❶ Over the past 30 years, China's FMCG giants built various hierarchical channel models that outcompeted rivals. Now facing the ceiling of product surplus, these advantages have become liabilities. In a saturated industry, is there still a chance for those relying on numerous distributors? ❷ The inability to let go of distributors who have followed for years may be the lingering issue for 'Wahaha and Co.' In your view, what better channel solutions exist? What channel transformations have you encountered? ❸ How do you view transplanting the 'joint distribution system' into a vending machine system? ▂▂▂▂▂▂▂▂▂▂▂▂▂▂▂▂▂▂ ●Main Text●**** It is said that in 2014, all the big players in the FMCG industry experienced varying degrees of negative growth. The richest man kept changing: first it was those who made products and ran channels, then those who collected rent from real estate, and later those who did e-commerce. ■ It's Time to Kick Out the Middlemen In the Internet age, the logic is 'the wool comes from the dog'—making those outside your ecosystem pay. E-commerce makes middlemen and shops pay. Those 'bypassed' are the payers, excluded from the ecosystem. In recent years, many companies flattened their channels, making more middlemen pay. Now it's tougher: many manufacturers directly connect ERP systems with terminal chain stores, striking a blow to the value of middlemen. What I want to say is that the future mainstream will be direct connection between manufacturers and individual consumers. Now even many manufacturers let consumers participate in product design. In the future, when manufacturers directly control consumers, even terminals will suffer greatly. In the non-Internet era, manufacturers faced high transaction costs and couldn't trade with every consumer, so they let middlemen handle distribution. In the Internet era, one-to-many or one-to-more transactions are no longer a problem. Distribution is replaced by the Internet; if people compete with machines, they will surely lose. The two main costs of traditional commerce—middlemen and shops—have become the 'payers' of Internet commerce. Many successful Internet startups made these two scapegoats pay. Now look at Wahaha: its key resources lie in these two areas: a strictly hierarchical distributor system and ubiquitous distribution. In the past, Wahaha relied on its channel advantages to outcompete many peers. Whether it was Nongfu's Shui Rong C100 or Qiulin's Kvass, Wahaha, with deep pockets and many people, could copy, distribute, and advertise others' innovative products, turning the original creators into 'copycats'—manipulating the market at will. Wahaha and Qiulin's respective 'Kvass' beverage products. But I must say, traditional business advantages are becoming liabilities in the Internet age. In the past, Wahaha's channel advantage was its resource; now it's a cumbersome burden. Wahaha sells beverages, which have higher profit margins than instant noodles or biscuits, but ultimately they are FMCG, so profits can't be much higher. With so many intermediate costs, making money will become increasingly difficult. In the past, big profits were because the industry hadn't hit its ceiling. Now the industry is oversupplied. We know FMCG profitability relies not on per-unit margins but on higher turnover rates. But in an era of surplus, if I drink one bottle a day, you can't make me drink two—that's the industry's ceiling. With relatively fixed consumption, increasing sales comes at the expense of competitors' sales. Clearly, this industry has entered a red ocean. Capital comes into the world to make money, and to make money growing. If the industry can't expand further, and only cannibalization can drive growth, then internal consolidation in the name of efficiency is inevitable—like channel flattening, vertical management by manufacturers, taking back profits that belonged to big distributors. Or simply, gradually eliminate all middlemen. ■ Betrayal Is Inevitable Beverages have one key difference from other goods: 'instant purchase' versus 'delayed purchase.' 'Instant purchase' means when you're thirsty, you buy immediately—it's impulsive. Other things can be postponed and bought via e-commerce. Beverages' nature requires widespread ground distribution to satisfy demand, making them less affected by e-commerce. Although Chinese e-commerce sells everything, it's hard to sell beverages online. Because of the 'instant purchase' nature, beverages may become the only product category that relies on ground commerce. This determines that beverage companies like Wahaha find it hard to transform in the Internet age like other companies. This industry is saturated; it can't expand like before. Sales growth is a zero-sum game at the expense of competitors' negative growth. The incremental market is almost fixed, so companies must focus on profitability—cutting unnecessary costs, especially intermediate costs. The most direct ways: first, cut the distributors who once shared