Recently, while conducting market research for an FMCG brand, I had in-depth exchanges with regional managers and distributors about the current market situation. A notable contradiction emerged: brands want distributors to stock more, expand outlets, and boost sell-through, but distributors' cooperation is often lacking. The reason is that distributors typically represent multiple brands, and during peak sales seasons, when all manufacturers are pushing for sales, distributors face capital constraints and cannot invest all their funds in one brand. This is especially true for county- and township-level distributors, who know they should stock up and expand during peak seasons but struggle with funding. On one hand, they cannot obtain bank credit; on the other, they do not meet the qualifications for manufacturer loan resources. For brands, to quickly capture market share, they must address supply chain funding issues. Against this backdrop, digital supply chain finance is becoming a key focus for brands. On March 29, the 2023 Digital Supply Chain Finance Brand Summit, hosted by MYbank, was held in Hangzhou. At the consumer goods sub-forum co-organized by New Distribution, industry experts and brand representatives engaged in in-depth discussions on cooperation and innovation between consumer brands and the digital supply chain finance industry, aiming to promote the sustainable development of supply chain finance in the consumer goods sector.
Challenges FMCG Companies Face When Capturing Market Share
The current FMCG industry has become a relatively stable stock market. Consumer demand for FMCG products is stabilizing, and market growth is slowing. For brands, the core is to capture incremental growth within the existing market. In the digital economy era, incremental growth primarily comes from omnichannel expansion and refined operations. Whoever can quickly establish channel advantages will capture more market share. However, building channel advantages inevitably brings challenges, one of which is solving supply chain funding issues. Business growth essentially stems from increased market share across channels. For FMCG brands, offline channels are the foundation of their business and remain a top priority. The backbone of the offline market is distributors. As key hubs connecting upstream and downstream supply chains in offline channels, distributors are indispensable for FMCG brands to capture market share. Yet, many FMCG brands encounter problems when cooperating with distributors, especially regarding cash flow, which prevents distributors from aligning with brand market rhythms at critical moments. Key issues include:
1) Peak Season Sales Push, Insufficient Funds. In the FMCG industry, during peak sales seasons, all brands focus on market share competition. For example, in July and August, the beverage sales peak, beverage manufacturers compete for freezer display positions. However, distributors often represent multiple brands, and during this period, their funds are limited, so the promotional and marketing resources each brand receives are inevitably constrained. Distributors face a tough choice: either allocate investments evenly across all brands, which may result in no brand receiving sufficient investment and missing market opportunities, or concentrate most investment on a few major brands, neglecting others, which could lead to declining sales share. For brands, this uncertain investment approach can easily lead to missed market opportunities and ceding market share to competitors.
2) Slow Progress in Lower-Tier Market Expansion. In the current fiercely competitive market, many traditional FMCG brands find that as high-end market share stabilizes, achieving greater growth becomes increasingly difficult. Therefore, expanding into lower-tier markets has become an important avenue for incremental growth. However, expanding into lower-tier markets is not easy; it requires building broader channel networks, investing more manpower and resources in sales and promotion, all of which demand substantial funding. Distributors in lower-tier markets are often small-scale and unable to provide sufficient financial support, slowing down brand expansion in these areas.
3) New Product Promotion, High Costs, Distributors Overwhelmed. In the FMCG industry, mainstream bestsellers typically have low profit margins, so distributors need to promote new products to improve profitability. However, distributing and selling new products requires significant capital investment. For distributors, the financial pressure is immense. Especially in the early stages of new product promotion, sales may not yet reach expected levels, leading to funding shortfalls. If sell-through issues are not resolved and funds are tied up, a vicious cycle ensues.
How to Solve Supply Chain Funding Issues in the FMCG Industry
The issues mentioned above are essentially funding problems. Both brands and distributors find this troubling. On one hand, it leads to poor cooperation and potential rifts in partnerships; on the other, market capture lags behind competitors, allowing markets to be eroded. Returning to the core issue, how can FMCG supply chain funding problems be solved? Broadly, there are two approaches: traditional bank loan systems and digital supply chain finance credit. However, the FMCG industry's characteristics differ significantly from other industries, making it difficult for traditional bank loan systems to meet the funding needs of the FMCG supply chain's upstream and downstream.
