However, as New Distribution has had more contact with distributors undergoing transformation, it has found that the difficulties and pressures they face in B2B are far more complex than imagined. The complexity and difficulty of B2B often exceed the capabilities of many distributors. In response to the problems encountered during transformation, New Distribution provides a systematic analysis for distributor friends who want to transform to B2B:
There are many forms of B2B for distributors, which can be broadly divided into several types:
Type 1: Logistics-oriented Same-city logistics is currently a relatively mainstream way for FMCG distributors to transform: several local distributors jointly build warehouses, or a large distributor builds a warehouse for their own use while also providing logistics services to other local distributors.
However, feedback from distributors who have adopted this model for some time reveals some problems:
The owner's vehicle sales cannot be changed to order-based sales Many distributors' products, due to their characteristics (e.g., ham sausages and yogurt), must be sold via vehicle sales. In addition, in township markets in lower-tier cities, if order-based sales are adopted, the salespeople's transportation becomes a problem. Moreover, salespeople themselves resist the change, and adjustments in management and assessment methods pose significant challenges for traditional distributors. Therefore, many owners (distributors) consider this issue when deciding whether to enter such third-party warehousing.
Cost issues after merging warehouses The operational management difficulty and cost of large warehouses are much higher than those of distributors. Moreover, in many areas where distributors are located, it is difficult to find personnel who understand WMS operations, requiring retraining; otherwise, efficiency will not improve, and costs will be hard to reduce.
Additionally, attracting tenants to the warehouse is a very long process, during which there is a long period of expected losses. These are all issues to consider.
- Peers/competitors do not enter the warehouse This generally involves three issues: first, competitors—if Yili's distributor builds a warehouse, Mengniu's distributor will certainly not enter; second, many distributors are still waiting and watching, fearing efficiency issues, and want to see how others fare first; third, if they have built their own warehouse, entering another's warehouse is meaningless; fourth, they fear being outflanked—since everyone is in the same area, there is more or less competition, and if their outlets are all known, what happens to their business?
So, can distributor friends do unified warehousing and distribution? I think it is possible, but the premise is professionalism.
In the BSB proposed by Mr. Liu of Yantai Yishang, Yishang does pure S, i.e., third-party service provider; while in the unified warehousing and distribution BSB done by distributors, distributors want to do BS, keeping their agency rights unchanged while incorporating other distributors' product flows, reducing costs and charging service fees; chain retail stores also want to do BSB, but they do SB, providing unified warehousing and logistics distribution to other small stores while doing their own retail distribution.
Both forms can basically only be realized within a closed system. To open up as socialized logistics and do unified warehousing and distribution, both BS and SB have logical problems. To do it, one must specialize in S, i.e., professional logistics service provider. What is a professional logistics service provider? It means the logistics service provider focuses on logistics, not doing agency while also delivering goods for others. This way, on one hand, it is not affected by its own product operation rhythm and cannot focus on logistics; on the other hand, it is difficult to merge warehouses.
In simple terms, if you do services, do not touch transactions; if you do transactions, do not think about doing services.
Type 2: Franchise-oriented This type of distributor generally joins a well-known domestic matching platform, becoming the platform's local operator, moving transactions from offline to online, and profiting through transaction commissions.
Currently, this model encounters many problems. Generally, the issues include: first-tier brands not going online, competitors not going online, high online prices, no transaction volume without subsidies, low transaction volume, delivery difficulties, and poor profitability for operators.
Type 3: Self-built Distributors who build their own B2B platforms generally have relatively large transaction scales, are not assured by platforms built by others, hope to have a platform with proprietary intellectual property, and also hope to take their business to the next level by starting their own B2B platform.
These distributors generally encounter two types of problems: software issues and operational issues.
Software aspects Distributors generally adopt two ways to solve technical problems: one is to use third-party SaaS software systems, and the other is to find a third-party software company to conduct in-depth software development tailored to their business. However, either way, they encounter many difficulties:
Those using SaaS software and WeChat stores. Such distributors generally are not willing to invest heavily in hardware, so they usually find a relatively small software vendor to develop and try, which leads to unsatisfactory interactive experience, and in terms of backend compatibility, it is difficult to integrate with existing warehousing and ERP systems, causing various problems during operation.
