---
title: "FMCG Ushers in the B2B Inaugural Year: How Will the Industry Transform?"
description: "In 2016, the number of FMCG B2B platforms surged to over 70, collectively attracting more than 5 billion yuan in investment. As the year draws to a close, the industry reflects on a challenging period for traditional FMCG, yet the rise of internet-based B2B platforms marks a transformative 'inaugural year' for the sector."
author: "刘旷"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2017-01-05"
language: "en"
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# FMCG Ushers in the B2B Inaugural Year: How Will the Industry Transform?

> In 2016, the number of FMCG B2B platforms surged to over 70, collectively attracting more than 5 billion yuan in investment. As the year draws to a close, the industry reflects on a challenging period for traditional FMCG, yet the rise of internet-based B2B platforms marks a transformative 'inaugural year' for the sector.

In 2016, the number of FMCG B2B platforms surged to over 70, collectively attracting more than 5 billion yuan in investment.
As the year draws to a close, it's time for annual summaries. In banquet halls, passionate speeches abound; some industries are flourishing with laughter and joy, while others, having missed the 'east wind of last night,' can only sigh at 'unbearable memories.' For FMCG, 2016 was a tough year: the downturn in the real economy made consumers less impulsive, and traditional industries faced transformation. At the same time, however, FMCG B2B platforms relying on internet innovation grew rapidly and pioneeringly ushered in their 'inaugural year.' The number of FMCG B2B platforms surged to over 70 in 2016, collectively receiving more than 5 billion yuan in investment.

**B2B Platforms Transform Traditional FMCG Distribution Models**

**1. Directly Connecting Producers and Retail Outlets to Increase Transparency**
China's traditional distribution system is backward and fragmented. Rough estimates suggest there are over 3 million traditional retail stores across the country, with small mom-and-pop shops in urban communities and rural areas accounting for at least 40% of national FMCG sales. Between these small shops and product manufacturers lie countless layers of distributors and agents. Previously, manufacturers increased sales by adding distributors; a typical FMCG company needed hundreds of first-tier distributors to barely achieve nationwide coverage. Managing such a vast number of distributors was extremely difficult, requiring significant time and staff, which invisibly increased costs and eroded profits.
Moreover, distributors also separated manufacturers from retail outlets, leaving retail stores without direct dialogue with producers. Especially in recent years, as FMCG sales have declined, manufacturers have pushed more products onto distributors, which then get shoved down the channel, leading to massive overstock at retail stores. Yet companies remain unaware of the exact volume of unsold goods, creating a vicious cycle.
The drawbacks of this distribution model have become increasingly apparent. Consequently, direct-operated B2B platforms like JD New Channel and Jinhuobao have emerged, directly connecting manufacturers and retail terminals. They aggregate production-side enterprises to support small community businesses. Shop owners can find the most favorable genuine product sourcing channels on these platforms, freeing themselves from the arduous self-procurement process. Manufacturers can reduce channel costs, directly engage with previously inaccessible stores, and monitor the entire distribution process, eliminating worries about distributors' tricks or absconding.

**2. Eliminating Layers of Exploitation to Increase Small Shop Profits**
Most FMCG companies develop agents and distributors by administrative regions, typically at the provincial or municipal level, with goods flowing between upper and lower customer management levels. For a bottle of beverage to finally reach the shelves of a small community convenience store, it must first be picked up from the manufacturer by a general distributor, then sent to regional agents, then down to sub-distributors, and then to local wholesalers before the shop owner can purchase it. At each stage, someone takes a cut, ranging from 0.5% for the general distributor to 10% for the local wholesaler, leaving little of the already thin FMCG gross margin.
By cutting out intermediate distributors, direct-operated B2B platforms like JD New Channel and Jinhuobao allow small shop owners to obtain first-tier distributor prices, free from exploitation by middlemen. With profits secured, small shops can invest in store operations and management, contributing to future consumer experience upgrades.

**3. Improving Procurement Efficiency and Optimizing Consumer Experience**
Traditional procurement models not only exploit profits but also suffer from complex, cumbersome procedures and low efficiency. To build relationships with distributors, various social engagements are unavoidable; what could be simple cooperation becomes complicated once human relations are involved. Most small shops' purchase prices are directly linked to personal connections, requiring them to maintain good relations with wholesalers, logistics providers, and even local urban management officers. The ups and downs need no elaboration—everyone understands.
Additionally, community shops rely on manual labor for sorting goods and mental calculations for tracking sales. Deciding what to stock often depends on guesswork or sheer luck. Unlike large supermarkets, small shops cannot accommodate a wide variety of products. Without timely market information to update inventory, consumers frequently cannot find what they want, severely diminishing the shopping experience.
The emergence of direct-operated B2B platforms like JD New Channel and Jinhuobao has squeezed out wholesalers. One-stop shopping greatly simplifies their operations, eliminating the need to deal with dozens of distributors or wholesalers. Moreover, most platforms now offer centralized warehousing and distribution, directly improving the operational efficiency of small shops. Through internet technology, shop owners can manage their inventory via smartphones or computers, using data to see what sells well, what's sluggish, and what needs restocking—all at a glance.

