Click the image above for details Zhao Bo, founder of New Distribution, said on his WeChat Moments on August 2: "During the preparation of this year's 2020 China FMCG Conference, we discovered a very interesting phenomenon: Many companies have gone from one or two people registering to a dozen or even dozens of executives registering, and even bosses leading teams to attend. I think the digital strategies of various companies are really starting to move from concept to implementation. The hardest thing to change is not the organization or the model, but interests and mindsets." Indeed, today's FMCG industry, with the support of the Internet, is changing rapidly. The essence of the Internet is sharing, interaction, virtuality, and service. The essence behind "Internet+" is "data flow." The Internet has made data flow freely among enterprises, people, and devices. With the continuous penetration and influence of the Internet, the digital transformation of brand owners has entered the deep-water zone, and as a result, the digital transformation of distributors is also entering the practical implementation stage. Some distributors may say, "My business is doing well now; I don't need digitalization." But in my view, if your upstream brand owner has already started transforming, over time it will involve mutual matching issues. If the matching degree is low, the manufacturer and distributor will part ways quickly. Some distributors may also say, "I have already equipped my sales staff with terminal devices as required by the brand owner, so I have started digitalization." But in fact, terminal devices are only the initial stage of digital transformation, merely completing the collection of market data. True digitalization is based on collected data, researching the data to derive market competitive landscape, strategic goals, efficient business models, and next steps. Regarding digitalization, distributors care most about three things:
1. How to make money efficiently through digitalization? 2. How to improve cost-effectiveness through digitalization? 3. How to manage personnel efficiency through digitalization? Today, let's first talk about the first thing. -01- One way for distributors to make money efficiently: Adjusting business structure through digitalization About five years ago, when the demographic dividend had not yet disappeared, the FMCG industry was growing overall. Distributors had a subconscious belief: the more you sell, the more you earn. As long as sales go up, profits naturally rise, because incremental growth can cover everything. But now the market situation has changed. Distributors generally feel that sales are gradually increasing while annual profits are gradually decreasing. This is a typical case of "pulling the cart without looking at the road," a typical lack of digital analysis. 1. Improve gross profit by adjusting channel structure Habitually, many distributors divide their channels into the four types above. Obviously, A, B, C, and D are different, and different products have different channel gross profits. This provides one explanation for why distributors see annual sales gradually increasing while annual profits gradually decrease. For example: In 2019, sales were 1 million, with 80% from traditional channels. In 2020, annual sales were 1.3 million, with 50% from wholesale channels. Sales increased 30% year-on-year, but if B% is much greater than C%, annual revenue will inevitably decrease. Therefore, at this time, distributors must use the market sales data collected by sales staff to analyze the proportion of channel sales and the proportion of channel profit contribution. Only by understanding these two basic data through digital analysis can they grasp the direction for the next year and avoid the situation of volume increase but profit decrease. Common operational methods are: a. Focus resources to make high-margin channels generate more sales; b. Become the NO.1 in the high-margin channel segment; c. Achieve absolute first place in market share, far ahead of the second place, and strive to make your market share in this channel equal to the sum of the second and third places. 2. Improve gross profit by adjusting product structure Practitioners in the FMCG industry all understand: different products have different gross profits, and the same product has different gross profits at different stages. Products generally have four periods: introduction, growth, maturity, and decline. Among them, the introduction period has the highest gross profit, while the maturity period has relatively lower gross profit. So there are two main factors affecting product gross profit: one is the product type, and the other is the stage the product is in. This provides two other explanations for why distributors see annual sales gradually increasing while annual profits gradually decrease. For example: First, in 2019, product A was in the introduction period with sales of 1 million and a gross margin of D%. In 2020, the product is in the maturity period with sales of 1.5 million and a gross margin of G%. If 1 million * D% ≤ 1.5 million * G%, profits will inevitably decrease. Second, in 2019, sales were 1 million, with main product B. In 2020, sales were 1.2 million, with main product C. If BE% ≤ CF%, profits will inevitably decrease. So at this time, distributors must conduct data analysis on the gross profit and sales proportion of each product, and analyze the product development trend through annual sales and competitor situations. Only by understanding these data can they know where the center of future product sales lies and which products are the main profit contributors. Common operational methods are: a. Tilt resources and energy toward key high-margin products to increase their sales proportion. b. Promote new products. Distributors should understand that brand owners only give the largest channel margins when launching new products. Although it is difficult, it is also the most profitable time. -02- The second way for distributors to make money efficiently: Stabilizing product price system through digitalization In today's increasingly fierce competition with product homogenization and surplus, it is not hard to see that generally, the higher the product price, the higher the profit margin, but the lower the sales volume. And profit = gross margin * sales volume. At this point, profit is like a parabola: from the starting point, it rises to the highest point, then falls back to the starting point. The highest point is where distributor profit is maximized, when sales volume and gross profit are both maximized. So how to reach the highest point? This requires digital analysis of the market. For example: Count the profits created by products at different price points to determine the best selling price. At this time, just compare the sizes of D1, D2, D3 and other data to determine the best pricing plan. It is worth noting that the market is constantly changing (competitor prices, supply-demand relationships, etc.), so the pricing plan must also be continuously updated to adapt to the situation. But a major premise is that the price system must be stable. 