Click image for details Current Status of China's FMCG B2B Channel digitalization in the FMCG industry is a basic consensus, and here we must mention B2B. Since its rise in China in 2013, B2B has been around for six years. From obscurity to gradual market acceptance, the process can be described as brutal. As of now, New Distribution's statistics show that there are still 239 B2B companies in China, but most are service providers in the industrial chain, with fewer than 50 pure B2B companies. The intensity of industry turnover is evident. In terms of trends, market education is basically complete. According to New Distribution's market research data, although the offline penetration rate of B2B in China is still less than 10%, in certain markets or regions, B2B coverage and penetration have reached very high levels. In some markets, B2B coverage is as high as 90%, and penetration exceeds 50%. At the upstream brand level, almost all brands in China have accepted the concept of channel digitalization, recognized the necessity and value of B2B, and have begun strategic cooperation with various platforms in different forms. Although some brands cannot fully cooperate due to their own systems and existing stock, their attitude towards B2B is very clear. However, we must clearly recognize that B2B platform sales, especially those directly generated with brands, still account for a very low proportion of brand sales. Most brand-B2B cooperation is purely strategic, sacrificing some market coverage and conflicting interests. If there are major conflicts of interest or poor brand management, the priority within the brand will still be existing internal channel cooperation. Image source: Bain & Company B2B losses are due to intense competition in the FMCG industry, which has compressed channel profits; on the other hand, B2B platforms have unclear strategic directions and are still in the trial-and-error stage, with large upfront investments becoming sunk costs. Additionally, operational deficiencies mean that strategic losses in the B2B industry may continue for some time. Image source: Bain & Company After years of industry development, platforms have gradually realized that B2B cannot just focus on a single link without empowering the entire supply chain. Therefore, most platforms tend to adopt a supply chain + retail model to connect the entire chain. Although the strategy is clear, the high complexity, difficulty, and long adjustment cycle of the industry have made all platforms realize that there is still a long way to go for B2B success. U.S. Supply Chain Development Path I. Characteristics of the U.S. Wholesale Industry Therefore, the author specifically studied some U.S. supply chain companies, hoping to find experiences that can be borrowed for domestic B2B. A research report released by the Commercial Office of the Ministry of Commerce in the U.S. points out that the U.S. wholesale industry has the following characteristics: 1. Since the 1990s, the U.S. wholesale industry has entered a stable development period. Due to the developed department stores, chain stores, supermarket systems, and the "once-a-week" one-stop shopping habit, there have been few new wholesale markets or companies opening in recent years. 2. The boundaries between production, wholesale, and retail are blurred, with strong mutual penetration. Chain operations are common among large retail giants, where retailers can directly place orders with manufacturers, who deliver directly. In recent years, the By-Pass system for wholesale business opened by large U.S. retailers has become a new trend. Many manufacturers adopt customer-customized production, specialty store sales, and national or global warranty services, making direct contact between consumers and manufacturers closer. 3. The rise of e-commerce has weakened the function of wholesalers. The internet has made wholesalers' advantages in information, capital, and scale less obvious, allowing producers and consumers to establish direct connections, shortening distribution paths and lowering product prices. Third-party trading platforms, courier companies, electronic payment for remote transactions, and ERP systems in chain enterprises have also replaced traditional wholesaler functions. 4. In the food supply chain, wholesale markets still play a very important role, completing about $240 billion in food wholesale annually. Especially through contract farming agreements, wholesalers establish direct connections between scattered farmers and supermarkets. It is precisely based on these characteristics of the U.S. wholesale industry that it is difficult for a large number of large supply chain companies to emerge in the U.S. market. Relevant data shows that there are currently no more than 20 mainstream supply chain companies in the U.S., and the top five supply chain companies had a combined GMV of nearly $160 billion in 2016. II. Introduction to the Top Five U.S. Supply Chain Companies Sysco Sysco is the world's largest foodservice distributor, founded in 1969, with over 50,000 employees, serving 