Click to read the original article for details Every two years, the industry calls for eliminating middlemen. As a result, distributors have become the target of criticism, seen as the root of all evil. In the past two years, B2B, community group buying, and various innovative retail models have all tried every possible way to bypass distributors, or if they can't, to squeeze out the last drop of profit from them. Undoubtedly, as the most important members of the "middlemen," distributors have had a tough time in recent years. Besides the aforementioned "elimination" threats, they also face numerous internal problems. The bitterness and hardship need not be elaborated; distributors themselves know it well. It cannot be denied that the industry has changed significantly in the past two years. As an observer, I deeply feel that the challenges and difficulties distributors face today cannot be solved merely by optimizing market and management strategies. But where to change, how to change, and what to become? Many distributors are confused. What is the significance of middlemen? The two basic elements of the market are supply and demand. The existence of middlemen is due to the fact that supply and demand can never be perfectly balanced, and middlemen are needed to match supply and demand in various ways. On one hand, middlemen bear the price differences arising from information asymmetry, and also take on functions such as capital, logistics, and services. This is the underlying logic. Therefore, middlemen are a business form that completes the matching between supply and demand through the mastery of the three flows (information flow, logistics flow, and capital flow). This is also the core value of middlemen. In the past, due to backward infrastructure in China, middlemen matched supply and demand through layers of transactions and price adjustments. Undoubtedly, this was an extremely inefficient market transaction form, but it was a naturally formed business ecosystem. This ecosystem has strong anti-fragility. Unless there are structural changes, such as large-scale infrastructure improvements, it is extremely difficult to break this ecosystem. Of course, ecosystem evolution is like genetic evolution, naturally producing a lot of redundancy and inefficiency. This inefficiency can be improved through certain technological or model changes, which we cannot deny. Returning to the field of commercial circulation, strictly speaking, distributors are not completely independent middlemen because many of their market decisions are driven by manufacturers' strategies and administrative orders. They are essentially brand manufacturers' agency service providers in the local market, helping manufacturers complete localized marketing work. The middleman's work in the three flows is only one of their core tasks. On this basis, looking back at the value distributors carry, it includes two layers: one is a cell of the market ecosystem; the other is a partner for manufacturers to reach and cover the local market. Special Change 1 in the Distributor Industry in Recent Years: B2B Resurgence Starting in 2013, B2B emerged, with internet giants entering, native B2B platforms, logistics B2B, platform-based matching B2B, etc., with billions of capital poured into the industry. After 2015, many distributors were affected and began to set up B2B operations in various places. But now, most of the giants that came from internet backgrounds and were half-way converts have disappeared, similar to the phenomenon of internet giants entering and quietly withdrawing from community group buying in recent years. The background logic here is that internet giants believed traditional industries were inefficient and in urgent need of improvement, so they entered with huge funds and technological capabilities, thinking they could disrupt traditional industries and create the next Alibaba. But these internet giants are like bulls in a china shop, causing destruction to the industry ecosystem without the ability to rebuild. This is closely related to the internet giants' style of taking everything and leaving nothing behind. Almost all founders with internet backgrounds, when presenting their business plans to investors, want to follow Alibaba's rent-collection model: burn huge amounts of money to eliminate all competitors, cultivate user habits, create market monopoly, and then collect tolls. But the traditional business ecosystem has evolved over decades, and its rules are the consensus reached through friction, collision, and compromise among countless stakeholders in the industry chain. If only through technological and model innovation, transforming a single link cannot change the efficiency of the entire industry chain, and it also causes huge pressure and disruption to the upstream and downstream of the industry chain. This opportunistic approach, apart from causing enormous damage to traditional industries in the short term, has no constructive effect. After the giants left a mess, many people fell into a new misconception, thinking that technology is only auxiliary and cannot fundamentally disrupt the industry. This is all wrong. We see that some distributors who started with agency or wholesale businesses did not collapse under the giants' attack. After the giants educated the market and left, many distributors' B2B operations are now doing better and better. Besides the old regional platforms that were not swallowed by the giants, such as Shanghai's Kuaile Laizhang, Hangzhou's Pinbianyi, Xi'an's Jiapin Yunshi, Chengdu's Rongcheng Yigou, Dongguan's Caihua Commercial Trade, and Fuzhou's Wanquan Supi, many other distributors across the country are also springing up like mushrooms. For example, Rongcheng Yigou, through cooperation with local distributors, has already opened warehouses in Chengdu, Wuhan, Luoyang, Lhasa, Guiyang, and other places. Software providers