, the distributor group armed with mobile internet technology and thinking, possesses all the conditions needed to disrupt centralized e-commerce and the traditional distribution industry.

First, distributed e-commerce not only has the advantages of centralized e-commerce, but its characteristics enable it to quickly integrate both ends in the distribution industry.

Distributed e-commerce is a localized e-commerce platform operating at the county/city level. It does not disrupt the existing channel distribution pattern but rather integrates and upgrades the distributor group. It can achieve one-stop procurement for terminals through cross-industry alliances and assist manufacturers in channel distribution, sales promotion, and marketing, thereby quickly integrating both ends and forming a full-industry service chain.

Second, distributed e-commerce itself is a combination of "self-operated + platform," giving it strong vitality and competitiveness.

The main body of distributed e-commerce is distributors, but the role of distributors has changed. In Piduoduo's architecture design for distributed e-commerce, there are three roles: the first is the platform owner, which is the platform operator of Piduoduo, and platform operators come in two forms: sole proprietorship and partnership; the second is the platform purchaser, or platform supplier, composed of local distributors and sub-distributors; the third is the platform service provider, composed of the distributor's existing employees and sub-distributors.

From this, it is clear that Piduoduo's distributed e-commerce has both self-operated parts (because the platform operator is also a platform purchaser) and platform attributes (all distributors can enter the platform as purchasers). It is a combination of "self-operated + platform." Self-operation can adjust the platform's revenue and competition, while the platform is used to meet the one-stop shopping needs of terminals. Both are indispensable; pure self-operation or pure platform has no future.

Third, distributed e-commerce possesses the brand products, users, traffic, and existing resources needed for B2B e-commerce.

What do distributors have? First, inherent brand agency rights and distribution networks; second, huge traffic and existing volume; third, abundant traffic and existing volume; fourth, vehicles, warehouses, and other operational elements. It can be said that distributors inherently possess all the conditions needed for B2B e-commerce; the only thing lacking is arming themselves with mobile internet technology and operational thinking.

The emergence of distributed e-commerce provides direction and a path for traditional distributors to achieve e-commerce transformation and upgrading, and also lays the foundation for the future pattern of B2B e-commerce: national centralized e-commerce can only exist as individual distributors or become a gap-filler in the distribution industry; while county-level distributed e-commerce will become the dominant force in the FMCG distribution industry.

In the showdown between distributed e-commerce and centralized e-commerce, who will disrupt whom? Let's wait and see!

Wang Huanzhi, Co-founder/COO of Piduoduo, practitioner and researcher of distributor transformation, with 20 years of practical marketing and corporate management experience, focusing on research of distributor platform models and applications.

-END-

The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Techniques | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brand | [Long press QR code to follow] To join QQ/WeChat groups, please click: Read Original