---
title: "Is FMCG B2B Really at a Dead End?"
description: "Distributors will not disappear, but a large portion of them will be eliminated. Recently, many FMCG B2B companies have been hit by negative news, with platforms like Zhanghe Tianxia and Huidanxia shutting down, and according to incomplete statistics from New Distribution, 69 B2B platforms ceased operations nationwide in 2018 alone."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-04-08"
language: "en"
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---

# Is FMCG B2B Really at a Dead End?

> Distributors will not disappear, but a large portion of them will be eliminated. Recently, many FMCG B2B companies have been hit by negative news, with platforms like Zhanghe Tianxia and Huidanxia shutting down, and according to incomplete statistics from New Distribution, 69 B2B platforms ceased operations nationwide in 2018 alone.

**Distributors will not disappear, but a large portion of them will be eliminated.**
Recently, many FMCG B2B companies have been hit by negative news, with platforms like Zhanghe Tianxia and Huidanxia shutting down, and according to incomplete statistics from New Distribution, 69 B2B platforms ceased operations nationwide in 2018 alone. The surviving B2B platforms seem uncomfortable: Retail Tong adjusted its partner assessment methods, Xintonglu promoted front warehouses on a large scale, and many B2B platforms are facing operational difficulties, with delays in supplier payment settlements...
Many media outlets are pessimistic about FMCG B2B, considering it a false proposition. But is B2B really a false proposition? Where is its future path?
**Re-examining the Logic**
Based on business models, B2B can be divided into self-operated and matchmaking types, each with its own advantages and disadvantages. Mr. Chen from Binfu Capital provided an insightful analysis:
> Self-built models may not necessarily achieve economies of scale; matchmaking is easy for mergers and acquisitions but lacks profit margins and makes business control difficult.
B2B originally referred to online e-commerce transactions, but in the face of highly complex scenarios and huge existing volumes, both pure self-operated and pure matchmaking models find it fundamentally difficult to deeply penetrate the industry.
The logic of deep distribution is that manufacturers and distributors join forces to extend their operational reach into small shops, sharing the benefits of economies of scale through large-scale production, distribution, and volume. However, this model was a business necessity for brand owners over the past decades, given incomplete technology and infrastructure, in response to the vast and highly complex Chinese retail market.
The problem with this model is that brand owners, to maximize their own commercial interests, intervene deeply in shop operations, such as the beer industry's practice of buying shops (using fees to make stores exclusive to a beer brand), display fees in the milk and beverage industries, and traditional eight-step visit procedures, all of which are interventions in terminal display.
Although there is game-playing between manufacturers and distributors, they are essentially a community of interests. In most cases, brand owners often limit the scale of distributor development to protect their own interests, leading to market splits once a market grows large, compressing distributors' agency scope. This ensures brand owners maintain absolute control throughout the supply chain.
If B2B wants to penetrate the entire FMCG distribution chain, on the surface it needs to win over brand owners, but in essence, it must break this interest alliance and reconstruct a new supply chain alliance, which is the community business model proposed by Professor Bao Zheng.
Simply put, B2B enterprises must integrate multiple links in the supply chain, such as B1+B2+B3 (B3a, B3b, B3c, B3d), into a business community through information technology and management methods. Essentially, this involves coordinating and managing multiple members in the supply chain system, restructuring division of labor, enabling close cooperation, and ultimately serving the C-end efficiently.
Currently, the most effective way to efficiently integrate multiple links into a community is to control the retail end, expand procurement demand, and force supply chain reform and restructuring. In this model, tightly franchised chain retail is the most efficient and most likely to achieve industrial scale, as exemplified by China's retail giant Meiyijia.
In simple terms, Meiyijia allows individual entrepreneurs to invest in franchising its chain brand. It achieves strong control over stores by providing brand, management, systems, and other capabilities, expanding the chain scale, generating huge procurement demand, and forcing the supply chain upward. During this process, the operator continuously improves its supply chain capabilities, including warehousing, logistics, systems, finance, training, management, fresh food, agency, ODM/OEM, etc., ultimately realizing an integrated community business model through efficient supply chain integration and management.
