Is the Opportunity for Distribution E-commerce Here? Insights from Yantai Yishang Logistics

A recent visit to Yantai Yishang in Yantai excited me. Previous e-commerce was about internet people conquering business people, making business people feel they couldn't do business anymore. Yantai Yishang is business people playing with the internet, solving problems that were previously unsolvable, reshaping China's fragmented commercial system, and doing so without burning money or resorting to e-commerce gimmicks—there's real value. Since the rise of e-commerce represented by Taobao, merchants in the distribution chain have been in an awkward position. Ma Yun always talks about disintermediation, but they are the middlemen, seemingly the targets of the internet revolution. However, with nearly 30 trillion yuan in retail sales in China, e-commerce only accounts for about 10%, and the rest still relies on the traditional commercial system. I was previously pessimistic about e-commerce in the distribution chain, but after recently visiting Yantai Wanshanggou, I found that the time for distribution e-commerce has matured, and now is a crucial moment. Let me first talk about Wanshanggou, then share some thoughts. Introduction to Yantai Yishang Logistics Yantai Yishang is a B2b-focused distribution e-commerce platform, more precisely an agent e-commerce platform, doing B2b (B is regional agent, b is retail store), with a small amount of B2C that can be ignored. Yishang currently has over 300 agents on the platform, and almost all retail stores in Yantai order here. Annual sales in 2016 were around 6 billion yuan. The platform provides unified delivery, with 4 warehouses: one for split-case picking and one for full-case storage. Editor's Note: The image shows the "bullet train effect" of the Yishang model The "bullet train effect" of the Yishang model mainly compares the traditional model with the Yishang model. Under the Yishang model, costs for rent, loading/unloading, delivery, and transportation can be minimized. The image shows Yishang's innovative warehousing service system Let me illustrate the cost advantage of Yishang Logistics with an example: Assume annual sales of 100,000 items, 10 kg each, requiring 400 m2 of warehouse. In the traditional model, warehousing costs would be 138,000 yuan, loading/unloading costs 18-20 yuan/ton, and transportation costs average 300 yuan/day. On average, the distributor's delivery cost per case is about 1.5 yuan. With the commercial logistics model, warehousing costs only 20,000 yuan, loading/unloading costs 8-10 yuan/ton, and transportation costs are supported by the Wanshanggou platform, resulting in a delivery cost of only 0.8 yuan per case—saving nearly half. Relying on such advantages, Wanshanggou quickly formed a monopoly in the regional market, achieving a model of "many products, many terminals, but only one Wanshanggou as the intermediary platform." In Liu Zhongmin's own words: "I started with logistics, and after about six years, I developed the second module, B2B. We set up an online company, and offline is logistics delivery. Now daily sales are around several million yuan. Because it developed very well, we developed the third module, B2C. With the information platform foundation, we did urban B2C, and through B2C we established a city logistics information platform. The fifth is rural e-commerce, and the sixth is cross-border e-commerce." Two Major Value Points of Yantai Yishang

One is the e-commerce platform, where retail stores can order via mobile app or by scanning codes, which is very convenient; The second is the backend, i.e., warehousing and logistics. Both are important and indispensable. Opinion: Some platforms only have e-commerce platforms without logistics, which I think is dangerous. E-commerce Platform Because the platform is B2b, it eliminates the survival space of secondary wholesalers. In traditional distribution channels, prefecture-level cities have secondary wholesalers, which have about 10% gross margin. Even if supply prices remain unchanged, retail stores' purchase prices drop, and this alone gives retail stores an incentive. The e-commerce platform is very useful for manufacturers to expand distribution. For example, Coca-Cola thought its distribution rate was very high, but after joining the platform, it found that there were still over 1,000 retail stores in Yantai that had never ordered. So, once on the platform, you can quickly discover where the gaps are. Because retail stores must register, once they register, you can quickly see who hasn't ordered. Yantai Yishang was clever in getting retail stores to install the app. With over 300 agents, any agent convincing a retail store to install the app means the store can order all products on the platform. Mr. Liu of Yantai Yishang has a very good viewpoint: he thinks it shouldn't be like JD's self-operated model, where there are too many goods in the warehouse to count, and no one is responsible for them. In Wanshanggou's warehouse, the goods belong to the agents, so the agents are the ones who worry about selling them; Wanshanggou doesn't have to worry. Some manufacturers, because of Yishang Logistics, want to eliminate agents and let Yishang Logistics act as their agent. Mr. Liu didn't agree because it would conflict with agents' interests, and agents wouldn't want to join. But there are a few manufacturers, like Coca-Cola, with strong willingness, and Yishang Logistics agreed to one. Backend The backend is warehousing and logistics. Because of centralized warehousing and delivery, it can save about 70% of logistics costs for agents. According to Mr. Liu, logistics costs account for about 70% of agents' total costs, and centralized warehousing and delivery can save 70% of that, so agents' total costs can be reduced by about half. For example, with over 300 agents, there were originally about 1,000 delivery vehicles, but now only 50 are needed after integration. I'm still a bit puzzled by this claim—if only 5% of the original delivery vehicles are used, is it really that magical? On site, I did see that there weren't many delivery vehicles. Backend Profit Higher Than Frontend One way to save vehicles is centralized delivery. For example, in the split-case warehouse, a package might contain 20 SKUs, because some small stores have very low demand for individual SKUs, but they still need delivery. A package with 20 SKUs originally required delivery from several agents. Delivery cost savings are certain. Image: Split-case warehouse Another point: originally, delivery vehicles made two trips a day (morning and afternoon), but Wanshanggou can make three trips. In encouraging drivers to deliver more, Wanshanggou's incentive mechanism is reasonable. For example, even if the amounts are equal, drivers' income for the first, second, and third batches is different. Image: Full-case warehouse Mr. Liu of Wanshanggou has been in trade for many years and is very influential in Yantai. I had heard of him before, but this was my first meeting. He said many experts come to study but can't understand. A few key words from him made me understand. Because he has been in trade for years, he knows the details and where to save money. The e-commerce platform can create profit space, and the backend warehousing and logistics can save costs, so agents are willing to cooperate. Agents sell their original vehicles to drivers, and Wanshanggou rehires the drivers, so Wanshanggou doesn't need to buy vehicles; it just hires drivers with their vehicles. Not only vehicles, but even employees' computers: the company doesn't buy computers; employees buy their own, and the company rents them for 50 yuan per month. Because of cooperation with Inspur, if employees take computers out of the building, the information is automatically destroyed. Opinion I think the logistics cost savings greatly support the e-commerce platform, which is a weakness for e-commerce like Taobao.

