Kantar E-commerce Consulting Director Zhang Chi delivered a speech at the Second China 'Internet + FMCG' Summit Forum on July 15-16.

Key Takeaways: Five major trends in the FMCG B2B market:

  1. All major B2B players, after gaining a certain store scale, aim to control their terminals.
  2. B2B is not just the current business; the future will be B2B2C, requiring both To C capabilities and support.
  3. The boundary between self-operated and matchmaking models is becoming blurred.
  4. Private label, brand-exclusive, and customized products.
  5. Supply chain finance, which not only involves small stores but also distributors, leveraging data and cash flow to generate financial value.

The following is the transcript of Zhang Chi's speech:

Thank you very much for being here today. Time is tight, and there is a lot of content. In the next 30 minutes, I will represent Kantar's retail e-commerce business unit to share insights on FMCG B2B and development trends from Kantar Consulting's perspective.

Keyword: FMCG Channels Before discussing FMCG B2B, let's look at the overall retail environment in China. First, e-commerce is developing very rapidly in China. Globally, China was the largest e-commerce country in 2015. However, there is still an upward trend. The proportion of e-commerce shoppers among internet users (the vertical axis in this chart) still has room for growth. We say 70% of internet users are e-commerce shoppers, but our scale is already so large, and our growth rate is at least 30% annually, so the potential for future e-commerce development cannot be ignored.

For them, two channel types are more important: modern trade and traditional trade. Modern trade channels face significant pressure; hypermarkets and standard supermarkets are the largest in modern trade and are most impacted by e-commerce. However, other channels like母婴店 (mother-and-baby stores), convenience stores, and small supermarkets are growing faster than hypermarkets. But their scale is still relatively small.

Every year, we discuss channel composition with clients. We find that, whether it's e-commerce or modern trade, there is a clear trend: most FMCG manufacturers still heavily rely on traditional trade channels. Traditional trade channels here refer to the over 600 million small stores across China. For food, beverages, and alcohol, 60% to 70% of volume comes from traditional trade. In this audience, there are B2B platform operators and manufacturer clients. This platform is huge, but distribution is challenging. Even the most advanced manufacturers in China cannot rely solely on their own strength to distribute products to so many small stores; they must depend on many channel links to reach the terminal. In this process, brands face many pain points. First, from a results perspective, distribution in first-tier cities is still a major issue, and distribution quality is always their biggest concern. With so many channels, terminal prices cannot be controlled, and they never know the data or where promotional expenses go. Distributor management levels vary. Second, for small stores, in this channel, they have to call one number to buy one product and another for another product, so they make countless calls to get everything they need. Third, in terms of price, supply, and quality, small stores also have their own pain points in traditional trade.

What exactly is FMCG B2B? Compared to traditional trade channels, the chain is significantly shortened, and efficiency is significantly improved. Distributors still have value. In this model, the most affected are the second- and third-tier wholesale markets. In this new model, brands and small stores are the biggest beneficiaries. They know where their supply is and can better control prices. For small stores, the problems they had in the traditional model are basically eliminated in the new model.

Next, I will analyze the value and benefits of B2B for small stores, B2B platforms, and brands by examining the three core links in the B2B industry chain.

First, let's look at the market potential. How many small stores are there in China? Different institutions have different figures. In 2017, we predict there are about 6.6 million small stores nationwide, a very large number that looks promising. However, the distribution of these stores is very scattered across China. Nearly 70% are in third-, fourth-, and fifth-tier cities and townships, with large numbers but scattered layouts.

Keywords: Small Store Owners, Categories How do small store owners currently use B2B? Through our research, we find that each small store averages about 3,000 yuan in retail sales. The frequency of B2B use is not high—about three times a month, meaning they order via B2B platforms every ten days. Each time, they spend about 800 yuan on the platform. If we sum these numbers, we find that B2B purchases account for only 15% of a small store's total purchases, which is very low. This 15% is divided among different platform apps, while 85% still comes from traditional channels. We also asked small stores why they use B2B platforms. Many clients, including ourselves before this research, assumed it was price—small store owners are very price-sensitive and go where it's cheapest. But the research showed otherwise: the primary reason is product category variety. Second is product reliability, third is efficient logistics and delivery, and fourth is price. This was somewhat surprising to us.

