As offline business becomes increasingly difficult, with no growth for two or three consecutive years, many distributors have turned their attention to online channels, with some bosses even personally overseeing and diving in. Frankly, I do not recommend distributors to enter e-commerce, for the simple reason that the logic of online and offline operations is completely different. Of course, saying this is useless, as many distributors are still eager to try and enter online e-commerce. The entry barrier is also very low: one or two people can handle operations, register and open a Tmall or JD exclusive store. They already have products, often well-known brands, and their warehouse is close to a courier station. The warehouse staff can pack and ship, and the business can run. It does not affect the existing business, and there is no cross-region selling. Although the matter is simple, in fact, to achieve some results, or to make this business profitable, it is difficult to have real profits without reaching a scale of over ten million yuan in sales. Returning to the theme of this article: Is e-commerce a good way out for distributors? As more and more distributors enter e-commerce, I think that as an observer and thinker of industry channels, 'New Distribution' must delve into this, help distributors clarify the key elements behind it, and thereby bring thoughts to more distributors and brand owners. Why do e-commerce? Why do e-commerce? Although the question seems simple, it is not easy to answer clearly. I have discussed with many distributors and summarized four points: 1. Sales volume—related to upstream manufacturers Upstream brand owners increase tasks year by year. If you cannot complete the tasks, you cannot get rebates, and cross-region selling is easily penalized. If you are just buying and selling to offset rebates, it is no different from not completing tasks. Manufacturers always look at your sales volume; the larger the volume, the greater the support, and the more face you have. E-commerce is a new channel that directly reaches C-end consumers, and regional managers of manufacturers do not have many objections. It is a way to complete tasks and achieve sales volume as a channel. 2. Category—related to category structure This is especially evident in categories such as daily chemical paper products, oral care, cleaning, and washing. These are planned consumer categories that do not require immediate use and are highly price-sensitive. Moreover, the growth space for these categories is huge, with some categories experiencing hundred-fold growth online in recent years. Distributor friends in the same category who do e-commerce and achieve sales of one or two hundred million are not uncommon. These are real cases around us; how can one not be tempted? 3. Trend—related to consumer demand The trend of online consumption is obvious, as everyone can see. Among young consumer groups, the post-90s and post-00s, who does not use e-commerce? From the initial clothing, 3C digital, and home appliances, to now FMCG. Combined with some daily chemical categories, achieving ten-million-level sales online is easy, but if you want to achieve ten-million sales in a regional offline market, in a small area, for a specific sub-category, it is not easy, because the market capacity is limited. 4. Market—related to the local market Offline market customer traffic is declining, foot traffic is very limited, and it is clearly felt to be difficult. Moreover, competitors in the same category have been entrenched for years and are not weak, so growth has hit a bottleneck. In the next 3-5 years, the road for traditional offline distributors will become narrower. If you do e-commerce, there may still be a chance to survive; if not, the business will shrink in 5 years, and this cannot be solved by hard work alone. When a distributor reaches the TOP3 in their category in the local market, the competitive landscape is basically set, and the market is stable. This is not only a market bottleneck but also a distributor bottleneck. The above are the four key reasons why distributors do e-commerce, and I think they are also the thoughts of the vast majority of distributors. If we look at each reason carefully, they are 100% correct and cannot be refuted. But is online e-commerce really the only or best way out? Is e-commerce a good way out? I just mentioned four key reasons; if I continued, I could list 100 reasons. Of course, similarly, if you ask distributors not to do e-commerce, they can also list 100 reasons. Such as different operating logic, fierce online competition, the dividend period has passed, etc. But for distributors who want to do e-commerce, they are no longer listening. Previously, I asked a distributor why he did not consider taking on other brands to expand offline business. His answer was: "Taking on another brand, doing a few hundred thousand or a million a year, is meaningless. Earning 20,000 or 30,000 a month, and it takes energy, it is too small. Now I have a sales scale of 30-50 million, so I look down on it." I continued to ask, what about cross-category? The distributor still shook his head. He had tried food before, but different categories have many difficulties. For example, daily chemical paper products have a shelf life of three years. Food, on the other hand, has a shelf life of up to one year, and as short as six months. The market operation methods and rhythm are completely different. In comparison, it seems that offline has no way out. And online e-commerce may be the only lifeline! Is that really the case? First, let us look at the overall changes in distributors from a regional market perspective. I remember communicating with a friend who founded a city distribution company. He said that in a prefecture-level city with a permanent population of 7 million, according to statistics of registered trading companies, there are about 700-800 distributors across various sub-categories. With intensified market competition, the impact of online e-commerce, and increased labor costs, the number of remaining distributors in 3-5 years will be about 100-200. When seeing this, many distributors would probably raise both hands in agreement and lament the difficulty of business, perhaps thinking they might be one of those