After rapid development from 2014 to 2017, China's FMCG B2B has begun to take shape. According to incomplete statistics from New Distribution, there are currently 254 B2B platforms involved in FMCG in China. In these cities, both coverage and penetration have reached very considerable numbers, suggesting a flourishing and competitive landscape.
1 Major Trends
- The digital transformation of enterprises is irreversible.
To date, the world's most valuable companies are all closely tied to the internet. In the U.S., Apple (US$898.556 billion), Google (US$738.819 billion), Microsoft (US$616.1 billion), Amazon (US$563 billion), and Facebook (US$514.9 billion). In China, the most valuable company is Tencent Holdings, with a stock market value of HK$3.85 trillion.
In contrast, physical retail enterprises are continuously declining, heavily impacted by the internet. In 2016, China's total retail sales of consumer goods reached 33.23 trillion yuan, a year-on-year increase of 10.4%, but the growth rate was 0.3 percentage points lower than in 2015. 2017 marked the seventh consecutive year of decline in the growth rate of total retail sales of consumer goods since 2010. Walmart's overall sales were flat last year, while profits fell by 7%.
With the accelerated penetration of mobile internet, the digital upgrade of China's consumer goods channels is now a consensus among all. The author has come into contact with all brand owners and channel distributors; no one is questioning whether B2B is a false proposition. Instead, everyone is thinking about how to embrace and integrate the internet with their own business and enterprise.
- Channels are becoming more fragmented and diversified.
Consumers are also changing their consumption awareness and methods due to the popularity of mobile internet. The overall characteristics are fragmentation and online presence. In any scenario, at any place, at any time, as long as there is a shopping impulse, they can purchase immediately. This means that traditional commodity circulation methods can no longer meet the increasingly diverse consumption needs of consumers. The market share of traditional distribution methods will inevitably be diverted by emerging internet channels, and brand owners' distribution channels will also show a trend of increasing fragmentation and diversification.
- B2B is a high-efficiency, low-cost solution.
Diverse consumer demands necessarily correspond to more segmented categories and channels. Moreover, different categories require different internet-based marketing and distribution methods, which requires brand owners to have a very strong supply chain organization to meet these diverse needs.
However, the current level of informatization in domestic commodity circulation channels is relatively low. Brand owners and distributors face a huge market stock and cannot abandon their existing distribution methods in a short time. Channel informatization is not an upgrade of the existing stock but a reconstruction, which is a huge challenge for brand owners.
Under such conditions, B2B's efficient supply chain organization, especially the national warehousing and distribution logistics network and information network, can help brand owners deliver various diverse goods to various retail terminals efficiently, flexibly, agilely, and quickly.
- B2B has become an important emerging force in China's channels.
The B2B industry is entering a period of rapid development. Currently, the coverage of major B2B platforms in China is expanding rapidly nationwide, and the depth of coverage in cities is also deepening.
In terms of the number of platforms, according to data surveyed by the New Distribution team, there are about 3 B2B platforms covering all cities nationwide. Among the top 40 cities by GDP, there are on average about 14 platforms per city.
In this process, small stores' acceptance of B2B is gradually increasing. During market research, New Distribution found that among 22 major cities nationwide, 66.5% of small store owners have ordered goods on B2B platforms, and the proportion of small stores placing orders independently on B2B platforms each week is as high as 49.3%. In some cities such as Changsha, the proportion of small store owners placing orders independently every day is as high as 35.1%. B2B has become one of the main purchasing methods for small store owners.
Undoubtedly, B2B has become an important emerging force in China's channels.
2 Battlefield
JD New通路 and Alibaba Retail通 were certainly not low-key in 2017. On April 14, Liu Qiangdong announced JD's "Million Convenience Store" plan on his personal Toutiao account, and by July it was announced to cover the whole country.
(Introduction to JD Convenience Store)
Alibaba Retail通 also proposed the Tmall Small Store plan and expanded rapidly. As of now, Retail通's distribution scope has covered more than 70 domestic cities, providing services to more than 800,000 small stores.
Not only these two giants, but other platforms are also expanding rapidly. According to incomplete statistics, Yijiupi has covered more than 90 mainstream cities in China, Best Store Plus covers nearly 50, and Dian Shang Interconnection has covered 31 cities with 400,000 small stores. Hui Xia Dan, since its launch in 2015, has covered nearly 200 prefecture-level cities and more than 1,000 counties, with over 1.2 million stores covered. Furong Xingsheng and Xin Gaoqiao have successively announced that they have exceeded 10,000 stores joining. Yatang Xiaochao, incredibly, recruited 35,000 mom-and-pop stores in just one year.
Traditional established retail brands have not stood by. RT-Mart launched its B2B platform for traditional retail small stores, RT-Mart E路发. Traditional chain retail brands such as Dongguan's Meiyijia, Xi'an's Every Day, and Hebei's 36524 have also successively launched their own B2B platforms for small stores. The market is full of fierce competition and smoke.