What Do Agents Do? Agents hand over delivery to Wanshanggou, so what do they do? Agents can focus on promotion. Originally, most agent staff were back-office, with few frontline promotion staff. Additionally, poor management led to high costs. Now agents all do promotion, and even finance is handed to Wanshanggou, which does better than agents themselves. Data is all on Wanshanggou, making financial reporting easy. Entering Capital Operations Orders on Wanshanggou mean funds go to Wanshanggou. This allows Wanshanggou to engage in capital operations. Currently, Wanshanggou cooperates with agents and banks for pledge loans, because agents have goods in the warehouse; if they can't repay, the goods can be sold. Initially, Wanshanggou didn't hold agents' funds, but some agents found daily settlement troublesome, so now settlement isn't same-day, which also creates opportunities for capital operations. Tax Increase? This time I brought several bosses and over 40 agents from other regions to visit Wanshanggou, so Mr. Liu accompanied us and explained for a whole day. Many provincial, city, and county leaders have visited and are very interested in this model. Tax is a topic visitors are interested in, as many merchants are sensitive because sales were previously opaque, but now they're transparent—will they be taxed more? It's easy for tax authorities to know sales. Actually, e-commerce is currently tax-exempt, which is simpler than before. Of course, taxes will be collected in the future, and when they are, penalties for opaque merchants will be harsher, otherwise it would be unfair. Is a Platform Alone Useful for Distribution E-commerce? According to Mr. Liu, there are now 4,000 platforms in Yantai, but I didn't ask for details. I guess some agents have joined Yishang Logistics, while others operate independently. A city like Yantai must have more than 300 agents and retail sales in the tens of billions. But is a platform alone useful? I know some distribution e-commerce platforms have only platforms without backends. To grow fast, they have to burn money. **Wanshanggou doesn't burn money, of course, because it was originally in trade and delivery. But without the backend logistics bringing such cost savings to merchants, it might have to burn money. Some distribution e-commerce platforms are indeed burning money. Recently, I've been in contact with some county-level agents who are eager to try e-commerce. Pioneers like Wanshanggou serve as role models, and agents believe in role models more than theories. More importantly, local governments have supportive policies, such as building county-level e-commerce parks, which allow land acquisition and e-commerce or logistics real estate. Some counties subsidize parks with 5 million yuan, which is very tempting for county-level agents. So some agents bring county or city mayors to visit Wanshanggou, and provincial leaders have also visited. Shandong SASAC invested in Wanshanggou, a small city-level e-commerce platform, which I believe has provincial leaders' influence. The Era of Distributed E-commerce Distribution e-commerce also ushers in China's true distributed e-commerce era. A county can only have one platform; whoever builds it first owns it. Other merchants either join or build their own—only two options. Provincial capitals or cities may have one or multiple platforms, some say platform alliances. But generally, not too many. Under the B2b model, it's easy to expand to B2C or b2C, forming a closed-loop e-commerce. After the visit, I thought about Ma Yun's saying that e-commerce is disintermediating. Now middlemen are actively participating, which may change e-commerce's structure. Centralized e-commerce like Taobao and JD, though popular now, I think has limited future. Centralized e-commerce is just moving centralized commerce from offline to online; it's like a commercial portal website. Given the decline of portals, I'm not optimistic about centralized e-commerce, despite their contributions to China's e-commerce enlightenment. The future belongs to distributed e-commerce. I've been advocating the concept of distributed e-commerce since late 2014 and early 2015, but recently less so, mainly because I haven't seen good business models for it. Centralized e-commerce will eventually be dragged down by online differential rent, just as offline stores are dragged down by rent. Both offline commercial centers and centralized e-commerce haven't changed the essence of collecting "differential rent"; only the method has changed—offline collects rent, e-commerce collects traffic fees. The essence is the same. Wanshanggou's model can be extended, for example, to B2C or grafting b2C, forming a distributed e-commerce pattern. Although distributed e-commerce may also have differential rent issues, it won't be as severe as centralized e-commerce. If you were already a big merchant, it's easy to do; if you don't understand or just burn money, I think it won't work. The success of Yishang Logistics may trigger imitation. Since county-level markets can't accommodate many platforms, now is the time to build platforms. Because China's channels and agents are fragmented, Wanshanggou's e-commerce integration is convenient. In summary, we can see that the value of Wanshanggou's logistics model is more valuable than the e-commerce platform. Our platform will soon organize interested distributor friends who want to transform to B2B platform e-commerce to visit and study B2B platforms. The B2B platforms for this visit include: Yantai Yishang Logistics model, strong in logistics; Beijing Beiquan model, strong in integrating retail terminals; Piduoduo model, strong in integrating distributors. For details, click the link below If you want to join us, add our editor's WeChat. Please reply with keyword: 考察 - END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent articles | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager skills | 013 KA operation strategies | 014 First lesson for new sales | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]