1. Stabilize the price system: Digital early warning for internal and external channel diversion A long time ago, there was a saying in the FMCG industry: "Channel diversion is shameful, being diverted is incompetent, and diversion always leads to low prices." At that time, the Internet was not developed, but now it is different. A terminal device is bound to a terminal, monitoring subordinate terminal stores in real time. Once abnormal sales appear in a period, it will alert the operator. For example: Note: On the 30th, terminal store data comes out; on the 1st of the next month, the abnormal reason must be verified on-site. This is easy to understand: diverted goods need to be digested by terminal stores, and terminal store sales are basically stable. If suddenly a store does not receive goods for a month, it can basically be judged as one of four situations: a. The store is operating abnormally b. There is a customer relationship or complaint crisis c. Selling other substitutes d. Selling diverted goods When management goes to the store, they will know immediately. The next step is to notify the brand owner of external diversion, notify the industry and commerce department to inspect and handle it, and punish internal personnel according to regulations for internal diversion. 2. Stabilize the price system: Digital control of selling prices Digital price research: After analyzing the above price, sales volume, gross margin, and profit, we determine the sales price system that maximizes profit, and then we must strictly abide by it. At this time, the function of digitalization is to supervise selling prices and severely punish those who disrupt prices. -03- The third way for distributors to make money efficiently: Obtaining brand rebates through digitalization Speaking of rebates, many distributors are confused. I once served Nongfu Spring and Jinmailang Beverages. When annual rebates came down, I would always assist some sales management personnel to go to distributors to reconcile accounts. The purpose was to check whether sales management personnel and distributors understood the rebate rules, and to calculate and obtain rebates through digitalization. The common confusions are summarized in the following 3 points, all of which reflect the backwardness of digital management. 1. Sales are the same as last year, why is the rebate lower? Explanation: Brand owners have already implemented digital management. Rebates are no longer like before, where they were calculated based on total annual sales. They have already implemented different products, different profits, and different rebate points. For brand owners, high-margin products will inevitably have higher rebate points. So to get high rebates, distributors must digitally calculate the sales of high-margin products. 2. One less truckload of goods, and the rebate is tens of thousands less? Explanation: Brand owners' rebate rules generally include achievement rate assessment. For example: achieving 100% gives a 3% rebate; achieving above 90% but below 100% gives a 2% rebate. At this time, if the distributor neglects precise data calculation and the achievement rate is 99.9%, they will lose 1%, which could be tens of thousands or even hundreds of thousands. 3. Some indicators for the full rebate are not met, resulting in a discounted rebate. Explanation: In addition to sales achievement, brand owners' rebates often include assessment of key product items. For example: Previously, Nongfu Spring's distributor rebates, when overall performance was achieved, also added a special assessment for drinking water. If drinking water did not meet the target, the rebate would be discounted. In short: Regarding obtaining rebates, distributors should not complain. First, they must understand the rules. Second, they must follow the rules and use digital precise calculation to calculate conservatively how much they can get, and what the challenge target is when striving hard. Without digital follow-up, rebates will be off by a little and lead to a big error. Final words: Is it difficult for distributors to make money now? That's hard to say, but making money in a muddled way like ten years ago is indeed difficult. In plain terms, doing business requires knowing how to calculate accounts. The better you are at calculating, the more money you make. What is calculating? It is digitalization. The process of learning to calculate is the process of digital transformation. Regarding the practical application and development trends of digitalization, New Distribution will hold the 2020 (3rd) China FMCG Conference in Shanghai from August 24 to August 26, with two special forums on "Digital Technology Driving Enterprise New Growth." At that time, New Distribution will invite more founders of digital tool service providers and brand executives who have applied these tools to discuss how to use digital technology to improve business efficiency. Interested friends should not miss it! Zhang Yu, pen name Haiyou. Columnist for "Regional Manager Practical Guide," has published nearly 60 professional articles on FMCG industry trends, distributor practical operations, and professional manager business skills improvement. With over ten years of experience in beverage regional distribution operations, adhering to the philosophy of "no data, no decision; no data, no operation," he has successively coached dozens of distributors to implement digital distribution management.