---
title: "Is FMCG B2B Really a Winner-Takes-All Game?"
description: "Since the second half of 2017, the investment community seems to have a consensus about the FMCG B2B industry: with the entry of giants like JD and Alibaba, this track seems uninvestable, and FMCG B2B will surely be swallowed up by these giants. However, New Distribution believes that at this stage, FMCG B2B is not necessarily a winner-takes-all game, and this track may produce a number of excellent unicorns in the next few years. As for who will win, it will take a long incubation period before the battle situation becomes clear. Today, the author will first share some thoughts from the dimensions of time and space."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-04-10"
language: "en"
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---

# Is FMCG B2B Really a Winner-Takes-All Game?

> Since the second half of 2017, the investment community seems to have a consensus about the FMCG B2B industry: with the entry of giants like JD and Alibaba, this track seems uninvestable, and FMCG B2B will surely be swallowed up by these giants. However, New Distribution believes that at this stage, FMCG B2B is not necessarily a winner-takes-all game, and this track may produce a number of excellent unicorns in the next few years. As for who will win, it will take a long incubation period before the battle situation becomes clear. Today, the author will first share some thoughts from the dimensions of time and space.

Since the second half of 2017, the investment community seems to have a consensus about the entire FMCG B2B industry: because of the entry of giants like JD and Alibaba, this track seems uninvestable, and FMCG B2B will surely be swallowed up by these giants.
But New Distribution believes that at this stage, FMCG B2B is not necessarily a winner-takes-all game, and this track may produce a number of excellent unicorns in the next few years. As for who will win, it will take a long incubation period before the battle situation becomes clear.
Today, the author will first share with you some thoughts on competition and future development of FMCG B2B from the two dimensions of time and space:
Space Dimension
First, let's discuss two concepts on the internet: network effects and scale effects.
**I. Network effects and scale effects on the internet.**
Network effects:
The so-called network effect means that every member in the network is a node in the network. WeChat is a very typical network effect. Its characteristic is that your classmates, friends, customers, relatives, and everyone are in this network. When everyone is in a collaborative network, you cannot leave it because the migration cost is too high. This is a very typical network effect.
Scale effects:
The ride-hailing market is a very typical scale effect. Whether it's the recent confrontation between Didi and Meituan in Shanghai, or the competition between Mobike and Ofo, studying their competition reveals that no matter how large Didi's scale becomes, or how many bikes Mobike and Ofo deploy, they cannot prevent new competitors from entering the market. Because for users, the effect of using any service is the same. The migration cost for users is negligible. As long as there is an opportunity in the market, new competitors will enter. The players inside can only continuously improve their competitiveness by expanding scale.
This is the scale effect. Moreover, the scale effect has a problem: new entrants can overcome competitive inequality through intensive capital investment.
**The FMCG B2B industry is actually a very typical scale-effect market.** For small shop owners, the effect of choosing any platform to stock up is the same, and B-end users have a rational decision-making mindset, which leads to choosing whoever has lower prices and better overall experience. Moreover, small shop owners have almost no migration costs.
**II. Can the FMCG industry achieve scale effects?**
There are two modes for achieving scale in the FMCG industry:
Platform transaction traffic scale, and cross-regional market coverage scale.
Traffic scale effects:
To talk about traffic scale, we must first compare B2C and B2B:
B2C has traffic scale effects. Consumers' purchases on B2C are high-frequency, but the products purchased are different. For the same product, it is rare for users to repeatedly buy it twice in a short time in one store. Therefore, for platform small shop owners, the platform's traffic becomes particularly valuable.
For users, their needs are also diverse. Large platforms can have enough long-tail products and enough merchants to infinitely satisfy users' long-tail needs and price comparison needs. Therefore, the larger the B2C traffic scale, the greater the scale effect.
For B2B, the service targets are small shops with limited space, which need to consider sales per square meter and turnover rate. So small shops need effective product combinations and have very few long-tail needs. A small shop only needs 1500 SKUs to open. One characteristic of FMCG is that consumers have high brand awareness, and top products account for 70%-80% of total store sales. So no matter how many SKUs your platform has, transactions will still concentrate on top brands and some high-frequency categories. However, for top brands and high-frequency categories, the platform ultimately has no pricing power. This leads to the fact that no matter how large the platform's traffic is, it still cannot bring dependence from both buyers and sellers on the platform.
Cross-regional scale effects:
In the B2C era, because products do not need to go through first- and second-tier distributors and are sold directly to consumers, profits are high enough, so centralized warehousing and drop-shipping can be used to deliver nationwide.
But a very typical characteristic of B2B is that the distribution levels are insufficient, and profits are not high. To distribute products nationwide, at least 1500 agents are needed. Because profits are too low and transactions are very high-frequency, brand owners have to carefully protect their product price systems. This gives rise to a unique phenomenon: regional exclusive agency and prohibition of cross-regional sales.
This means that products in Beijing cannot be sold to Tianjin, and products in Tianjin cannot be sold to Hebei. Many products can only be purchased locally. So no matter how large the market area you cover, you still have to tackle each market one by one in supply chain organization.
Moreover, in terms of delivery efficiency, cross-regional cannot be much higher than local. Therefore, cross-regional scale effects cannot be highlighted.
At this stage, B2B uses new technology to solve old methods. It only uses technology to solve the efficiency problems of the traditional supply chain. Essentially, it is still a problem between efficiency and scale, but as mentioned earlier, scale cannot create monopoly.
But if we look at B2B on a larger time scale, will it be a game for internet giants?
Time Dimension
**III. Discussion on the development trend of the B2B industry**
B2B is a transformation of the offline existing market, so industry change depends on the systematic transformation of the interests, thinking, and operating models of the players in the field. New Distribution believes that B2B will have a very long incubation period, and capital cannot catalyze the transformation of this industry.
The transformation of this industry still depends on the market and consumers' changes in cognition, understanding, and consumption habits of brands and retail channels.
From the development stage, I believe B2B will have three development stages: 1.0, 2.0, and 3.0.
1.0: New Platform Stage
  * **Characteristics: Increase efficiency and reduce costs**
**At the competition level:** In this stage, technology rapidly spreads, the industry rapidly expands, heroes rise, and warlords carve up the territory. This stage is a period of heavy investment. Whoever can obtain financing and complete a certain market layout will stand out and smoothly get the ticket to the next stage. Typical characteristics of this stage are price wars, subsidies, and large expenses.
**At the operational level:** In terms of business models, almost all companies are moving traditional products online, using new technology to solve long-standing old problems in the industry, and using technical means to improve productivity and reduce costs.
2.0: New Business Stage
  * **Characteristics: New platforms incubate new industries**
**At the competition level:** B2B enters a mature period, industry education and infrastructure investment come to an end, and the mainstream market is fully covered. Some B2B companies that cannot obtain financing and lack resources have begun to fall behind. Competition in B2B has shifted from grabbing territory to deep cultivation and operation. Mergers, integrations, and eliminations begin to occur within the industry. During this process, upstream and downstream players in the industry also begin to extend and penetrate into the B2B field, and competitive boundaries become blurred. The business models of various platforms also begin to converge.
**At the operational level:** 2.0 is a stage of strong operations. The granularity of transaction data is increasing, and it gradually begins to provide help and support for brand owners' decision-making. The most distinctive feature of this stage is that B2B begins to show its natural infrastructure characteristics and starts to empower new commercial individuals. New business models based on B2B platforms, such as unmanned retail and TP providers serving B2B, which can only survive under large supply chain systems, appear in large numbers.
3.0: New Ecosystem Stage
**Characteristics: New industries give birth to new ecosystems**
**At the competition level:** The industry is highly merged and integrated, leaving only three or four large platforms nationwide, or fewer. They deeply integrate the industry chain and market through capital, technology, and resources. The scope of competition has also extended from B2B to the entire industry chain (brand owners, retailers).
**At the operational level:** Refined operations and precise marketing capabilities will become the core competitiveness of platforms. B2B will further become the underlying infrastructure of the industry. On top of this infrastructure, the entire platform will not only have commercial transaction entities, but also various diverse business forms. The entire B2B will become a new business ecosystem.
Above, from the two scales of space and time, we discussed the current development characteristics and future development trends of B2B. New Distribution believes that although there are still many problems at the current stage of B2B, these problems are only small issues of interest games between old and new commercial entities at a specific stage of industrial development.
From a larger time scale, digital technology's upgrading and transformation of channels is definitely a major trend. And because of the natural infrastructure characteristics of the supply chain, the future integration of the entire industry may really be completed by B2B.
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