On March 18, the "Boundless Commerce, Same Heart" JD New Channel and New Distribution co-hosted industry summit was held in Chengdu! The following is the speech by Zhao Bo, founder of New Distribution, presenting the 2018-2019 FMCG B2B Industry Trend Report, compiled by New Distribution for readers. The report I'm sharing today is based on research conducted by New Distribution over about 4-5 months last year, surveying a large number of brand owners, distributors, small shops, and B2B platforms. This report looks at channel development trends and changes from the perspective of the entire FMCG supply chain. Before we begin, let's review the history of China's FMCG trade and distribution sector, which is crucial for judging future industry changes. Starting in 1979, China's trade and distribution shifted from a planned economy to a market economy. At that time, distribution was mainly through supply and marketing cooperatives. From the founding of the PRC to the 1990s, most goods circulated through these cooperatives, which had first-level, second-level, and third-level stations, similar to today's first-level agents and second-level wholesalers. Around 1984, the trade and distribution sector began to change, with the emergence of comprehensive wholesale markets. By 1999, many famous markets still existed and remain influential today, such as Guangzhou's Baiyun Market, Changsha's Xinqiao High Bridge Market, and various specialized markets that replaced the functions of supply and marketing cooperatives. In 1994, a new species appeared in the market: the distributor. Why did distributors emerge? Around 1992-1994, after Deng Xiaoping's southern tour, the first document issued was "Several Opinions on Accelerating the Withdrawal of State Capital from the Trade and Distribution Sector," which gradually phased out supply and marketing cooperatives. From 1992 to 1995, many supply and marketing cooperatives were restructured into distributors, and many domestic distributors have this origin. At the same time, a large number of foreign brands entered China and found a peculiar situation: they couldn't use the planned economy system or wholesale markets, so they had to work with distributors. Thus, the trade and distribution sector began a decade of rapid development. By around 2004, China's FMCG industry entered a stage of homogeneous competition. The market was no longer a shortage economy, competition intensified, and deep distribution became popular. In 2013, the industry entered a period of stagflation, leading to a serious crisis. Typical categories like milk, instant noodles, ham sausages, and beer suddenly became hard to sell, and market growth disappeared. China's 30-year market dividend had finally been fully realized. Frankly, the past logic of trade and distribution was essentially manufacturers and distributors working together: factories used large-scale production and distributors for large-scale distribution, achieving economies of scale and cost reduction. But with the spread of the internet, the market shifted from online to offline, and a new species called B2B emerged. Starting in 2013, 29 B2B platforms appeared. By 2015, influential platforms and capital entered the B2B field. Brand owners and distributors began to notice B2B. JD New Channel entered B2B in 2016, and by 2018, as of March 8, 2019, New Distribution's research showed there were still over 140 B2B platforms. In 2018, New Distribution counted about 90 B2B platforms that closed down. This shows that while the market is large, competition is fierce. This intense competition indicates that China's trade and distribution sector is about to undergo a new round of change, not just with internet overlay, but more importantly, a significant shift in the supply and distribution logic of manufacturers and traders. In the past, manufacturers and distributors worked together to extend their reach to small shops. New Distribution believes that in the future, as consumers change, it will be manufacturers, shops, and distributors working together to serve consumers, shifting from supply chain efficiency to service logic. The platform in the middle will play a crucial role, with its data capabilities, large-scale supply chain delivery, and precise and efficient logistics service systems to meet diverse and personalized consumer needs. Traditional distributors will face many challenges and difficulties at this stage. Let's look at some data: In 2018, New Distribution's statistics for the B2B industry showed GMV of about 100 billion RMB, penetration of about 32%, and an average order value of 756 RMB across national B2B platforms. How was 756 RMB calculated? New Distribution collaborated with 11 major B2B platforms, which provided backend data for a comprehensive calculation. Additionally, New Distribution predicts that around 2021, the B2B market will reach about 230 billion RMB, penetration will reach 50%, and the average order value will rise to 1,134 RMB. New Distribution surveyed 50 brand owners, 72 middle and senior managers, and 10 product categories; 88 representative distributors nationwide, 12 product categories, and 11 B2B platforms, as well as data from some national platforms. We also visited first- to fifth-tier cities, selecting 4,478 shops across 41 cities, to produce the 2018-2019 FMCG B2B Industry Trend Report over six months. To get the full report, follow the "New Distribution" official account and reply "B2B". From an industry trend perspective, cooperation between B2B and channel players is increasing. 