Click the image above for details Recently, while chatting with a distributor friend, he asked me, "How is B2B doing now? It feels like there's no buzz anymore." I was puzzled why he would ask that. After thinking it over, it does seem that the FMCG B2B industry is not as hot as it was in 2017-2019. But is FMCG B2B really failing? No! It's just that the industry has entered a deep operational phase. As a B2B rather than B2C business, it doesn't need that much hype and noise. In the early stage, FMCG B2B was in a development phase, needing support from all sides—capital, brand partnerships, and distributor participation—so naturally, there was a lot of buzz. But after the development phase, entering the market consolidation phase, it returns to the basic function of doing business. Lowering your head, bending down, and working hard is the priority. But this is not what practitioners perceive; they think FMCG B2B is failing! Nor should we judge its performance from a single regional market. If we look at it from a higher dimension or from an industry-wide perspective, we might be more objective and rational. -01- FMCG B2B & Market Stage According to the latest data, the overall FMCG B2B industry is accelerating consolidation, with about 80 platforms closed or transformed in 2019. Combined with past statistics from New Distribution, there are currently 133 FMCG B2B platforms. Platforms represented by Alibaba Retail Link, JD New Channel, and Yijiupi are forming a three-way split, with the top-tier structure emerging. In terms of specific operations, current B2B platforms are no longer focusing on regional expansion, even intentionally reducing it, and instead shifting to category and store operations, pursuing operational efficiency and turning losses into profits. In category and store operations, the core is three points: First, "traffic generation" to increase small store usage; second, "conversion" to increase average order value per store; third, "repurchase" to increase order frequency from stores. Of course, in terms of latest moves, a few days ago, Alibaba Retail Link announced its official entry into community group buying. The important reason behind this is to drive foot traffic to stores by extending community group buying business, creating greater incremental growth for stores, which aligns with the logic of deep store operations. On the other hand, JD New Channel announced in December 2019 that it would lay out "six unified" stores in multiple scenarios in 2020. Alibaba Retail Link went the community group buying route, while JD New Channel went the "six unified stores" route. Whether these will ultimately bring more incremental growth to stores remains unknown, but it's worth watching. -02- FMCG B2B & Brand Cooperation 1. Increased willingness to cooperate, but limited business share FMCG B2B started in 2013, and now it's been seven years of ups and downs. Although it directly conflicts with traditional distribution channels, overall, the number of brand owners cooperating with FMCG B2B has increased year by year. Currently, 80% of brand owners have cooperated with B2B platforms. Despite the twists and turns, it's necessary to try. Facing new things, we shouldn't resist; regardless of whether cooperation goes smoothly, trying is essential. Even if the final result is unsatisfactory, if you don't enter the game, you'll never know the outcome. After trying, even if you decide to exit, it might not be a bad thing. From communication with brand owners, currently, the total B2B business volume accounts for a very limited share of brand owners' overall sales. Nearly half of brand owners say it's only 1%-3%. Convenience foods, water and beverages, and leisure snacks are the main business categories. Although it has helped brand owners achieve distribution and sales breakthroughs in weak markets, price management and the data empowerment that platforms have always promoted remain headaches in brand-B2B cooperation. Price chaos and cross-channel dumping haven't stopped; the actual value brought by transaction data is also very limited. 2. Setting up independent departments, self-built B2B shows polarization The latest survey data shows that about 67% of brand owners have established dedicated B2B departments, led by new retail or sales departments. In terms of staffing, more than half have fewer than 5 people. Relatively speaking, the team size is limited, which is also related to the business share. Although the team is small, there's a lot to do. Besides daily work, the biggest challenge for B2B teams is internal organizational conflict and lack of support. Obviously, this directly conflicts with offline channel business interests. Not only that, before cooperation, senior brand executives and platform executives talk about strategic cooperation and mutual empowerment, with high expectations. But when the B2B department actually implements, the results are less than satisfactory, contrary to expectations. To prevent platforms from growing too big and imposing various surcharges later, currently 25% of brand owners have built their own B2B platforms or self-service ordering apps. Regarding self-built B2B systems, brand owners' views are polarized. 38.2% are optimistic, believing that informatization is the trend and can effectively supplement channels; and it can convert private traffic and integrate omni-channel resources; 43.6% are pessimistic, believing that self-built systems are huge, costly, and inefficient. Brand owners have single product lines, which cannot stimulate store owners' initiative to use their self-ordering systems. Limited overall brand traffic can trigger intense conflicts with traditional channels. New Distribution believes that whether or not to self-build B2B, and whether cooperation with B2B platforms is smooth, channel digitalization for brand owners is inevitable. Currently, it's an exploration period with no standard path, but the significance and value behind it are already clear. -03- FMCG B2B & Distributors 1. Both conflict and cooperation, profit reduction is key During the survey, it was found that 82% of distributors believe B2B platforms have impacted price systems and lowered profits from supplying small stores. Of course, 52% of distributors are cooperating with B2B platforms, mainly supplying goods to the platforms. The emergence of B2B has made distributors alert and anxious. In the future, the local market will no longer be just their own; small stores have more and more sources of goods, and prices are increasingly transparent. In this process, distributors have also begun to try diversified businesses, such as proactively engaging in new retail O2O, community group buying, and online B2C business, seeking more revenue sources to ensure sustained sales growth. 2. Changing amid anxiety, actively transforming into digital distribution An app that allows small stores to order is triggering more and more excellent distributors to realize that besides cooperation, they need to upgrade their own distribution business. The way to upgrade is to introduce digital tools to improve business efficiency. In the past, a distributor handling three or four brands, or seven or eight brands, was the mainstream and the limit. More than that was unmanageable and energy-intensive. But in recent years, with the proliferation of internet tools, large-scale distribution through apps has made it possible to distribute hundreds or thousands of SKUs. Not constrained by B2B, traditional distributors are beginning to seek transformation, becoming operators of a certain category, becoming suppliers of all categories, and many other ways. Distributors rely on geographical advantages and warehousing and distribution advantages to actively transform. We can also see some excellent distributors who have become local B2B platforms through internal transformation, and there are quite a few. -04- FMCG B2B & Small Store Cooperation 1. Third-largest procurement channel, habits formed Currently, FMCG B2B platforms have become the third-largest procurement channel for small stores, but due to demands for service and delivery speed, they are still an effective supplement for one-stop procurement. It's worth noting that the further down the market, the more small stores value quality products and services; small stores in first- and second-tier markets value convenience more. But the premise is that price advantage is core. In first-tier cities, the B2B usage rate among small stores has reached over 52.6%. The awareness or habit of ordering through online apps can be said to be basically formed. 2. First-tier prefers beverages, fourth-tier prefers leisure snacks Looking at the overall surveyed small stores, the preferred categories for B2B ordering are beverages, leisure snacks, convenience foods, and water drinks. But by city tier, first-tier cities prefer beverages, while fourth-tier and below prefer leisure snacks. It's not hard to understand: distributors in fourth-tier cities have relatively limited and low-frequency distribution of leisure snacks, unable to achieve effective scale deep distribution. But on the platform, the leisure snack category is diverse, offering small stores a variety of choices. This is also reflected in daily necessities and personal care products. Regarding the latest development trends in the FMCG B2B industry and how to align with brand owners' channel digitalization strategies, New Distribution has invited top domestic B2B platform founders, executives, and brand executives to discuss how FMCG B2B and digital technology can empower the industry and become the digital new infrastructure for FMCG manufacturers at the 2020 (3rd) China FMCG Conference from August 24 to August 26.