Click on the image for details. Recently, the author visited several county-level distributors in East China. During the exchanges, it was found that many distributors see internet giants using diverse products, flexible promotions, and one-stop procurement to compete for business in county towns, delivering a dimensionality reduction attack on already fragile relationships. In particular, some brands' tiered pricing strategies allow low-priced goods from higher-tier markets to flow into lower-tier markets via B2B, causing many distributors to become very anxious. They feel they must transform to e-commerce, fearing that if they don't, they will eventually be eliminated.

However, during actual market visits, it was discovered that in county-level markets, e-commerce is not well developed, and online shopping penetration is not as high as in first- and second-tier cities. This leaves distributors caught between high-tier market competition and low-tier market demand, making their situation uncomfortable.

Although distributors are working hard, they haven't reached the point of being unable to continue. Internet giants have brought business to their doorstep, but how long this livelihood can last is uncertain. While the volume on internet platforms is not large, many worry whether giants will replace them, whether small shops will eventually source all products from platforms, and whether they will be completely marginalized. Facing the erosion by internet companies, should they transform to e-commerce, and how? Is it an opportunity or a matter of survival?

The author believes that in the consumer goods industry, the role of middlemen will not disappear in the future, but whether distributors will disappear is uncertain. Many functions of distributors are indeed being replaced by e-commerce platforms with higher efficiency, larger scale, and lower costs.

Although this is the trend, from the current stage of industry development, B2B is generally penetrating from high-tier to low-tier markets, and the speed is not so fast that distributors will be unable to survive within a year or two.

So, should county-level distributors transform to e-commerce, engage in B2B, and do unified warehousing and distribution? The author thinks that before county-level distributors engage in B2B e-commerce, they need to have several clear understandings:

First, the room for efficiency improvement in county-level markets is limited. From a logistics perspective, warehousing is a pain point in high-tier markets, while distribution is a pain point in low-tier markets. County-level markets are not suitable for unified warehousing and distribution. This is not to say that unified warehousing and distribution cannot reduce costs; the core reason is that commercial land prices in county-level markets are very low, with almost all warehouse rents not exceeding 0.2-0.3 yuan per square meter per day. The cost reduction from consolidating warehouses may not be as good as the convenience of one's own warehouse.

Moreover, in markets below T5 level like county towns, almost all first-line brand distributors use their own vehicles for distribution. Terminal services are particularly good because if they don't do it, competitors will take over.

Especially in northern county-level markets, due to weather conditions, most distribution to townships is done by vehicle sales, and with the separation of people and vehicles, terminal restocking cannot be resolved. This leads to a weak motivation for distributors to switch from vehicle sales to order-taking. And the switch is relatively difficult.

Therefore, uniting distributors to enter warehouses for unified distribution may not be a good business in county-level markets.

Second, infrastructure in county-level markets is insufficient. When visiting townships in East China, the author tried to use WeChat or Alipay to buy a few bottles of drinks and found that in the townships visited, except for larger supermarkets along the main street, the vast majority of small shops did not support WeChat or Alipay payments. Most shop owners also did not have the habit of making large online payments.

Entrepreneurs who want these backward township owners to order online may take a long time and incur high costs.

Some people plan to do it through chain franchising. However, chain franchising also faces issues of population density and consumption power. Even in top 100 counties, the expansion space for chain stores in county-level markets is limited, making it difficult to open stores densely.

Third, the market capacity in county-level markets is insufficient. From a business organization perspective, there are few large distributors in county-level markets. In a county with a population of one million, the annual transaction scale of a single distributor reaching 30 million yuan is basically the ceiling. Most distributors have transaction scales below 10 million yuan.

In terms of the number of stores, it is relatively small. As the saying goes, a pond can only raise small fish. The market capacity is too small; if you really start, it might not even cover the startup cost of a B2B platform operation.

Fourth, county-level markets lack professional operation talents. Currently, the B2B industry is extremely short of professional operation talents, and B2B covers too many links, including IT, logistics, retail, e-commerce operations, supply chain management, etc. Each link requires professional manpower for support. County-level markets already have few highly educated talents, let alone such professional operation talents.

In general, at this stage, doing B2B in county-level markets is not mature enough. Considering comprehensive costs, doing B2B is not economical. Additionally, the market is relatively closed, making it difficult for B2B to penetrate county-level markets. Although some B2B platforms are covering T4-T6 markets, the penetration rate is far from affecting distributors' businesses.

However, it should also be noted that current county-level distributors, especially those with single-product agency and fine market operations, are facing challenges in labor costs, profit margins, and operations. They are under survival pressure and are considering reforms. But for such reforms, the author suggests using technology to improve and enhance operational efficiency, rather than radical changes.

If transformation is necessary, the author suggests considering several angles: first, consider internal Amoeba-style transformation, turning employees into partners; second, use existing industry technology to digitize their own operations management; third, join excellent platforms and become their local operators; fourth, specialize in providing distribution or front warehouses for large platforms.

Of course, if your county does not have the problems mentioned by the author, or the market maturity has reached a certain stage, you can consider uniting distributors to do unified warehousing and distribution, online ordering, chain convenience stores, and other forms to achieve B2B transformation.

We also welcome distributor friends to leave comments and share their transformation experiences and insights. At this year's Autumn Sugar Fair, New Distribution will invite distributors who have successfully transformed to share their experiences. Welcome distributor friends to attend.

Click on the image for details.

The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. At this conference, New Distribution has invited 1000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to participate.

The theme of this conference: New Forces, New Ecosystem. At that time, we will invite well-known domestic B2B industry experts, mentors, and B2B platform founders to discuss the following topics:

Core topics of this conference:

  • How can the FMCG industry achieve new growth opportunities through B2B

  • How to build the new supply chain behind new retail

  • How can intra-city logistics help B2B achieve leapfrog development

Highlights of this conference:

  • The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"

  • Case sharing of excellent transforming distributors

  • Exhibition upgraded, Hall 6 Internet Technology Exhibition strengthens connections

  • Alibaba Retail Link, Global Logistics Properties Finance, Eternal Asia Supply Chain, Best Store Plus, Yijiupi, Unilever, Haiding Technology, Yunmei Co., Ltd. - leaders from the most well-known enterprises in various fields will give speeches and present pioneering views.

October 17-18, 2017 Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" Click the links below to review the highlights of the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum -END-