Click to read the original article for details. Chinese FMCG distributors are very traditional. To this day, most distributors are small but complete "four-in-one" operations, integrating commerce, logistics, information, and capital flows, from warehouses and delivery vehicles to warehouse managers, drivers, salespeople, and finance. Small as a sparrow, but complete in all its organs. During the rapid growth phase of the industry, these "four-in-one" distributors enjoyed the demographic dividend of China and expanded their territories. Because they held all key functions themselves, they were flexible and could distribute goods at the fastest speed, reaching 6.8 million traditional small stores. The more functions, the higher the costs in financial, human, and material resources. When sales were growing at 20% or 30% annually, these costs could be temporarily ignored. But no market grows forever. When the existing market cake is divided up, and the focus shifts from seizing markets to competing for them, distributors' businesses experience ups and downs. Meanwhile, with the penetration of the internet and the impact of online e-commerce, which takes away some offline sales, distributors' lives naturally become harder. Recently, the sentiment that "distributors quit without notice" has become a common topic. 01 Hard Times, Seeking Transformation B2B platforms backed by capital and the internet are aggressively encircling traditional offline distribution channels, making distributors increasingly confused and anxious. At this time, many distributors with a sense of crisis have the idea of transformation: joining forces with multiple distributors to share a warehouse and a vehicle. Hence the current trend: unified warehousing and distribution (统仓统配). Originally, 10 vehicles delivered to one store; after unified distribution, one vehicle. Originally, 10 distributors had 10 warehouses, with obvious off-peak and peak seasons and severe waste; now, with unified warehousing, it becomes one warehouse, with cross-use of goods. By the logic of addition and subtraction, costs naturally come down. Not doing distribution agency business, but also reducing costs and increasing efficiency for distributors, while making some money on the side—this seems like a helping hand. But after one or two years of actual operation, it becomes clear that the unified warehousing and distribution business is not as simple as imagined. For example, there is the issue of attracting merchants. In the past, fellow distributors were unwilling to join the warehouse, fearing their business would be intercepted; they worried it wouldn't last, and moving warehouses is no small matter. Also, the fees were not too cheap. After various efforts, the warehouse finally filled up. With a 10,000 m² warehouse, dozens of vehicles, and transaction flow exceeding hundreds of millions, the income was only a few million, and after deducting costs, net profit was less than a million. 02 Don't Position Your Warehousing and Distribution Service Solely as Saving Money for Distributors Why, when you are ambitious to change and reduce costs and increase efficiency for distributors, do you not achieve great success? You invest a lot of human, material, and financial resources, wanting to become a local innovator and trendsetter, but in the end, it becomes futile effort. The theoretical logic is very reasonable, but reality hits you hard! Originally, distributors ran "informal" flexible businesses, commonly known as "warehouse entrepreneurship." Now, transforming into a warehousing and distribution platform means running a "formal" standardized business, commonly known as "corporate entrepreneurship." No matter how much corporate entrepreneurship reduces costs, it cannot be as low as private entrepreneurship. For example: In a second-tier city, a distributor representing second- and third-tier brands with annual sales exceeding 100 million yuan outsourced his warehousing and distribution functions to a warehousing and distribution platform. He told New Distribution that the benefits of handing over to the platform were obvious, but costs did not decrease. Originally, his own distribution costs were: driver base salary 1,000 yuan/month, commission over 0.2 yuan, fuel over 0.1 yuan, warehousing over 0.1 yuan, loading and unloading over 0.1 yuan, totaling about 0.7-0.8 yuan per case. Now, handing over to the platform costs over 1 yuan. Just in warehousing and distribution costs, it increased by 0.3-0.4 yuan per case, not including returns and after-sales handling. Why doesn't unified warehousing and distribution save costs? Because distributors, in order to make a profit and survive, have already squeezed costs very low. In a second-tier city, it's hard to find a delivery driver with a base salary of 1,000 yuan/month other than those employed by distributors. The other day, I discussed costs with a distributor of Master Kong beverages. He used his own business as an example: A 3,000 m² warehouse, annual rent around 400,000 yuan (in a coastal city), annual shipment volume of 1.2-1.3 million cases, warehousing cost of 0.2-0.3 yuan per case. For delivery