1) Concentrated Financing Needs, High Flexibility Requirements. FMCG sales often exhibit seasonal fluctuations, such as demand peaks during holidays and promotional events, and relatively lower demand during non-promotional periods. This demand volatility requires distributors to purchase or sell large quantities in short periods, creating funding pressure. Additionally, distributors' business transactions have a certain periodicity, such as weekly, monthly, or quarterly order and inventory needs. This periodicity also leads to concentrated funding needs that are difficult to predict. This makes distributors prefer short-term, flexible, and quick financing methods, while traditional bank processes are cumbersome and can easily cause them to miss market opportunities.
2) Small Enterprise Scale, Difficult Bank Loan Approval. Most FMCG distributors are small and micro enterprises with limited scale and insufficient collateral, meaning they often lack the collateral or credit history to obtain larger-scale financing. Banks and other traditional financing institutions are relatively conservative and may avoid providing financing to these enterprises due to risk considerations.
3) Poor Asset Quality, High Market Risk. FMCG distributors need to maintain inventory to meet customer demand, but excess inventory cannot be quickly liquidated. Additionally, FMCG products have relatively short lifecycles and are time-sensitive; staying on the market too long can lead to product depreciation, affecting distributors' asset quality. Moreover, due to diverse consumer demands and preferences, the FMCG market is highly competitive with significant price fluctuations, increasing market risk. These factors affect banks' approval of loan applications.
Given this market environment, FMCG manufacturers need a supply chain finance tool that better suits their needs. Currently, digital supply chain finance plays this role and is becoming increasingly important in the FMCG supply chain finance sector. Relevant data corroborates this. According to data disclosed at the summit, MYbank, a leading digital supply chain finance company, has integrated its supply chain finance solution, the "Dayan System," with over 1,000 brands, covering more than 20 industries. In the FMCG sector, leading brands such as Lee Kum Kee and Hsu Fu Chi have already integrated.
For brands, matching with digital supply chain finance services is gradually becoming a booster for brand development.
Digital Supply Chain Finance: Driving High-Quality Growth for FMCG Companies
Seek profits from the supply chain and growth from refined management. For brands, the supply chain has shifted from a cost center to a value center, and digital supply chain finance has become a vital support for FMCG enterprise development. Traditional FMCG supply chains are often complex, involving multiple stages such as suppliers, manufacturers, distributors, and retailers. To improve efficiency, efficient management of fund flows and operational processes among these stages is essential. Digital financial tools play a crucial role in solving these challenges.
First, Aligning with Brand Operational Patterns to Boost Peak Season Sales, Making Peak Seasons Even Stronger. During brand sales peaks, joint operations can solve distributors' funding issues and drive sales growth. For example, December is the peak season for condiment sales. During the Year of the Rabbit Spring Festival, Lee Kum Kee partnered with MYbank for joint interest subsidies, providing distributors with two months of interest-free loans. This enabled many distributors that traditional supply chain finance could not cover to access funds, and during the Spring Festival, procurement loans accounted for 25% of total sales. With sufficient cash flow, distributors were more assured in ordering. This investment approach has become an important means for Lee Kum Kee to boost channel sales during peak seasons.
Second, High Loan Accessibility for Small and Micro Enterprises, Enabling Small Distributors and Even Terminal Stores Downstream of Distributors to Access Financial Services. Especially for distributors in townships, due to qualification issues and bank procedures, obtaining loans from banks is difficult, with very low approval rates. Digital supply chain finance tools, leveraging digital risk control capabilities, can significantly improve loan accessibility for small and micro enterprises. For instance, with MYbank's Dayan System, the average loan accessibility rate for downstream distributors of partner brands reaches 80%.
Third, Flexible Borrowing, Unfazed by Seasonal and Cyclical Fluctuations in the FMCG Industry, with Fast Disbursement and Settlement. Digital supply chain finance allows small and micro enterprises to access financial services without visiting physical branches, providing collateral, or requiring brand enterprise guarantees. With MYbank's Dayan System, services are available via Alipay or the MYbank app, with the entire process achieving 3-minute application, 1-second loan disbursement, and 0 manual intervention. For FMCG manufacturers, digital financial tools can promote sales growth, reduce costs, and enhance competitiveness and profitability.