Recently, many distributors have been asking me on WeChat: 'There's a platform called XX in our area that approached us, saying they can help us sell products online. Do you think this is feasible?' The XX platform they mention is the FMCG B2B e-commerce platform that has become incredibly popular lately. Given that the views in this article are too subversive and negative, I won't name specific platforms, but this article is a warning to distributors: E-commerce is booming, but don't be overly optimistic about entering the market.

Generally speaking, the current operating model of domestic FMCG B2B e-commerce platforms mostly involves signing supply agreements with local distributors, then relying on an app and online mall to entice terminals to order through promotions/rebates. Platform operators charge distributors very low logistics fees and adopt centralized delivery to help distributors deliver goods to terminals.

The main selling points of these platforms are: Based on existing distributors and integrating with the internet, the benefits they bring to distributors include aligning with the new trend of the internet wave, improving the operational efficiency of the entire channel chain, and using the internet to help distributors optimize operating costs and reduce expenses.**

So where are the advantages of these B2B platforms? They aim to save distributors' logistics costs through centralized delivery, and through their app's coverage of terminal customers, increase product shelf presence at terminals. The question is: are these feasible?

Based on these platforms' viewpoints, if you look back at their operational logic, you'll find that the logic itself is not wrong, but does having no logical errors mean the path is viable?

Let's analyze: From the current perspective, in markets where these platforms are more developed, they mostly only solve urban logistics distribution; most platforms can't even handle township logistics... But distributors typically cover both urban and township areas. In third- and fourth-tier markets and below, urban areas usually use electric tricycles for delivery, and daily logistics costs are already so low they're negligible...

These small FMCG B2B platforms, in their early stages, need big companies' big single products (hero SKUs) to help expand terminal installation rates. But big single products often have strong network coverage and super delivery capabilities, so they don't need others to help with delivery. Moreover, big single products are price-sensitive, making it hard for platforms to get favorable prices, let alone special deals on hero SKUs.

More importantly, distributors' own van sales can directly perform a series of terminal merchandising tasks like lifting, cutting, pasting, moving, arranging, and stuffing products at the terminal. This is why companies require distributors to focus on van sales. However, the third-party logistics of FMCG B2B platforms can only use centralized delivery to reduce logistics costs, but other terminal merchandising functions cannot be realized. Orders taken by sales reps on the day are delivered by logistics the next day, but when the rep returns the following week, they often find the products still in the terminal store's warehouse, while shelves, displays, refrigerators, and freezers are empty. If the rep wants to place another order, they need to restock the shelves first, and then wait until the next visit to order again...

To change this situation, distributors would need to educate sales reps to persuade terminal stores to stock up in advance, using 1.5x ordering, ensuring that every visit has stock and no flavor out-of-stocks... But in reality, for most distributors, when they implement centralized delivery themselves, the contradiction between delivery and order fulfillment efficiency is a huge problem. Even most distributors can't solve this, leading to decreased per-store output. I don't believe that a problem that can't be solved within a company with smooth communication can be smoothly solved when split across two companies.

Credit sales, payment terms, returns, display fee rebates, displays, new product listings, and many other tasks that need to be handled simultaneously with product arrival are delayed. This means distributors cannot bet everything on FMCG B2B platforms; they can only use them as a supplement for channels they can't cover.

For fast-moving products, distributors don't need supplements, but for small brands, second- and third-tier products, and generic products that don't sell well, the concept of promotion and opportunistic selling is more important than the product's own sell-through. Such products need immediate transactions with the product present, and platforms in their early stages are not very willing to bear logistics for such products. This situation creates an awkward status quo: big brands don't favor them, and small brands are unwilling to sell through them...

Additionally, these platforms' delivery capacity faces issues: if cargo flow suddenly increases, they can't handle it; if it's small, capacity is wasted. The scale trap plagues these small B platforms in their early stages. To ensure timeliness, terminal installation, product onboarding... there are endless places to burn money. But facing competition, if they develop slowly, other platforms will catch up; if they develop fast, market education costs are too high and they can't afford to burn money...

Distributors, do you think these small FMCG B2B platforms are viable?

I'll dare to make a guess: Most of the current small FMCG B2B platforms in China will likely die on the road to Series B funding.

This is from an operational perspective. In the future, do they have the strength to negotiate with companies to operate their own products? The answer is: NO! Because their functions are incomplete; they lack functions other than logistics. So, if small FMCG B2B platforms won't last long, can large platforms like Alibaba and JD.com eliminate distributors?

Let's first analyze the current state of China's FMCG market. The most typical issue is that the market's product richness has reached a state of blooming flowers, with competition in various product categories being extremely fierce. The market is no longer a seller's market. Companies' marketing management is not just about how to sell products, but also about making efforts to get consumers to buy, focusing on consumer purchase actions.

In this competitive environment, companies have launched practical theoretical guidelines based on their product characteristics and positioning, such as Coca-Cola's 101, Master Kong's "channel intensive cultivation," Wahaha's "joint sales system," and Jinmailang's "four-in-one." Among these theories, from the perspective of operational results, the status of distributors has not declined; in fact, it has slightly improved in the past year or two. Because countless market practices have proven that they play an irreplaceable role in the entire product circulation process. This role mainly includes several aspects: capital pool, product logistics distribution, new product promotion, new outlet development, SKU expansion, near-expiry/expired product handling, terminal merchandising, terminal relationship maintenance, and customer complaint handling. The main purpose of these functions is to ensure that consumers can buy products anywhere, at any time, with confidence and satisfaction.

JD and Alibaba are unlikely to do these dirty and tiring ground tasks, and they require a large amount of human and physical resources. This means if they did it, they would need a massive number of personnel. Could companies hire their own? It's possible, but unlikely, as labor costs are one of the biggest costs for companies, and management complexity is not easy to explain in a few words. Even if companies initially cooperate with JD and Alibaba, there are only two possibilities: one is small company products with extremely strong product power and word-of-mouth effects; the other is large companies launching new products that fit new channel chains and new marketing models for trial. As for existing products, companies won't let go, and JD and Alibaba won't touch them.

Conclusion:

1. Under the current product characteristics, corporate management systems, and market competition environment, the functions of distributors are difficult to replace by other organizations.

2. Social division of labor is inevitable. Even without these B2B platforms, distributors must begin to evolve toward social division of labor themselves, but the evolution is determined by the distributors' own development trends.

3. Companies will not easily touch their existing stock (products, channels, prices, distributors). They cannot bear the risks of change.

4. Because existing products are not suitable for the new marketing system under the new model, large platforms like JD and Alibaba will not touch companies' existing products and channel interests. They will work with companies to launch new products that fit new playstyles and new marketing.

Distributors won't die in the short term; they will evolve. But what they evolve into? I don't know either, but it's definitely not what these small FMCG B2B platforms advocate.

-END-

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