to mom-and-pop stores (second-tier wholesalers), the delivery vehicle contract system: during peak season, an average of 4 vehicles per day, each carrying 500-600 cases, with an average cost of 150-180 yuan per vehicle, monthly income around 20,000 yuan, fuel costs over 3,000 yuan, hiring a helper around 4,000 yuan, leaving 12,000-13,000 yuan per month (for the delivery "contractor"). That's their profit. Our per-case delivery cost is 0.2-0.3 yuan, and the comprehensive warehousing and distribution cost is around 0.5 yuan per case. What is an "informal" flexible business? Everything that can be saved is saved; even after wringing the towel dry, you try to squeeze out a bit more water. In the middleman business, from manufacturer to terminal small store, the price difference is fixed; you have no pricing power. As an intermediary, you see how much water you can squeeze out and put in your own pocket. What is a "formal" standardized business? Pallets, forklifts, pallet jacks, full systems, high-level racks, conveyor belts, sorting lines, etc. These "high-tech" investments are all heavy investments. In terms of personnel, distributors need people who can endure hardship, while platforms need talent who can read data, analyze data, and optimize processes. Therefore, compared to the "corporate entrepreneurship" of unified warehousing and distribution platforms, if you only stand from the perspective of saving money and reducing costs for distributors, it will be biased. 03 Where Is the Way Out for Transforming to Unified Warehousing and Distribution? Where is the way out for unified warehousing and distribution? Distributors and second-tier wholesalers have such low costs, delivering goods by electric bike. Is unified warehousing and distribution unsolvable? Obviously, no. From a policy perspective, in 2013, the Ministry of Commerce successively issued policies such as "logistics standardization pilot, joint distribution pilot, supply chain system pilot" and many others. At the same time, in 2013, capital also brought heavy funds, first entering truck-load matching and then collectively entering the urban distribution industry. Both policy and capital are optimistic about the urban distribution logistics field. In recent years, there have been numerous attempts to provide new solutions for FMCG warehousing and distribution. For example, in August 2017, Alibaba Retail Link's first forward warehouse opened in Yiwu, Zhejiang, and at the opening ceremony, it announced plans to build 2,000 forward warehouses nationwide in conjunction with distributors. In December 2017, warehousing and distribution service platform Wanchaobang completed a Pre-A round of financing of tens of millions of yuan. In January 2018, warehousing and distribution logistics platform Kai Dong Yuan Logistics received 110 million yuan in funding from GLP Finance. In April 2018, JD New Channel announced the launch of a joint warehousing and distribution system, with self-operated JD joining forces with local distributors. In June 2018, urban distribution platform Weijie City Distribution announced a B round of financing of 116 million yuan... Mr. Wang Chaocheng of Yijiupi once said, assuming that 20 years later, China's leading supply chain is still delivering goods by electric bike, doesn't that need to change? The future supply chain must be focused, centralized, and with fewer times goods are handled. In the final analysis, it's not that unified warehousing and distribution doesn't work, but that your operating methods and thinking direction have deviated. 1. Jump out of the low-margin FMCG industry and find new continents. "If you can't adapt to water warfare, go to land." The same thing, with a different purpose, puts you in a different market, and naturally you can have new profit measures. For example, the traditional distributor transformed into a unified warehousing and distribution platform reported in "New Distribution 100 People": a logistics company in Hubei jumped out of the FMCG industry to provide warehousing and distribution for local maternal and child chain stores; to distribute shared bikes for national companies locally; and to provide last-mile delivery services for e-commerce giants like JD and Suning. The FMCG industry itself is low-margin, and if you serve a low-margin industry, your income is predictable. Jump out of the FMCG circle and position yourself as a warehousing and distribution service provider. Based on local resources, wherever warehousing and distribution services are needed, go there! At this point, you enter the same-city logistics industry, and FMCG warehousing and distribution is just one of your service items. 