**Can B2B Platforms Solve Everything? Behind the Milestones Lie Numerous Obstacles**
Ideals are beautiful, but reality is harsh. Staying clear-eyed about industry challenges is what insiders need to do. FMCG B2B began trial runs in 2013, yet online penetration remains low. According to Kantar Retail's recent '2016 China FMCG Internet B2B Market Report,' traditional channels still account for 49.3% of shipments, only 1.3 percentage points lower than the previous year. Food, beverages, and alcohol, in particular, remain heavily dependent on traditional channels.
On one hand, FMCG products have short consumption cycles, high purchase frequency, low unit value, and high logistics costs, demanding robust supply chains and information systems. The high labor and operational costs are hard for any company to bear. On the other hand, traditional FMCG channels are deeply entrenched; countless street-side shops and community convenience stores have long-standing procurement channels and business practices that are difficult to break.
Currently, only 16% of small shops are willing to cooperate with B2B platforms. It's not that they don't want to save money; they already have established channels with agents and wholesalers. Asking them to abandon their existing networks for entirely new channels is challenging. Platforms often face a dilemma: FMCG companies need to see enough retail stores on the platform before accepting new distribution models, while shop owners need to see enough manufacturers before abandoning traditional models. The deeply ingrained inertia of traditional FMCG channels is the biggest challenge facing B2B platforms.

**Despite Obstacles, How Can B2B Platforms Break Through Next?**
The original intention of FMCG B2B platforms was to address traditional industry pain points, helping to solve the low efficiency, chaotic systems, and high costs of traditional distribution channels, while providing efficient product delivery and sales support. However, implementation faces unexpected resistance. The B2B model is certainly good, but getting more people to know and accept it requires more than just holding press conferences and shouting.

**1. Enhance Integration Capabilities and Excel as the '2' in the Middle**
Currently, FMCG B2B platforms mainly fall into two models: direct-operated and matchmaking. Direct-operated B2B models involve buying goods outright, building their own warehousing and logistics, and centralizing distribution. By cutting out intermediate distribution links, they aim to ensure and improve user experience and help brands increase channel coverage efficiency. Representative platforms include Jinhuobao, JD New Channel, and Huiminwang.
Matchmaking B2B models leverage the warehousing and logistics of various distributors in traditional channels to provide a trading platform for both brand manufacturers and small shops. Both parties can access transparent information and data from the platform. Representative platforms include Zhanghetianxia and Alibaba 1688 Retail Link.
Regardless of the model, the platform's role is to serve as an intermediary connecting the two 'B' ends. Currently, most platforms are spending money to please both sides and gradually cultivate usage habits—an approach that clearly cannot last.
To excel as the link, platforms need strong industry chain integration capabilities. The FMCG industry needs these platforms to streamline product and ordering processes, improve logistics and delivery, and support business and services to achieve the best outcomes. The era of relying on market dividends and demographic dividends has passed. Solid platform construction is the only path to growth. The ability to integrate the entire chain from production to retail terminals, and even extend to consumers, is the most critical competitive point. E-commerce giants like Alibaba and JD have certain advantages, but platforms focused on FMCG B2B, such as Jinhuobao and Zhanghetianxia, should not be underestimated. They are continuously improving their industry chain integration capabilities, striving to capture market share from BAT.

**2. Focus on Breakthroughs in Big Data Analytics and Other Technologies**
We are in the era of big data, where the scientific value is to let data speak. Platforms themselves need data support, and traditional manufacturers and retailers also need data—channel data, terminal data, and consumer data. The most direct value of the internet is reducing information transmission costs. B2B platforms obtain vast amounts of data through online transactions and terminal-based software, data that manufacturers and terminals desperately seek. Some manufacturers have tried self-operated e-commerce, but due to limitations in manpower, materials, and energy, most have stalled. Now, through cooperation with B2B platforms—you provide goods, I provide data—this win-win situation is truly satisfying.
Therefore, B2B platforms should treat big data analytics as a natural entry point and continuously enhance their big data capabilities. For example, provide basic software services to stores to improve the overall quality and level of retail terminals, reduce operating costs for small shops, and increase operational efficiency, thereby creating hidden income. Through more refined operations, integrate data across the FMCG distribution sector to improve goods turnover. By deploying cloud warehouses, upgrade and transform social warehousing inventory in the distribution sector to reduce vacancy rates. For instance, direct-operated B2B platform Jinhuobao has always treated data as its core focus, collecting transaction behavior data from brand manufacturers and retail terminals through its open platform, then using data analysis to provide retail stores with warehousing logistics, user management, and precision marketing services.