Regarding the first point, category richness: how many categories do small stores purchase via B2B? Over 70% of small store owners say they buy at least four categories through B2B platforms. It's important to note that although price is not the main driver for using B2B, it still significantly influences browsing and ordering. Many small stores use B2B platforms, look at different apps, but don't place orders. Why? They say sometimes B2B prices are not much better than traditional channels, and they only order when the volume is large. They frequently use B2B platforms to browse.

In terms of category penetration, small store owners typically purchase five to six categories. Currently, they meet their beverage needs through B2B, but they struggle with packaged goods and haven't found good supply sources. Therefore, B2B is particularly important for food and beverages as an entry point. Next are home care products and dairy.

In the research, we not only asked about shopping habits but also about future views on B2B. Small store owners don't think that far ahead, so we asked how they think their shopping habits will change on B2B in 2018. First, small store owners are becoming more open and will rely more on B2B. Respondents said they will basically purchase on B2B websites and increase purchase frequency; 67% are willing to increase frequency. 62% said they might not increase frequency but will increase the amount per purchase, raising the average order value. Frequency will rise from once every ten days (three times a month) to once every seven days. The average order value will rise from 800 yuan to over 900 yuan. Recalculating, B2B will account for 23% of small store purchases, up from 15%.

More and more small stores will adopt this model. Based on 2018 projections, the current market is 70 billion yuan, and by 2020, conservatively, it will reach 300 billion yuan. This is a nearly hundred-billion-yuan market, which is why this forum attracts so many attendees—the scale is enormous.

Keywords: Self-operated, Matchmaking From a platform perspective, there are many standards for classifying B2B. Let's not overcomplicate it; we can simply divide B2B into two types: self-operated and matchmaking. Under each, there are subcategories, but the fundamental difference is ownership of logistics and supply information. First, the profit models are very different. Second, self-operated platforms have pricing power, while matchmaking models leave pricing to distributors. Self-operated models are straightforward: logistics and warehousing are owned. Matchmaking models are asset-light, outsourcing everything or using manufacturer resources. One is heavy, the other light. Light models scale quickly, while heavy models are easier for brands to cooperate with. In matchmaking, many clients appreciate that it doesn't disrupt their current distribution system, whereas self-operated may conflict with it. Overall, neither model is inherently better; they just differ in business cooperation.

Currently, both models have penetrated FMCG, with self-operated and matchmaking players in various categories. Geographically, the competitive landscape in China can be measured by B2B penetration. The most competitive region is Beijing-Tianjin-Hebei, where competition is fierce. There, we see leading B2B platforms like JD.com and E-commerce Interconnect. The next region is Jiangsu-Zhejiang-Shanghai, slightly less competitive but still intense. A trend is that B2B, originally in northern and coastal areas, is moving inland, with many players in Henan, Chongqing, Hubei, and Hunan, and more small stores transitioning to B2B platforms. Penetration is rising significantly.

Five Major Trends in the FMCG B2B Market Looking at the B2B industry, many large players are doing similar things. We've summarized five trends:

  1. All major B2B players, after gaining a certain store scale, aim to control their terminals. Whether it's JD.com's "Million Convenience Stores" or others, they want stores to use their platform name and become franchise-like models.
  2. B2B is not just the current business; To C is crucial. A new model called B2B2C is emerging, requiring both To C capabilities and support. Through B2B2C, whether via POS machines in stores or JD's mobile POS, data is captured through payment behavior, enabling better retail management for small stores and platforms. O2O is also an entry point, like Zhongshang Huimin, which directs data to stores and uses O2O last-mile delivery to reach the actual shoppers behind the stores.
  3. The boundary between self-operated and matchmaking models is blurring. For example, self-operated platforms like Best Store Plus or Meicai, after gaining store scale, may open up their platforms, becoming semi-self-operated and semi-matchmaking. Meicai keeps fresh produce self-operated but opens up non-core standard products.
  4. Private label, brand-exclusive, and customized products. For instance, a platform with a strong internet brand can promote its own brand through small stores, achieving higher margins. Or platforms like Mall may have exclusive products from different manufacturers, which also yield higher margins. For manufacturers, collaborating with platforms on customized or exclusive products can be effective, requiring strong brand-platform cooperation.
  5. Supply chain finance, which not only involves small stores but also distributors, leveraging data and cash flow to generate financial value. For example, Alibaba's retail business has started offering small store retail, using actual purchase data. If a B2B platform has store shipment data, it can guarantee loans for small stores that need capital for inventory or store adjustments.