425,000 customers in the U.S., with 2018 GMV of $58.7 billion. In addition to the U.S., Sysco's marketing and logistics network covers the U.S., Canada, the UK, France, etc., providing food supply services to over 600,000 customers (including restaurants, hospitals, and schools) in more than 90 countries. In terms of product categories, Sysco's distribution products can be divided into more than 10 categories, including fresh/frozen meat, seafood, poultry, vegetables, fruits, snacks, and eco-friendly tableware, kitchen supplies, etc. According to fiscal 2018 data, the largest category is fresh/frozen meat, but it accounts for no more than 20%; categories with more than 10% include canned and dry goods (17%), frozen fruits, vegetables, and bread (15%), poultry (10%), and dairy products (10%). Sysco's rapid development is inseparable from warehouse and logistics construction, with a strong logistics distribution network ensuring timely and high-quality product delivery. As of the end of fiscal 2018, Sysco had 332 logistics centers and 14,000 logistics vehicles. Sysco adopts an asset-heavy operation in logistics, with 78% of distribution center area and 88% of logistics vehicles owned by the company. Investment and M&A are Sysco's inherent business genes. As the world's largest food supplier, Sysco's development history is a history of corporate mergers. In 1969, founder John Baugh persuaded eight other small food distributors to merge with John's Zero Foods to form Sysco, aiming to distribute any food within its coverage area. In 1970, Sysco listed on the NYSE and made its first acquisition that year. In 1976, the rapidly growing U.S. economy entered a recessionary cycle. To cope, Sysco acquired Mid-Central Fish and Frozen Foods Inc, which distributed frozen meat, poultry, seafood, fruits, vegetables, canned and dried products, and paper. This acquisition added many agricultural product categories, especially fresh categories not affected by the cycle. According to media statistics, Sysco completed 43 acquisitions before 1990. By 2012, Sysco had acquired a total of 157 companies. Through acquisitions, Sysco gradually consolidated its dominance in food supply. However, Sysco is not a company that only expands recklessly without ensuring positive operations. According to industry data, Sysco's return on invested capital (ROIC) in 2017 was on average 5.6% higher than its competitors. McLane McLane, founded in 1894 and headquartered in Cameron, Texas, is one of the largest supply chain service companies in the U.S., providing comprehensive supply chain services such as groceries, food, beverages, etc., to convenience stores, hypermarkets, chain pharmacies, and chain restaurants. Representative clients include Walmart, 7-Eleven, and Yum! Brands. It employs 22,500 people, serves 47,000 convenience stores in 50 states, and had revenue of $48.2 billion in 2015. McLane's Main Clients Data source: Official website McLane is a wholly-owned subsidiary of Berkshire Hathaway (owned by Warren Buffett) and employs over 20,000 people. In fiscal 2016, McLane's revenue was $48.075 billion, pre-tax profit was $431 million, and pre-tax profit margin was 0.9%. McLane has invested over $1 billion in infrastructure and supporting facilities, with 22 distribution centers nationwide, 1,600 modern trucks, and 2,700 multi-temperature trailers to ensure accurate and timely delivery and product quality and safety. McLane maintains deep cooperation with suppliers of thousands of products. In several categories, McLane is one of the world's largest buyers, such as tobacco, candy, and snacks. McLane's business model has three major characteristics:
1. Huge revenue scale;
2. Thin profit margins, obvious service characteristics, but low risk;
3. Reliance on several large customers C&S Wholesale C&S Wholesale, founded in 1918, is the tenth largest private company in the U.S., with 17,000 employees, providing supply chain services to over 6,500 chain stores, with revenue of about $30 billion, and is one of the largest supply chain service providers in the U.S. C&S owns the Piggly Wiggly grocery brand (independent franchise stores) and the Best Yet private label. From a revenue perspective, C&S is currently the largest wholesale grocery distributor in the U.S. Initially, C&S Wholesale was just a three-story small grocery distribution center. In the 1940s, with the popularity of supermarkets, C&S made several improvements to its distribution process, including a warehouse "roller system" and making delivery drivers also serve as salespeople, halving order delivery costs. In 1958, C&S began providing supply chain services to BIG D supermarkets, marking the official start of rapid growth. In the 1970s, C&S expanded its warehouse area to 28,000 square meters. With the expansion of warehouse facilities, C&S officially began serving several large supermarket chains, including A&P. Starting in 2013, C&S established a partnership with BI-LO (a well-known U.S. supermarket chain) to provide warehousing, distribution, and procurement services for all 480 