---
title: "How Can B2B Distributors Doing Regional Joint Distribution Achieve Business Profitability?"
description: "After nearly four years of market education from 2014 to 2017, almost all distributors of a certain scale have begun to realize the need to embrace the internet and upgrade their businesses. For regional distributors with limited individual capabilities, forming alliances and engaging in joint warehousing and distribution for urban logistics is recognized as the best transformation path. However, while the potential for joint warehousing and distribution is vast, many distributors find that the single business model leads to long financial payback periods, clear revenue ceilings, and insufficient profitability without large-scale traffic, making it feel like jumping into a fire pit. This article discusses how distributors can expand their business after implementing joint warehousing and distribution to achieve stable returns."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-12-04"
language: "en"
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# How Can B2B Distributors Doing Regional Joint Distribution Achieve Business Profitability?

> After nearly four years of market education from 2014 to 2017, almost all distributors of a certain scale have begun to realize the need to embrace the internet and upgrade their businesses. For regional distributors with limited individual capabilities, forming alliances and engaging in joint warehousing and distribution for urban logistics is recognized as the best transformation path. However, while the potential for joint warehousing and distribution is vast, many distributors find that the single business model leads to long financial payback periods, clear revenue ceilings, and insufficient profitability without large-scale traffic, making it feel like jumping into a fire pit. This article discusses how distributors can expand their business after implementing joint warehousing and distribution to achieve stable returns.

After nearly four years of market education from 2014 to 2017, almost all distributors of a certain scale have begun to realize that they must embrace the internet and upgrade their businesses.
As regional distributors, with limited individual capabilities, forming alliances and engaging in joint warehousing and distribution for urban logistics is recognized as the best transformation path. Thus, you will see that in most cities across China, urban distributors based on FMCG joint warehousing and distribution have emerged.
The potential for joint warehousing and distribution is vast, but once implemented, many problems and difficulties arise. Many distributors, after adopting joint warehousing and distribution, discover that due to the single business model, the financial payback period is too long, and the revenue ceiling is very obvious. Without large-scale traffic, profitability is insufficient, and input-output ratio is not proportional. Expanding business further is even more difficult, and profitability seems far off, as if they have jumped into a fire pit.
Of course, it is certain that the social and commercial value of joint warehousing and distribution is unquestionable. However, at the operational level, these entrepreneurs need to carefully consider how to achieve stable returns.
Today, I will discuss with distributors how to further expand business after implementing joint warehousing and distribution.
**I. First, let's talk about the problems of distributor joint warehousing and distribution:**
**1. Equity issues**
Since most distributors have limited transaction scale, to ensure sufficient baseline traffic at project startup, many consider a joint operation model where several distributors partner and jointly fund the project. I have seen many distributors in various places where the project died prematurely due to lack of unity and hidden agendas. Some barely reached initial agreements, but in terms of equity, they often check and balance each other, causing exhaustion when discussing matters.
**2. Goods are hard to enter the warehouse, and once in, joint distribution is difficult**
The first challenge distributors face in joint warehousing and distribution is customers not entering the warehouse. First, large local distributors often have their own warehouses; second, moving warehouses is costly for distributors, and if the project doesn't last long, moving again is troublesome; third, they fear data leakage and tax inspections by the industrial and commercial bureau; fourth, competitors as shareholders create suspicion.
Regardless of how goods are brought into the warehouse, entrepreneurs generally encounter the second problem, especially in northern regions involving township markets, where joint distribution leads to a series of issues.
For example, sales decline, salespeople resist (separation of people and vehicles leads to loss of most gray income), terminal service problems (such as merchandising, market competition, personalized service, return and exchange processes), brand owner opposition, and various delivery loopholes. Under multi-party pressure, it becomes extremely difficult for cargo owners to switch distribution, and many give up due to difficulties.
These problems are not unsolvable and are actually the easiest part of the business chain, not the hardest, because it's just warehousing and logistics. For distributors, the biggest issue is cost pressure, especially for beer and beverages. If third-party warehousing and logistics can truly provide services at a relatively low cost, most distributors can accept it.
**3. When joint distribution is achieved, profitability is found insufficient**
When warehousing and distribution achieve stable business traffic, many distributors consider introducing a B2B platform to help distributors with order services and take a transaction commission. At this point, you'll find that the platform is just an online phone book, and traffic doesn't increase. The reasons are varied: product prices are not suitable, distributor salespeople are already active in the market, and cargo owners' annual ordering meetings have locked in long-term orders from small shop owners.
Since matchmaking doesn't work, they try self-operated B2B, which is even more awkward because it conflicts with existing distributor delivery channels. Small brands are okay, but large distributors with stable service systems are unwilling to give goods to you, and the prices offered leave little profit. Most platforms at this stage think that as long as traffic comes up, they can afford to subsidize losses.
This seems like a dead end, making entrepreneurs who want to enter FMCG B2B through joint warehousing and distribution feel stuck, not knowing whether to proceed or not.