Keywords: Logistics, Customer Base, Brands Returning to the essence of B2B platforms, our research with many small stores reveals that current B2B platforms have infrastructure gaps. For small stores, the four most important steps are purchasing products, logistics delivery, after-sales service, and daily customer base maintenance. Many platforms fail to satisfy small store owners. We don't think any B2B platform currently meets all small store needs. Besides structural optimization, there are supply shortages, frequent stockouts, and missing information. Production dates are crucial for small store owners, but many platforms don't list them, causing concern and deterring purchases. Payment flexibility is also important.

In logistics, many distributors already have adequate delivery. Compared to existing systems, some small stores say B2B platforms aren't necessarily more timely or effective, and delivery costs are too high. Small stores worry they can't buy enough to justify delivery points. They also prefer delivery personnel to place goods inside the store, even on shelves, rather than leaving them outside.

Regarding returns and exchanges, current processes are inconvenient, requiring backend contact. Small stores want simplified return procedures, as step-by-step processes are tiring.

Finally, customer base maintenance: many small stores initially feel attention from field staff, but visits become irregular. Promotions and rebates look good initially but are confusing. Ideally, small stores want regular visits to feel valued. Service should be high-quality, including shelf display, store planning, and retail advice. Different stores have different needs, so platforms should customize backend settings to increase stickiness.

From the brand perspective, most of our clients are FMCG companies. How do they view the new B2B model? Last year, we conducted a survey asking if they had heard of B2B and if they recognized it. This year, we repeated it. Fewer people say they haven't heard of B2B: last year, over 30% hadn't; this year, only over 20%. Last year, only 13% of clients were doing B2B business; this year, it's 30%. Among those doing B2B, many are in mother-and-baby, followed by packaged food and beverages, then beauty. However, 46% have heard of B2B and know what it is but haven't cooperated. Their concerns are common: fear of disrupting existing channels, belief that B2B's terminal activation is weaker than their own, price concerns, and unsuitable product matching, with poor past results.

We asked clients what resources they value most in B2B cooperation. The top answer was data, not profit—transparency, supply, and service. Second was warehousing, hoping to leverage B2B's warehousing and delivery capabilities. Third was platform scale and growth. After cooperation, what improvements did they see? The first two points—coverage in first-tier cities, distribution efficiency, and cost—were achieved. But the third and fourth points—data transparency and sales data provision—were disappointing, as lack of data hampers flow control. Their feedback includes price system maintenance and terminal sales capability, and finally store execution.

From the brand perspective, they have feedback on B2B: price systems are often disrupted. On stores, many manufacturers say don't look at clicks but monthly active users; B2B platforms have issues with activity and user stickiness. They want precise store matching to know which B2B platforms cover stores they don't, but currently can't do such matching. They also worry about in-store execution, not just core products but selling new products. On logistics, some products need daily delivery, but can 3-6 hour delivery be achieved? Two-day delivery is too long for small stores. On data, there's no open and transparent analysis. Many clients still don't know actual store consumption data or terminal consumer needs after cooperating with B2B.

I've basically covered the B2B value chain and its value points for small stores and platforms.

On the last page, I'll explain the three stages of B2B platform development. We believe B2B will go through three stages, and we are in the first: penetration. Monthly active users account for 9% of total B2B volume. In this stage, platforms are burning cash on infrastructure like warehousing and logistics. Prices won't be controlled; brands shouldn't expect price control during expansion because traffic-driving products are needed to enter stores and achieve scale. Key factors are scale, warehousing, and logistics.

Next, when monthly active users rise from 9% to 10-20%, scale is no longer the main competitive advantage. More B2B brands will pursue efficiency and profit, focusing not just on warehousing and logistics but on brand cooperation and relationships, as well as maintaining small store relationships.

In the third stage, platforms mature. More small stores—25% of China's small stores—will use B2B monthly. Brand relationships and store maintenance remain important. All parties—brands, small stores, and manufacturers—want data transparency. Competition becomes more effective and data-driven, with continuous supply chain optimization, a dynamic process that helps B2B platforms achieve profitability.

That's my brief sharing for today. I hope it's helpful.

Source: B2B Industry News -END-