who disappear. Many distributors are pessimistic when seeing such data. But as an observer, I see huge opportunities inside. What opportunities? Although the number of distributors is greatly decreasing, the offline volume cannot decline proportionally. The huge offline business volume still needs these 100-200 distributors to carry. Who will be these 100-200 distributors? Is this an opportunity? In a regional market, when a distributor reaches 41% or 71% (Lancaster's Law) in their category or brand, they can replicate their capabilities in store coverage, store execution, and business organization, and expand into adjacent categories to achieve secondary growth. Offline business for distributors: deepen, broaden, and thicken The development trend of business is like war: the worse the business, the more you reduce staff; the more you reduce staff, the easier it is to fall into a vicious cycle, fail to complete brand tasks, and eventually be eliminated, and finally the business is closed. Distributors all find business difficult, but if at this time you rise to the challenge, when you have done well in local market store coverage and reached a bottleneck in your category, decisively jump out and expand into adjacent categories. For example, a paper product distributor can enter the oral care field; a seasoning distributor can enter the grain and oil field; a snack distributor can enter the milk field... Some distributors may mention the differences in category operations. But from another dimension, if you lie in the comfort zone of past operations, how can you talk about secondary growth? Once you cross categories, establish channel barriers, achieve economies of scale, and have stronger anti-risk capabilities, naturally other distributors will become weaker. Suppose the capacity of a certain category in a regional market is 100 million. When a distributor achieves 40 million in sales, ranking TOP1, with the second at 35 million and the third at 25 million... At this point, the distributor's strategy in this category should be to maintain stability. Because the competitive landscape is already stable, a three-way standoff, no one can defeat the others. Do not think about achieving 50 million or 60 million, because it is difficult, requiring more resources, and competitors are not idle. Also, do not think about going online because the category trend is growing fast online. The most appropriate way: maintain stability, keep the original foundation, and do not fall behind. Find adjacent categories, expand and replicate business personnel, and establish new bases. When the original category declines and the online trend is indeed irreversible, other distributors will find it even harder. After 3-5 years, when lower-ranked distributors cannot hold on, you can harvest the original category capacity. At the same time, through expansion into adjacent categories, there will be investment in the short term, and even no profit for 1-2 years, but what you accumulate is more store stickiness and organizational stability. In addition, the investment efficiency per store decreases. When you have 5 brands doing stack displays in a supermarket, compared to having only 1 brand, the investment cost ratio is definitely different. I have always emphasized that the foundation of a distributor's business is to transfer value, moving goods from point A to point B. The work of transferring value can only be done 80 points, because you cannot achieve 100 points. To achieve 100 points, the effort and personnel costs will increase geometrically. When you become the top 2 in a category in the regional market, replicate these market operation experiences in other categories. Therefore, for current offline distributors, whether they are already doing e-commerce or considering it, I suggest re-examining their company's strategic direction. Based on this, I also propose a "three degrees" business strategy for distributors: 1. Regional market: do thickness well 2. Category structure: do width well 3. Store coverage: do depth well When the vast majority of distributors lose confidence in offline growth, I believe that for some distributors, this is a huge market opportunity. Returning to the theme, although e-commerce has been growing in recent years and is an opportunity, for traditional offline distributors, it is just a business opportunity, a channel opportunity, and cannot build a long-term business barrier. The intensive cultivation of offline regional markets is the strategic opportunity. Although it is a strategic opportunity, it is undoubtedly full of huge challenges, the first of which is the challenge of management. Cross-category operation requires breaking through: changing the past reliance on personal wisdom and brand resource dividends, and replacing it with multi-category management, multi-store management, and multi-personnel management. Compared with market opportunities, or offline compared with online, choosing offline is the wiser move for distributors. Yuan Lai | Chief Editor of New Distribution Focusing on FMCG distributor new distribution / innovative consumer brand cases If you need to communicate, you can add WeChat by long-pressing. When adding, please indicate your company, position, and name. Theme: 《Dialogue · New Growth》Episode 1: Category Innovation, Accelerating the Building of Core Corporate Competitiveness Time: December 9, 2021 (Thursday) 14:00-15:00 Guests: [Lu Wenjin] - Chairman of Hubang Chili Sauce [Ji Zhongkai] - Marketing Management Director of Hubang Chili Sauce [Zhang Rui] - Vice President of Operations at Fenxiang Xiaoke [Zhao Bo] - Founder of New Distribution Introduction: This is an era where no one can do without spicy food, and new consumption drives the development of various industries. Focusing on the chili sauce market, the broad market space and low entry barriers have led to the entry of various internet-famous brands and emerging brands. The industry is characterized by low concentration, fragmented competition, and declining brand loyalty, and competition has become fierce. What development space remains for the chili sauce track? What key factors are driving the industry's iterative upgrade? 《Dialogue · New Growth》Hubang Special, explore the essence of the industry from here... Are you "watching" me?