Business has been tough in the past two years, with the internet's impact on offline entities growing. Since Jack Ma proposed New Retail, the S2B concept has gained traction, and upgrading traditional industries with internet technology is now an industry consensus. However, many traditional distributors, brand owners, and industry experts remain skeptical, insisting that the internet cannot replace distributors or solve non-standard tasks like shelf restocking, relationship management, and returns.
As a self-media deeply studying the internet transformation of traditional industries, New Distribution has been closely observing industry trends. We believe that combining traditional industries with new internet technologies to improve efficiency is an unstoppable trend. The key lies in the form this transformation will take. Today, I'd like to discuss the future value of distributors from the perspective of industry trends.
*The Significance of B2B: Empowering 6.5 Million Small Stores
B2B is characterized by the high integration of commerce, logistics, capital, and information flows at scale.
Large-scale centralized procurement, highly informationized warehousing management systems, visualized and flexible trading systems, and public-transit-style logistics achieve high integration across the supply chain. This integration brings first, efficiency gains and cost reductions from scale; second, a transparent, precise, and controllable supply chain.
Representatives include Alibaba Retail Link, JD New Channel, Best Store Plus, Store Commerce Interconnection, Zhongshang Huimin, Yijiupi, and nearly 2,000 other B2B platforms.
Business models generally fall into matchmaking and self-operated models. New Distribution has previously analyzed these in depth, so we won't elaborate here.
Interpreting the Value of FMCG B2B for Small Stores:
- Brand franchising and professional operational guidance to enhance store management capabilities.
- Centralized procurement with a full range of categories, enabling one-stop shopping.
- Public-transit-style logistics for timely and accurate delivery.
- POS integration and efficient information systems for one-click ordering and replenishment.
- Built-in financial attributes, enabling transaction-based credit through data.
In summary, B2B's value lies in solving small stores' worries, allowing owners to focus on front-end customer experience. Facing professional B2B platforms, distributors, apart from price advantages on single products and some store relationship advantages, will face an awkward situation of having no stores to supply as B2B integrates most retail small stores and supply chains become highly chain-oriented.
Of course, we must recognize that traditional industry transformation is a gradual migration. China's supply chain is never a single link; from brand to distributor to retailer, it's a multi-dimensional ecosystem of commerce, logistics, capital, and information flows—not modular bricks. In such a system, overly aggressive business models may be rejected as foreign objects. This is why domestic B2B is struggling.
New Distribution believes the FMCG industry transformation should be viewed over a 5-10 year cycle.
However, this doesn't mean distributors can be complacent. I've always held that it's not internet companies defeating distributors, but high efficiency inevitably replacing low-efficiency models.
Therefore, regional distributors seeking transformation must have a clear understanding of current and future industry issues:
*The So-Called De-layering Based on Existing Products is Essentially a False Proposition
China currently has about 6.5 million retail small stores across T1-T6 markets, with all chain stores totaling less than 100,000. This is a highly granular industry. These mom-and-pop stores can be described as scattered, chaotic, poor, and small.
In the past, brand owners had to find numerous distributors and secondary wholesalers to help achieve local distribution to these 6.5 million stores.
The FMCG industry has about 800,000 distributors and secondary wholesalers. Their core value lies in helping manufacturers achieve high-density coverage, capital recovery, inventory buffering, and localized marketing.
Previously, to ensure distributors' dedication, brand owners adopted regional agency systems with territorial protection, allowing deep local market cultivation.
As competition intensified, the multi-tiered channel model could no longer meet brand owners' market control needs. Many brand distribution channels have become highly flattened, with only a few secondary wholesalers in first-tier cities and niche markets. Direct control of terminals by distributors is now the mainstream FMCG business model. In fact, the current FMCG channel status is already highly flattened, a result of market optimization. The so-called de-layering proposed by B2B is merely replacing distributors and secondary wholesalers with themselves.
*But the Retail Industry is Upgrading Towards Chain and Integrated Supply Chains.
As per capita GDP reaches certain levels, commercial forms undergo a series of changes.