2. Change tactics to break through the low-margin trap. "If you can't adapt to water warfare, connect the water surface to form land, like chaining ships together." What is the fundamental reason why unified warehousing and distribution platforms don't make money? Because the various entities in the channel hierarchy have already divided up the profits, and if you want to grab a bowl from it, the share may be too small. At this time, you need to change tactics and move to another position favorable to you: change the existing distribution hierarchy and extend your reach to manufacturers. In fact, manufacturers have also had a hard time in recent years, with rising labor costs and inability to support more frontline staff for deep distribution. It is understood that Master Kong, Uni-President, and Coca-Cola are all trying to cooperate with third-party warehousing and distribution platforms, transforming frontline sales staff into individual entrepreneurs. From manufacturer to unified warehousing and distribution platform to terminal, eliminating distributors and second-tier wholesalers, transforming them into individual entrepreneurs. As shown in the figure below. The profit-sharing mechanism is redefined: the unified warehousing and distribution platform undertakes the distribution function, and individual entrepreneurs undertake the sales and promotion function. Because the platform has precise distribution data, it can introduce third-party supply chain finance, lending to individual entrepreneurs through the platform. 3. Wait and identify opportunities to change the game Waiting is always difficult. In the early stage, through the form of uniting multiple distributors in partnership, complete the basic traffic for unified warehousing and distribution, and through the density of network coverage, minimize distribution costs, at least achieving break-even for the platform. After that, invite individual entrepreneurs, such as regional supervisors and city managers from frontline manufacturers, give them guns and ammunition, and let them use the platform's strength to do distribution business. Because the platform has influence, manufacturers will come to the door. The platform does not directly act as an agent for goods, but lets these individual entrepreneurs become marketers and distribute brands. Use the platform's traffic to open up markets. Of course, in this process, the platform can appropriately invest in the form of capital or other means. The founder of a unified warehousing and distribution platform told New Distribution, "We don't expect all distributors to enter the warehouse. When the warehouse is full and we pass the break-even point, we will consider taking over distributors' businesses, with profit guarantee as the bottom line, and fully take over distributors' businesses. Unified warehousing and distribution is just one path for us to achieve a larger distribution business. We will establish distribution business divisions by category to expand commerce. In a near-'monopoly' form, we control regional distribution business. Return to the distribution business, with warehousing and distribution as the carrier, reduce costs and improve distribution efficiency." Final Thoughts Not making a profit or difficulty in making a profit does not mean the direction is wrong. Maybe your methods and approaches need some changes, and you also need to have enough patience to persist. Building a localized same-city logistics platform is not an overnight task. Undoubtedly, transformation is an imperative task.

  1. Labor costs will become higher and higher in the future, especially as taxation gradually becomes standardized. Distributors relying on tax evasion to save money is no longer the "right way." The traditional "informal" flexible business model is bound to be eliminated. At the same time, it can be seen that urban distribution logistics is a cumulative business. "The early bird catches the worm." Latecomers may not even get the soup. If you don't do it, someone else will.
  2. In the future, the digitization, routing, financialization, and visualization of product distribution chains are basic requirements for upstream manufacturers for downstream distribution entities. Just because traditional distributors have low costs, it should not be understood as an "unbreakable" advantage. Low costs naturally mean high backwardness, which cannot support the efficiency requirements of distribution in the future digital era.
  3. Social division of labor is an inevitable trend. Big brands will definitely cooperate with such urban distribution logistics providers one after another (such as Uni-President, Master Kong, Coca-Cola, etc.) to achieve mutual benefit and win-win, rather than relying on the "mom-and-pop store" business of distributors. In summary, the path of transformation must be taken. When the trend and direction are clear, what remains is the persistence mindset and the correct posture for transformation. On October 23-24, during the Autumn Sugar and Wine Fair, New Distribution will host the "2018 China FMCG Urban Distribution Logistics Conference." At that time, we will invite industry experts, FMCG warehousing and distribution specialists, and distributors who have transformed to unified warehousing and distribution platforms to discuss and answer questions about the future development trends of FMCG urban distribution logistics and practical cases of distributor transformation to unified warehousing and distribution, around the topic of "New Distribution, New Urban Distribution." We hope it will bring you different inspiration and thinking! -END-