hardships; second, cut the countless scattered terminals. But distributors are integrated with these fragmented terminals. Without distributors, goods can't reach these terminals, so cutting either is difficult. When ERP systems were introduced, many opposed them because machines were again ready to put many out of work. But in the struggle between man and machine, machines always win. Foxconn's robotic arms will eventually defeat countless passionate young workers. The proliferation of chain terminals also provides a platform for ERP promotion. I have truly seen the awkwardness when companies part with distributors—once brothers in arms, now going separate ways. There's no choice; middlemen are structurally unemployed in the Internet age. When it's no longer suitable, despite endless emotional ties, the parting must be cruel, much like a reluctant breakup between lovers. Times have changed; this cutting is inevitable. ■ The Struggling Beverage Industry May Boost the Vending Machine Sector Another revolutionary force in the beverage industry might be the ubiquitous vending machine. In our impression, vending machines are stupid: hard to use, often out of stock, picky about payments—utterly foolish. How can they compare with the understanding cold drink stall auntie? Yes, the earliest firearms couldn't beat swords and spears! In the past, vending machines were at most a novelty, fine for a fresh experience, but not up to the task of selling. However, this doesn't prevent vending machines from making a big impact in the next era, even changing the entire beverage industry. If manufacturers install vending machines at all terminals, they can bypass all middlemen, cutting all intermediate costs. Although not as direct as e-commerce delivering from manufacturer to consumer, for instant-purchase goods like beverages, direct distribution to the customer's eyes is already short and fast. Moreover, these vending machines can not only integrate with ERP systems but also support multiple payment methods (like mobile payment). Vending machines not only handle distribution and transactions but also data collection, greatly reducing management and operation costs. The difference is that, corresponding to the original distributor system, companies need to establish a delivery system. Of course, this delivery system can invite some original distributors to assist in management (they completely transform into movers). What is the relationship between vending machines and traditional beverage terminals? It can be a replacement: directly replacing some cold drink stalls; or a supplement: supplementing freezer sections in supermarkets and convenience stores, without affecting bulk purchases. Perhaps these supermarkets or chain stores won't disappear in the short term, but if e-commerce and even micro-commerce keep expanding, these ground businesses may become unprofitable and close. Because most goods sold in supermarkets and convenience stores can be bought via e-commerce. If these ground businesses are like a clay Buddha crossing the river—unable to save themselves—then beverages will have no place to stay. At that time, vending machines would be like buying insurance in advance, still allowing these beverages to appear before customers anytime, anywhere. ****■ Why Can't the 'Joint Distribution System' Be Applied to a Vending Machine System?** As for how to do it, it's like when Wahaha originally recruited agents; now it needs to recruit vending machine franchisees. Not only supermarkets and convenience stores can join, but also ground businesses like barbershops and clinics. They don't need to operate the vending machines; they only need to ensure their safety and prevent damage, and they can enjoy annual dividends from the manufacturer. Looking at foreign beverage terminals, vending machines basically dominate because the average cost of machines is far lower than that of people. Whether it's Wahaha, Master Kong, Nongfu Spring, or Uni-President, whoever lays out first gains the initiative. Or in the future, the ranking of these beverage giants will be determined by vending machine penetration. But in my judgment, Wahaha may be the slowest to act because its rise was built on uniting many distributors. Since they profited the most from this system, they are more likely to become dependent, having been intertwined with distributors for years. It seems very difficult for Wahaha to cut this relationship. Of course, establishing a vending machine system isn't all bad for Wahaha's 'joint distribution system.' Distributors hold more brands and categories, making it easier to have complete product lines and complementary categories, which helps attract users to the vending machine system. It's not impossible to transplant the 'joint distribution system' approach into building a vending machine system. The era of full automation is destined to come; first come, first served—it depends on your determination. 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