*** When per capita GDP reaches $3,000, convenience stores enter a start-up phase, and consumers begin accepting the concept; at $5,000, they enter a growth phase, with store formats aligning with customer needs; at $10,000, they enter a competitive phase with intensified competition and brand consolidation. Currently, China's per capita GDP has reached $8,000, making convenience stores a mainstream retail trend.**
*** China's labor costs have risen fivefold in the past decade, with 2016 employee compensation growth of 8%, ranking first globally. Simultaneously, overall rents increased by 7%, further compressing offline store profits.**
*** Mobile payment, facial recognition, and RFID technologies are widespread, data-driven transactions are trending, and integrated online-offline retail is forming.**
Convenience stores, vending machines, and other retail formats meeting convenience and quality needs are emerging widely. The convenience retail industry is shifting towards branding, chaining, conglomerates, and vertical supply chains. In recent years, Chinese capital markets have noticed offline retail, with significant funds entering the industry, accelerating transformation.
This means the supply system originally designed to cover 6.5 million small stores is losing value and effectiveness against highly chained, increasingly closed retail supply chains.
JD and Alibaba have both proposed covering one million stores. This is not casual talk but a strategic choice backed by substantial capital, talent, technology, brand, and supply chain advantages in response to this retail upgrade wave.
As mentioned, even without JD and Alibaba, retail is rapidly upgrading. A source from China Tobacco told me that in populous provinces like Shandong and Henan, the net difference between store openings and closures exceeds 10,000 annually. This includes urban village redevelopment and urbanization, but a significant factor is that small stores with weak operational and supply chain capabilities are squeezed by rising commercial real estate prices and the expansion of branded chains. According to the China Chain Store & Franchise Association, the retail chain industry has grown over 30% annually in the past two years, surpassing 100,000 stores in 2017!
In Japan, the convenience store industry is controlled by three chains: 7-Eleven, Lawson, and FamilyMart. This suggests that as China's economy develops, its retail will soon become highly chained and conglomerated, like developed countries in Japan, Korea, Europe, and the US.
Previously, due to small purchase volumes, mom-and-pop stores had no bargaining power, so they had to accept supplier prices.
But in the future, as retail chains, conglomerates, and scale upgrades occur, convenience store procurement will likely adopt centralized purchasing to squeeze the supply chain. Except for distributors with local category monopolies, most will find it increasingly difficult.
It can be said that the past 20 years were brand-led channels, but the next 20 years will be retailer-led supply chains.
In this process, middlemen will still have irreplaceable value, as brand owners still need them for capital recovery and inventory buffering. However, middlemen won't die, but that doesn't mean distributors won't. In a provincial retail chain group, each category might only need one supplier, eliminating the need for many distributors to help with product distribution.
What Should the Remaining Distributors Do?
As brand and retail forms shift, the fate of China's 800,000 distributors and secondary wholesalers, representing tens of millions of people, is a topic requiring deep exploration.
However, China's consumer goods industry has a huge stock, and internet transformation of this stock will take a long time, giving distributors ample time to explore transformation. Distributors of different scales, industries, city tiers, and resources may have different transformation paths, but there are still paths to follow. New Distribution suggests considering the following directions:
- OEM: Transform into brand operators.
- ODM: Transform into brand franchise operators.
- Regional category monopoly operators.
- Professional third-party logistics service providers.
- B2B supply chain platforms.
- Professional chain retail.
New Distribution will host the 3rd "New Ecology · New Forces FMCG + Internet Conference" during the 95th Autumn Sugar & Wine Fair in Chongqing on November 8-9. At the conference, we will discuss core topics on internet transformation for manufacturers and distributors. We welcome distributors interested in transformation to attend and discuss.
The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. Centered on "New Forces, New Ecology," the conference will invite 1,000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment institutions to explore new chapters of cross-industry integration!
Core Topics of This Conference:
How FMCG Industry Can Achieve New Growth Opportunities with B2B
How to Build the New Supply Chain Behind New Retail
How Same-City Logistics Can Help B2B Achieve Leapfrog Development
Highlights of This Conference:
The Industry's First "2017 China FMCG B2B Industry Competitiveness White Paper"
Case Studies of Excellent Transforming Distributors
Upgraded Conference + Exhibition: Hall 6 Internet Technology Exhibition Strengthens Networking
Leaders from Alibaba Retail Link, GLP Finance, Eternity Supply Chain, Best Store Plus, Yijiupi, and Haiding will deliver keynote speeches with pioneering insights.
November 8-9, 2017 Xinyue Hall, Chongqing Yuelai International Conference Center Registration is now open. Long-press the QR code below or click "Read Original" to register.
Add friend with note "Conference Registration"
Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences:
2016 "FMCG + Internet" Summit Forum
-END-