First, a piece of news: On November 23, JD.com announced that JD Logistics would fully open its small-item, large-item, and fresh cold-chain networks to merchants. The news of JD.com opening its logistics has flooded social media. Today, we will also interpret from a B2B perspective the profound impact JD's open logistics will have on FMCG: JD Logistics, like JD Finance, will operate completely independently. In the future, it will not only serve JD Mall but also the entire e-commerce and express delivery industry, and even society at large. A JD executive stated that JD Logistics will open three major service systems to the public: integrated warehousing and distribution supply chain services, JD Express services, and JD Logistics Cloud services. First are the specialized solutions for integrated warehousing and distribution supply chain services, cold-chain logistics, and large-item logistics. Data released by JD shows that as of September 30, 2016, JD Logistics had formed three network layouts: small-item logistics network, large-item logistics network, and cold-chain logistics network. JD has 7 intelligent logistics centers, 254 large warehouses, 5.5 million square meters of warehousing facilities, and 6,780 delivery stations and pickup points, covering 2,646 districts and counties nationwide. Fu Bing, Vice President of JD Group and Head of JD Mall's Logistics Planning and Development Department, stated that after opening its logistics to the public, JD aims to become a "provider of infrastructure for China's commercial retail sector," helping millions of merchants reduce supply chain costs and improve circulation efficiency. In 2016, the market size of China's consumer goods industry is expected to reach 33 trillion yuan, with online-to-offline penetration expected to reach 12% this year. In stark contrast, pure B2C penetration of FMCG into offline is less than 4%. If JD wants to push its stock price higher in the capital market, it needs to tell a more imaginative story. However, it must face an awkward reality: the speed of online-to-offline penetration is slowing, and category boundaries are becoming more distinct. To capture the FMCG cake, JD must do B2B2C. Thus, the New Channel (Xin Tong Dao), which serves as a link in the channel, was born. In early 2016, Liu Qiangdong designated New Channel as JD's No. 1 locomotive project and assigned capable executive Du Shuang to lead it, showing his high regard for this FMCG B2B project. However, after a year of operation, the New Channel team must have truly felt that while B2C is hard to penetrate downward, B2B is even harder! Where are the difficulties?
1. Supply of goods Due to doubts about B2B e-commerce distribution capabilities and protection of existing offline distributor systems, manufacturers generally are unwilling to cooperate with platforms on best-selling products. Not just JD, all manufacturers are reluctant to partner with platforms for best-selling items. Moreover, all manufacturers require payment before delivery, but JD, similar to KA channels, offers goods before payment, with settlement terms of 45 days after sale. Large manufacturers certainly won't accept such channel capital occupation. So even if companies cooperate with JD on best-selling products, the prices are basically the VAT-inclusive hypermarket supply price or the second-tier wholesale price, making it impossible for New Channel's best-selling product prices to compete with distributors. In FMCG, price is one of the core competitive advantages. Without low prices, even with best-selling products, JD will find it hard to sell. Only regional brands aiming for national expansion or small brands with distribution difficulties are willing to cooperate with New Channel. Since A-brand manufacturers are unwilling to cooperate with New Channel, can JD achieve success by promoting new products, creating hit products, increasing average order value, and raising order density? It's possible. In small shops, the normal SKU count is around 2,500-5,000, with first-tier brand SKUs only a few hundred. So, if JD has enough patience, it can break through in categories with low brand concentration (snacks, low-temperature foods, grain and oil, fresh produce, etc.), and in vast township markets where brand awareness is low and price sensitivity is high, it can focus on quality products while offsetting the profit gap on best-sellers. New Channel still has a chance to grow. But this requires a long process; JD needs to gradually cultivate ordering habits in small shops and build brand awareness in consumers' minds. However, all these conditions require a low-cost, fast-delivery logistics system. 2. Logistics Because New Channel's best-selling product prices are high, offline small shops' order rates are insufficient, order density is low, and average order value doesn't rise, making logistics fulfillment costs very high. What does high fulfillment cost mean? In B2B, if the per-vehicle fulfillment cost exceeds the per-vehicle gross profit, B2B can never make a cent from price differences! For a self-operated platform, how can that be acceptable? If best-selling products are not available due to New Channel's weak channel, and cooperation with regional or small brands is possible, then how can New Channel achieve both cheap and fast logistics? Exactly, by opening the logistics system and merging social orders to significantly reduce logistics costs! At this stage, JD's consumer base is mainly in prefecture-level cities and above; penetration in counties and townships below is still very low, order density is insufficient, and to-C logistics costs are also very high. Therefore, JD's opening of logistics to merge social orders to reduce the cost of the existing logistics system—whether it was intentional by Liu Qiangdong or a stroke of genius—New Channel will use low-cost large-item logistics systems plus central warehousing to rapidly achieve low-cost market expansion! The above may be too complex; let's simplify the logic:
The biggest problems for JD New Channel at this stage are inability to obtain low-priced A-class goods and high order fulfillment costs.
Low-priced A-class products are basically unavailable; JD will expand in township markets by selecting categories and quality products;
Fulfillment costs are too high; New Channel will leverage the social orders merged after opening logistics to significantly reduce logistics costs, thereby achieving rapid market expansion.
Now you see the logic, right? If JD truly follows this plan, once it merges with C-end logistics, the short chain from factory → central warehouse → retail store is connected, with single-warehouse multi-channel integration. New Channel, combined with JD Supermarket and Yihaodian, will enable central warehouse inventory allocation across the network, delivering to stores and C-end nearby. Couriers can pick up goods directly from stores for nearby delivery. With complete goods, low prices, and fast delivery, once these three are in place, JD's super-flat channel will immediately show its lethal power! JD Logistics flattens the channel from factory to store, making it a reality for factories to bypass distributors and supply directly to terminals. JD's open logistics is the tipping point for B2B to rewrite the supply and marketing landscape of the FMCG industry. Moreover, JD's supply chain finance, big data, and other capital and technology synergies will be fully leveraged! When New Channel opens the B2B2C chain and retail store penetration is sufficient, which A-brand would not cooperate with New Channel? Do you see it now? Yes! There's no role for distributors. To eliminate you is none of your business. -END- China's best learning platform for FMCG distributors 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 article selection | 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 management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's 18 skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]