Those who develop in-house. The biggest problem these distributors currently face is that software investment is a bottomless pit; continuous system iteration and development lead to continuous cash investment, putting pressure on many distributors.
Fortunately, domestic SaaS B2B software technology has gradually matured through continuous iteration, and many application scenario needs can now be basically met.
Operational aspects In terms of operations, the main problems encountered by self-built B2B include platform operation, insufficient profit from procurement and sales of goods, consignment goods and best-selling products not going online, and even if online, no transaction volume.
The problems summarized for distributors doing B2B are certainly far more than those mentioned above. In general, there are six points:
- Distributors lack professional operational capabilities.
- The role of distributors determines that they cannot obtain support from the same industry.
- Distributors lack the ability to integrate the entire supply chain.
- Distributors find it difficult to obtain capital support in resource acquisition.
- Distributors lack the capability for large-scale technical development.
- Distributors find it difficult to attract excellent operational talent.
With so many difficulties, should distributors do B2B? New Distribution believes they should still do it. From a trend perspective, the digital upgrade of China's FMCG supply and distribution channels is definitely a trend, because on one hand it will make the entire supply chain more efficient, and on the other hand it will reduce costs across the supply chain, and also make brand owners' marketing decisions more precise. Currently, more and more brand owners are accepting this new distribution method and are trying various innovative approaches with platforms.
For example, a few days ago, Mondelez cooperated with Lingshoutong, promoting Kotex products on the latter's platform through live streaming. In just half an hour, it broke the record of 17,000+ simultaneous online viewers. In one hour, 28,000 small store owners watched the live broadcast simultaneously, and within 10 minutes of the activity starting, the original 60-day inventory was sold out. With such distribution efficiency, which brand owner would not be envious? Which distributor could have such distribution efficiency?
But distributors are not Alibaba. How to do B2B in the regional market needs careful discussion. Facing the objective problems mentioned earlier, for distributors to do B2B well, the author's suggestions are as follows:
1. If you do services, do not touch transactions; if you do transactions, do not do services This viewpoint has been mentioned more than once in previous New Distribution articles. B2B is essentially a service platform, absolutely not a sales platform. Especially in the regional market, as a business entity, there is more or less competition among peers, so the idea of doing B2B while touching commercial flow is definitely wrong. The best way to do services is not to participate in transactions, but only provide value-added services at the supply chain level, such as third-party logistics services.
If you think doing services is not easy and want to do self-operated B2B, then this type of B2B has a problem: you must do convenience store chains, and you must control the stores. The so-called store control is not simple brand licensing like Yatang, nor opening direct-operated stores like Quanshi, but through close franchising, controlling the supply chain of small stores, making them purchase 100% from the platform and accept platform management.
Only in this way can the self-operated B2B business model be established.
2. Making good use of B2B platforms to do commercial flow can also become bigger and stronger The arrival of B2B does not necessarily kill distributors. In fact, B2B and distributors are symbiotic, like fish and water. Service-oriented B2B must serve the cargo owners well. Brand owners signing with Lingshoutong does not mean all terminals are supplied by themselves; they still need local TP providers to offer services. Self-operated B2B ultimately needs to move towards the close franchising model of Japan's 7-Eleven, and before reaching a certain scale, B2B platforms cannot fully cooperate with brand owners; they still need distributors to supply goods.
Moreover, given the current market structure, B2B still needs time to fully penetrate the existing supply and distribution channels. Within this time window, brand owners still need distributors to do refined market operations locally.
3. Rather than building your own, invest; let professionals do professional things In many markets, it is not suitable to start B2B at this stage, but many distributors are afraid of missing this wave. The best way is to directly invest, find a suitable team, and taking a minority stake is more reliable than controlling.
Distributors still have their unique core value in the local market, but distributors must clearly recognize that the so-called core value is not warehousing and logistics, nor loading and unloading workers or advancing funds, but relying on their professional operational capabilities and good customer relationships to help brand owners quickly open the market locally and increase sales. Only in this way will they not be eliminated in the Internet era.
Currently, many young entrepreneurial teams are doing B2B locally. Since you are not good at it, you can completely support them through investment, using your capital and supply chain capabilities to empower them, letting them start businesses, and distributors provide support. This way, commercial value can also be realized.
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