Winn-Dixie stores. As a result, C&S began operating six existing Winn-Dixie distribution centers in the southeastern U.S. In September 2014, C&S signed an asset purchase agreement with Associated Wholesalers Inc (AWI) (a retail enterprise service provider offering food supply services) to acquire all its assets. Core-Mark Core-Mark is one of the largest marketers of fresh and broad supply solutions in the North American convenience retail industry, serving traditional convenience retailers, grocery stores, drug, liquor, and specialty stores, and other stores carrying convenience products. Core-Mark has 5,500 employees and approximately 30,000 customers in the U.S. and Canada. To date, Core-Mark has established 30 distribution centers, two of which operate as third-party logistics providers. Core-Mark was founded in 1888 by the Glaser brothers in San Francisco. After multiple generations of ownership, the Glaser family sold Core-Mark to David Gillespie in 1974, and it was listed on the Toronto Stock Exchange in 1984. Later, Core-Mark changed hands several times and was re-listed on the NASDAQ in 2005, where it remains today. SuperValu SuperValu is an American grocery wholesaler and retailer, founded in 1926 in Minnesota. In fiscal 2017, revenue was $12.48 billion, with 29,000 employees. SuperValu's development history is also full of investment and M&A. In 1963, SuperValu acquired Bursley & Company, a food marketing company in Fort Wayne, Indiana, whose history dates back to the early 19th century.
In 1971, discount chain ShopKo was acquired by SuperValu.
In 1975, SuperValu acquired Hornbacher's (a U.S. supermarket chain).
In 1980, SuperValu acquired Cub Foods in Minnesota, which operated five stores in the Twin Cities area. By 2011, Cub operated over 73 stores in Minnesota and Illinois.
In the early 1990s, SuperValu began acquiring several chains.
In 2003, SuperValu acquired the former Midwest Fleming company's business from C&S Wholesale Grocers, including the Sentry Foods and Festival Foods brands.
On January 23, 2006, SuperValu announced that it, along with CVS Corporation and a group of investors led by Cerberus Group, agreed to acquire Albertsons (a U.S. retail company, the second-largest supermarket chain in North America, with 2,778 stores) for $9.7 billion.
Development Direction of China's FMCG B2B By studying these representative supply chain companies, the author found some characteristics:
Regional focus: Limit distribution radius, emphasize deep cultivation of a region;
Leveraged buyouts: The growth history is a history of mergers and integration;
Mixed operations: Wholesale and retail, and integrating small and medium-sized retail through wholesale;
Full-category operations: Food, beverages, tobacco, etc., all categories;
Diversified business: In addition to wholesale, also brand building, store design, advertising consulting, financial and budget consulting, efficiency improvement, and financial services. Undoubtedly, the development path of U.S. supply chain enterprises has important reference significance for the development of China's FMCG B2B enterprises. Combined with the history of U.S. supply chain development, for China's B2B enterprises to be profitable, they must achieve the following: 1. Regional deep cultivation
2. Gradual cross-regional expansion and M&A
3. Upward attempts to become first- or second-level agents
4. Downward integration with convenience stores in various forms
5. Leveraging the location advantages of small stores, through community group buying, gradually connect with consumers A positive signal is that domestic FMCG B2B is also moving in these directions. Investment and M&A, represented by Yijiupi's acquisition of Huijinhuo, have begun to rise. Chain retail enterprises such as RT-Mart and Every Day have entered B2B, and B2B has also begun to develop chain retail business. B2B2C has become the consensus of the entire industry... Undoubtedly, the current domestic B2B business model has gradually approached or converged with the existing large supply chain company models in the U.S. This also shows that domestic B2B has completed its own model trial-and-error stage. The next stage may focus more on its own profitability and, through intensive coverage of local markets, achieve industrial chain connectivity, preparing for the next stage of industrial mergers and integration. But the objective fact is that the high dispersion upstream determines that China's FMCG distribution is difficult to concentrate in one or a few supply chain enterprises. Relying on traditional distribution methods for product distribution remains the mainstream of FMCG channels. Although upstream production relations have begun to shift from small-scale production to large-scale, intensive production methods, and national B2B platforms represented by JD New Channel and Alibaba Retail Link have emerged, compared with the U.S. large supply chain companies that have developed over nearly a century or even centuries, China's FMCG B2B, which has only appeared for over a decade, still has a long way to go.