**3. Provide More Value-Added Services to Retailers**
For product manufacturers, distributors are a means to reach retail terminals. For retailers, the source of supply doesn't matter; their focus is on how to sell. Therefore, the platform's task is not just supply but to connect the entire industry chain and help small shops successfully sell goods to consumers.
First, attract retailers' attention with marketable products. B2B platforms offer best-selling products online and minimize supply-demand price differences. When small shops' sales volume increases, the platform reaches a profit point, and with the advantages of centralized warehousing and distribution becoming apparent, more shops will be willing to try cooperating with the platform.
Next, win stores' trust through value-added services. Once customers are acquired, the challenge is retaining them. For internet companies, there are many ways to use their technological expertise to provide value-added services to stores. For example, establish intelligent sorting systems and smart bookkeeping, help them create official accounts, develop membership points systems, and incidentally cultivate their internet mindset. For customers with financial difficulties, offer financial loans, legal consulting, and other services. Earn money while building goodwill and strengthening customer relationships.
Finally, entice stores to voluntarily join or be acquired. The groundwork laid earlier provides a solid foundation for the final step. Analyze online transaction data—volume, frequency, product categories—to assess stores' basic conditions, including size, covered business area, operating status, and financial foundation. Then categorize these stores, select those worth investing in or franchising, and after providing guidance, bring them under the platform's wing. In the long run, the platform successfully transforms small shops, not just in form but also in mindset. When the platform has enough franchised small shops, won't it have more bargaining power when negotiating with FMCG manufacturers? Alibaba's 1688 City Partners and Jinhuobao's Jinhuo Group use this method—entering stores to help with promotions and optimize management models—leveraging idle social resources to expand the platform's market and increase penetration.

**Industry Prospects Are Bright, with Four Major Development Trends**
The FMCG B2B industry is in its infancy, facing both opportunities and challenges. Traditional FMCG distribution models are hard to uproot, but the internet is the direction of the times and cannot be stopped. The industry will advance amid the game between tradition and modern trends. In the future, the industry will see the following trends:

**Trend 1: B2B Models Will Gradually Break Through to the C-End**
As e-commerce market competition becomes unpredictable, e-commerce platforms no longer rely solely on B2B, B2C, or C2C models but will integrate these into an evolution toward B2B2C. The entire supply chain is a process from value creation to value realization, integrating resources from production, distribution, and retail terminals. After platforms develop more small shops into franchisees, they can help these shops complete modernization and informatization upgrades while enhancing store loyalty. They also help merchants directly act as sellers, take on brand promotion responsibilities, push merchants to the front stage facing consumers, allow manufacturers to gain more profits, invest more funds into technology and product innovation, and ultimately benefit consumers.

**Trend 2: Differentiated Platforms Emerge in Niche Markets**
Platforms are also seeking more differentiated services, striving to break through existing models and find their core competitiveness. Platforms acting as connectors fully utilize big data to provide scientific marketing solutions for retailers and brand manufacturers. Platforms, manufacturers, and small shops become a community of shared destiny, each striving for high efficiency and high profitability. Both matchmaking and direct-operated models will find their advantages in various vertical niches, conducting differentiated promotional campaigns to attract customers. For example, Yijiupi has grown strong in the tobacco and alcohol niche. In the future, specialized and differentiated products and services on FMCG B2B platforms have the potential to rise abruptly.

**Trend 3: Matchmaking and Direct-Operated Models Converge, with B2B SaaS Becoming Prominent**
Matchmaking platforms offer comprehensive information but do not own goods, while direct-operated platforms own goods but have limited product variety and less choice for customers. Each model has its pros and cons, and neither is perfect. In the future, the boundaries between the two models will blur and they will increasingly converge. Platforms will build their own warehousing and logistics, secure exclusive supply rights for more products, and shift from passive to active. Additionally, with the development of cloud computing and big data, B2B SaaS models based on process management will closely connect retailers, suppliers, and any trading partners, enabling lean supply chain management to reduce operational costs and improve customer satisfaction, becoming a key trend for long-term platform development.

**Trend 4: After Industry Consolidation, Standardization and Regulation**
The FMCG B2B industry is still in its infancy. Although traditional channels remain the main component of FMCG distribution in China, with rapid platform expansion and massive capital influx, coupled with the activation and optimization of internet awareness among small shop owners, and improvements in logistics, big data technology, and supporting facilities, the shift to electronic transactions is inevitable. This year, the FMCG B2B industry is riding the wave, with regional platforms emerging in clusters, especially in the Beijing-Tianjin-Hebei region where dozens of platforms are fiercely competing. Soon, weary regional platforms will accelerate cooperation and mergers. After a survival-of-the-fittest industry reshuffle, powerful giants will emerge nationwide, and the next unicorn will appear in this field.

-END-

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