The operator acts as both the visible and invisible hand in the supply chain, intervening at critical points to ensure smooth system operation. In areas with sufficient bargaining power, it leverages market mechanisms to maximize cost efficiency and benefits, making all members of the supply chain a community of interests, achieving efficient supply chain operations, and ultimately serving consumers.
**From a Global Retail Perspective**
Looking globally, why doesn't Japan have this problem? Why did 7-Eleven, Lawson, and FamilyMart quickly achieve industrial integration?
Essentially, because Japan's territory is small, lacking sufficient depth to support large brands, resulting in strong channels but weak brands, as seen in South Korea and Taiwan as well.
At the same time, we see that Japan has produced very strong supply chain companies, such as Kokubu Group. Based in Japan, it integrates global resources, importing top global products into Japan and distributing Japanese products worldwide. Whiskey's popularity in Japan owes much to Kokubu Group.
The United States is characterized by large land area, sparse population, low density of retail outlets, and a preference for large retail, making it difficult to support small trading companies in regions. Even if small trading companies exist, they quickly see their profits squeezed due to the bargaining power of large retailers. So we see Coca-Cola directly cooperating with large retail enterprises in the U.S. Small brands must participate in large supply chain companies, banding together with many brands to distribute products nationwide without being drained of profits by large retailers.
Thus, the U.S. supply chain logic is separation of production and sales, while Japan's is retail-led. What about China?
China, with its vast territory and large population, can support large brands, with many categories exceeding 10 billion yuan in scale. However, the market is too large and economic development too rapid, leading to immature infrastructure and uneven development between cities and regions. The huge population supports high-density retail outlets and also sustains numerous small channel distributors.
Deep distribution is essentially a means for brand owners to control the supply chain. If brand owners are large and overly dominant, they may, in a sense, limit B2B's business expansion in China.
**The Ultimate Path for B2B**
Undoubtedly, Meiyijia's model is the ideal for B2B development in China, but all current B2B platforms are cautious about entering retail. On one hand, most teams lack retail genes; on the other, overly complex management and extremely low profitability cannot meet B2B's need for rapid expansion.
Serving brand owners is destined to be a stopgap for B2B; B2B cannot and will not become a puppet of brand owners like distributors. If B2B wants to complete supply chain integration and achieve integrated community business, it must start from the retail end, using tight franchising to force and integrate the upstream supply chain.
There is a prerequisite: retail must have density to achieve scale effects, as Meiyijia's development has proven.
Before achieving density-based scale effects, to survive in local markets, B2B must either act as agents or special distributors. After all, if only acting as secondary wholesalers, profit margins are too thin to cover huge backend management costs, while entering retail requires a long cycle.
Returning to the self-operated and matchmaking models mentioned at the beginning, they are essentially false propositions. Only by forming an integrated community business model can downstream supply chain integration be achieved.
China's retail landscape is destined to be diverse, with multiple city tiers and complex retail scenarios. With the spread of mobile internet, omnichannel and innovative retail formats are emerging, making it unlikely for a single retail format to dominate.
As market demand diversifies and infrastructure improves, various retail channels will be filled, and innovative products and small brands will emerge in large numbers. Brand owners can no longer rely on a single product to dominate the market, but the brand premium effect from the huge population base will still allow large brands to thrive.
B2B enterprises still have a long way to go to complete supply chain integration and build an integrated community business model. Although B2B cannot and will not replace distributors' functions, it will enhance bargaining power with upstream suppliers through the integration of retail stores.
Chinese distributors have completed their historical mission for now. In future channel distribution, they will gradually transform and evolve toward specialization, verticalization, and scale. Different species will emerge to join B2B-organized business communities, and some distributors will evolve into vertical supply chain companies through further scale expansion, serving upstream small and medium brands with their strong capital and logistics capabilities.
Cruelly, most small regional distributors will be gradually marginalized, like the vendors in wholesale markets, and eventually disappear into history.
**-END-**


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