86% of brands have started cooperating with B2B, up from 55% last year, a significant increase. It seems no brand owner in 2019 is saying they won't cooperate with B2B, or prohibiting distributors or branches from cooperating. 40% of distributors have started supplying B2B platforms, and 74% of small shops have ordered from B2B platforms, which is very high. From the brand owner perspective, more and more are creating independent B2B teams, a significant increase from last year. Early teams were small, but more brands are adding B2B staff. In terms of organizational structure, B2B functions are gradually moving from sales management and marketing departments to direct sales department oversight. In communication, brands are emphasizing digital channel cooperation, with headquarters coordinating relevant partnerships. Of course, many distributors have been impacted by FMCG B2B, leading to a clear increase in their willingness to transform. 66% of surveyed distributors said their business was significantly affected, and 93% expressed a clear intention to transform, up 16% from last year. About half of distributors hope to become B2B or digital distributors. Among them, 70% prefer to cooperate with B2B platforms in various forms rather than build their own, due to limited IT and supplier integration capabilities. From the B2B perspective, competition is intensifying and concentrating among top platforms. Last year, over 90 B2B platforms closed. In third-tier and below markets, JD New Channel has absolute advantages and strength to help brands penetrate these markets. On average, each brand cooperates with about 4.3 B2B platforms, each small shop has about 3.5 installed apps, and frequently uses about 2.6. By category, water, beverages, and leisure snacks have huge potential on B2B platforms. The top three are water and beverages, leisure snacks, and alcohol. There is a strong similarity between operating category weight and ordering category weight. For ordering, the top is water and beverages, followed by leisure snacks, and third is instant food. In terms of brand competitiveness index on B2B platforms, Master Kong leads far ahead. In hot searches, hot sales, and coverage, Master Kong, Yili, and Coca-Cola are very high. Third-party warehousing and distribution is maturing. 80% of distributors believe operating costs increased in 2018 compared to last year. Fewer young people are willing to do sales. 49% believe the local distributor market trend is worse, and 42% saw net profit decline. Looking at opportunities, 80% are willing to try third-party logistics, 79% rent central or city warehouses, 45% believe unified warehousing and distribution is the best industry model, 34% hope for deep cooperation with B2B platforms, and 22% have not yet used warehouse and logistics management software. Key reasons for choosing FMCG B2B platforms can be viewed from three dimensions: brand owners, distributors, and retail shops. First, from the brand owner perspective, B2B has indeed helped complete deep penetration. Last year, Red Bull had many issues, and its market investment was low. Yet, with almost no investment, it broke historical records, achieving 20 billion RMB in sales. Why? Because B2B sold it. Second, B2B platforms help brands simplify distribution processes, improve channel efficiency, and gain access to previously unseen inventory and sales data. Of course, some brands have concerns that B2B may disrupt pricing, and some platforms have poor self-discipline regarding cross-regional sales. Additionally, B2B platforms have operational risks, so many brands cooperate with leading, strong B2B platforms. For small shops, the reason for ordering from B2B platforms is not price but convenience. A scenario: after a day of operation, a shop owner checks inventory and opens the app to see what's available and what promotions are running. Second, timely delivery. Third, low price. In fact, well-run shops don't care much about price; they care about price stability, not just low prices. Why don't some shops order from B2B? Key reasons include frequent stockouts, inability to return or exchange goods, and long delivery times. Therefore, the strong bond between platforms and suppliers, the brand's own sell-through capability, and B2B's own capabilities will be crucial factors in whether B2B platforms can serve more shops in the future. In conclusion, first, brand owners have fully accepted and recognized the value of B2B, and cooperation is strengthening, with more professionals and dedicated teams for specialized operations. Distributors are about to face challenges, considering upgrades and transformation, and third-party warehousing and distribution is an important direction. B2B platform competition is intensifying, and differentiated positioning is key. Third, refined operations pose higher challenges to their own management, operations, and service capabilities. For small shops, category upgrades, service upgrades, and digital upgrades are the most important factors for expanding cooperation with B2B in the future. Note: Follow the "New Distribution" official account and reply "B2B" to receive the full PDF version. -END-