**II. Analysis**
The problems mentioned above are essentially due to issues in the top-level design of the business model. The initial idea of entrepreneurs is to do B2B (taking commissions or cutting transactions) after joint warehousing and distribution, then control stores (franchise or self-operated convenience stores), and finally supply chain finance. For B2B, the endgame of the business chain is fine, but if you follow this step-by-step, facing the long upgrade process of existing stock, it will drag all entrepreneurs to death.
At the business level, entrepreneurs must find an entry point and expand quickly. Joint warehousing and distribution, due to its single business model, has a long financial payback period, insufficient profitability without large-scale traffic, and input-output ratio is not proportional. Many things like warehouse receipt pledge and supply chain finance are difficult to achieve in the short term, so only through horizontal business combinations can revenue growth be achieved.
However, business model combinations contain many traps and conflicts, such as the natural conflict between third-party warehousing and logistics and transactional B2B, the category trap of transactional B2B and loose franchising, and the profit-sharing conflict between third-party warehousing and logistics and order models. These conflicts are all caused by inconsistent underlying logic in the business.
**What is the underlying logic?**
**If you do services, you cannot cut transactions; if you do transactions, you cannot do services.**
This is a bit abstract; let me explain simply: if the backend does services (third-party warehousing), the frontend cannot cut transactions (self-operated B2B); if the backend cuts transactions (self-operated B2B), the frontend cannot do services (loose franchising). Further:
1. For regional self-operated B2B, product organization capabilities are limited, making it difficult to meet the long-tail product and differentiated sales needs of loosely franchised small shops. Shenzhen Xingliyuan once conducted a survey in Shenzhen, counting 500 mom-and-pop shops, and the SKU count reached an astonishing 20,000+. Such large long-tail demand cannot be met by self-operated B2B for personalized category needs.
2. Self-operated B2B naturally conflicts with third-party warehousing and logistics. Once you cut self-operated B2B, it means the service provider cuts off the relationship between small shops and cargo owners, so cargo owners won't dare to hand over goods to the platform for distribution.
3. Matchmaking orders + third-party warehousing and logistics, taking transaction commissions, is theoretically the most feasible, but it inevitably conflicts with distributor salespeople's orders.
Some might say, I'll do a hybrid B2B, self-operated for head products and matchmaking for long-tail products. I think that's okay, but the premise is that your warehouse is not third-party warehousing but a pure B2B platform.
**So, how should distributors design their business model to effectively achieve healthy B2B development?**
The Chinese market is too large, with differences between high-tier and low-tier markets, regional differences, resource structure differences, geographical differences, and differences in entrepreneurial mindsets. It's hard for me to prescribe one model. Today, I'll only offer some basic suggestions and tentative methods for entrepreneurs to reference.
> 1. For joint warehousing and distribution, it's recommended to operate as a third party as much as possible. If distributors are shareholders, they should try not to appear in the front.
>
> 2. Regional distributors with conditions should best find a "big thigh"—a large local group enterprise interested in supply chain for joint warehousing and distribution—to be the major shareholder. This provides better image endorsement than several distributors as shareholders, with greater influence on the local business circle.
>
> 3. In business model, the front and back must be unified. Joint warehousing and distribution itself is third-party logistics service, so other business extensions should not be self-operated but also services.
>
> 4. If doing joint warehousing and distribution, you must do loose franchising and fully connect the data chain.
>
> 5. Transaction data has huge value, but it cannot be achieved through subsidies. Supply chain finance may be the best leverage.
>
> 6. For B2B platform transaction commissions, you can design tiers, waiving commissions within a certain number of transactions.
>
Here, I'll introduce a method to leverage financial tools to drive small shops to order online and force distributors to enter the warehouse:
Step 1: Establish professional warehousing and logistics, providing third-party logistics services to distributors at prices significantly lower than the local market, with greater discounts for earlier entry. After some customers enter the warehouse, start the second phase: rebranding small shops.
While rebranding, install POS systems for small shops, providing free order transaction services for shops and cargo owners on the POS machine, and help shops improve information services.
The cost of the POS machine is borne by the local bank, with the condition that the shop's transaction flow goes through that bank. After installing the POS system, shops use their transaction flow to obtain financial credit ranging from 20,000 to 100,000 yuan from the bank, allowing them to purchase goods on credit for free through the POS system.
All online orders are delivered by the warehousing and logistics company to ensure data authenticity.
When platform procurement traffic reaches a certain scale, the bank provides low-interest loans to cargo owners based on their transaction data. The larger the transaction data, the more low-interest loans they can get. To obtain low-interest loans, distributors must increase online order traffic, and they will have their salespeople encourage small shops to order online.
In this way, the entire business chain is fully connected through financial leverage.
**Profit points:**
> 1. Service commissions for warehousing and distribution provided to cargo owners;
>
> 2. Financial returns from warehouse receipt pledge for cargo owners;
>
> 3. Fees, interest, and late fees for credit provided to small shops;
>
> 4. Financial returns from transaction credit for cargo owners;
>
> 5. Transaction deductions;
>
> 6. Others;
>
**There are three key links:**
1. It must be a closed loop; all funds must be transacted within a closed transaction scenario and closed loop.
2. All data must be online; only online data is real, controllable, and monitorable, and can generate value.
3. Distributors' financial credit must be based on actual transaction flow; only real transaction flow can feed back into the offline business flow.
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