like Maidelin have already provided B2B software platform services to distributors in 30 cities nationwide. New Distribution has been continuously paying attention to B2B over the years, but it is still unable to fully grasp the large number of newly emerging regional B2B platforms; we can only grasp a part of them. This fact fully demonstrates that B2B is not a failed model, nor is the industry unable to change. The prerequisite for success is to fully understand and respect the industry's rules. On September 23-25 in Shanghai, at the 4th China FMCG Conference held by New Distribution, we will spend half a day specifically discussing: "Distributors' B2B Resurgence: How to Break Through and Innovate" (See the end of this article for details) . Special Change 2 in the Distributor Industry in Recent Years: The Rise of Big Distributors This year, I was invited to share at three first-tier brand conferences. One was Tsingtao Beer's annual meeting in Yangzhou, which had a special session for distributors called the "Golden Eagle Club." The second was China Resources Beer's "Huazun Club," established to cultivate big distributors. These two beer companies, against the backdrop of industry consumption peaking and consumption upgrading, besides upgrading their category strategies towards high-end and diversification, also made a move regarding their most important partners, the distributors: cultivating "big distributors." The third was P&G's distributor annual meeting, where Jasmine Xu, CEO of P&G Greater China, publicly expressed P&G's attitude towards distributors. I don't remember the exact details, but the gist was that distributors are important partners of P&G, a community of shared destiny. P&G will continue to work with distributors to jointly operate the local market well, and also help P&G's big distributors further upgrade and evolve. New Distribution has also noted other brands' support for distributors, but due to space limitations, I won't list them all. The core idea is to provide special support to big distributors through dedicated teams and budgets. On the other hand, brand owners are also constantly seeking big distributors who can carry corresponding capabilities to help the brand owners themselves enhance their new market competitiveness. You see, when first-tier brands are all taking such actions, it indicates that this group has reached a stage where they must change. The Third Foreseeable Change: Urban Distribution Previously, New Distribution has had a clear prediction about the logistics industry: the functional division of distributors is an irreversible trend, but I found that I missed one division: third-party urban distribution. In the past two years, a large number of distributors in China transformed into third-party urban distribution, but the market was not mature enough at that time, and many distributors started but then failed. This is directly related to multiple factors such as consumers' consumption awareness, the richness of market categories, logistics delivery costs, urban land rent costs, and distributors' mindsets. The market is evolving, and people's concepts are changing. We see that whether it's B2B, community group buying, O2O, or local same-city retail, the demand for B2B2C is becoming increasingly obvious! In addition, the complexity of categories and the continuous rise in labor and land rent costs mean that third-party urban distribution will gradually become a trend in the coming years. I have also heard that some brand companies are conducting exploratory trials with urban distribution logistics companies like Weijie. But this change is premised on the openness of local business circle owners' mindsets and the urgency of external environmental pressure. For now, the demand for urban distribution may still need a few years to develop. However, whoever does it first and accumulates core capabilities will have the chance to stand out in the future urban distribution market. Of course, market changes are not limited to these; there are also TP agency operations, new e-commerce wholesale, and other sporadic innovative models. When discussing these changes, several backgrounds cannot be avoided: First, community group buying, which is almost a joke in the industry. Although it disrupted the market of many brands in the FMCG industry, it also educated and awakened the B2B2C community retail model. Second, the continuous penetration of e-commerce. The rise of live-streaming e-commerce and short-video interest e-commerce has forced brand owners to respond to challenges through innovative organizational models. Moreover, the consumption upgrading of Gen Z, new middle class, and small-town youth, with trends towards personalization and community consumption becoming more obvious, the probability of super single products appearing is decreasing. This leads to continuously rising operational costs for the entire chain, whether for brand owners or distributors. The pandemic has also accelerated the habit of online shopping. Therefore, distributors really must change or die! PS: From September 23 to 25, 2021, the 2021 (4th) China FMCG Conference hosted by New Distribution will open in Shanghai. Some of the confirmed heavyweight guests include: 1. Tao Shiquan, Founder of Jiangxiaobai; 2. Yao Xuhong, General Manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, Global Expert Partner at Bain & Company and former Vice President of Marketing for Coca-Cola China; 4. Chen Xiaodong, Senior Vice President of Nestlé Greater China; 5. Zhang Fujun, President of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, General Manager of China Resources Snow Beer (China) Marketing Center; 7. Yang Hongbin, Vice President of Junlebao Dairy Group; 8. Zhang Yipeng, General Manager of Kuaishou E-commerce SKA Brand Operations Center; ... A grand gathering for FMCG professionals, you must be there! Are you "watching" me?