The rapid development of FMCG B2B has also attracted the attention of the capital market. According to incomplete statistics, between July 2016 and July 2017 alone, 48 platforms received capital market investment, with total financing reaching 10.106 billion yuan. Among them, Zhongshang Huimin's investment of 1.3 billion yuan is representative.
At the capital level, it is not just investment; the meaning of "taking sides" is not as simple as the Wuzhen dinner. With Alibaba's acquisition of RT-Mart's parent company Gaoxin Retail officially finalized, Tencent was also forced into this "new retail" battle, successively joining JD in investing in Yonghui Superstores and Jumei Youpin. The "anti-Alibaba alliance" has begun to take shape.
Zhongshang Huimin, besides acquiring Ai Xian Feng, did not have major expansion moves in 2017, focusing more on refining its supply chain system.
HNA Group, with capital, through mergers and investments, brought B2B brands such as Zhanghe Tianxia, Zhanghe Yun Cang, and Gongxiao Daji under its wing, further deepening its layout in the B-end market.
Not only these leading forces, but distributors and brand owners across the country have also entered the water to test, such as Moutai, Haitian, Qiaqia, Want Want, Jingzhi Liquor, etc. While reaching cooperation with B2B, they have also launched their own B2B ordering platforms. Some distributors, through their existing stock resources, have launched B2B platforms that combine unified warehousing and distribution, and city distribution logistics.
Some brand owners who feel the chill of the industry are thinking about channel reform. Many companies have separately established new retail departments outside their channel departments, and many first-tier brands have also lowered their profiles. Coca-Cola, Danone, P&G, Mondelez Mars, and Unilever have all begun strategic cooperation with B2B. Even some brands have started to take sides, such as Yili strategically signing with New通路, and Mengniu strategically signing with Alibaba.
3 Opportunities
In 2018, how many opportunities remain for new entrants and small players in B2B?
First, although there are many players, the market is far from the point of hand-to-hand combat. The entry of giants has accelerated market education, but there is still a long way to go in terms of fine operation in regional markets.
In addition, specialized and vertical fields such as stationery, alcoholic beverages, maternal and infant products, and frozen foods, because of their deep cultivation of a single category, also contain huge market potential.
For brand owners, the rapid development of B2B platforms also contains huge market opportunities. The rise of new distribution channels and the decline of traditional channels bring about a reshuffle of Chinese FMCG brands, accompanied by changes in product forms and marketing methods.
However, from the perspective of industry development trends, the grouping and scaling of channel distributors is an inevitable trend. In fact, most distributors may be gradually marginalized due to this industry upgrade.
Of course, it is not that distributors have no opportunities. At this stage, some distributors with strong operational capabilities still have huge local advantages, including local customer relationships, products, and heavy cargo logistics capabilities. Once these capabilities are organized into a force, their role in the channel should not be underestimated.
4 Speculations
- Can GMV reach 300 billion?
Online GMV determines the industry's penetration rate of retail channels and the voice in the upstream supply chain. If coverage is high but penetration is insufficient, the industry's development will still be much ado about nothing. According to market estimates by New Distribution, in 2017, the overall transaction scale of China's FMCG B2B should be around 100 billion yuan. As more platforms gradually enter their roles, will there be explosive growth in 2018, reaching a transaction scale of around 300 billion?
- Will mergers and acquisitions by giants accelerate?
Alibaba successfully transformed its competitive relationship with RT-Mart E路发 into a cooperative one by investing in RT-Mart, which directly became the trigger for JD and Tencent to jointly invest in Yonghui.
At present, Alibaba has completed its layout in the FMCG B2B field with "Retail通 + Best Store Plus + RT-Mart E路发". Under this market structure, will JD join forces with Tencent to launch a new round of "choose one of two"? For some leading platforms and some regional platforms, will they choose Alibaba or Tencent, or unite with other platforms to form a third pole?
- What is the way out for traditional distributors?
After the emergence of FMCG B2B platforms, the originally relatively stable commodity circulation methods were broken. In this situation, some distributors have begun to think about digital transformation of channels. With the entry of JD and Alibaba, how many opportunities remain for traditional distributors to transform? Is it to abandon the industry they have operated for many years and find another way out, or to decisively transform and quickly become the regional king?
- Will mom-and-pop stores become the main battlefield for B2B?
In addition to JD and Alibaba's million convenience store plans, in 2017, major B2B platforms also successively began their layout for retail small stores.
Best Store Plus integrated Chengdu's WOWO, Zhongshang Huimin integrated Ai Xian Feng, Zhanghe Tianxia jointly with Gongxiao Daji launched the Kupu brand, and Dian Da, Yi Jiu Pi, as well as local B2B platforms across the country, almost all launched their own franchise brands. Although there are still some disputes in business models regarding heavy-asset self-operation and loose franchising, there is no doubt that the fight for small stores is a consensus. The question is, how fierce will this fight be?
In addition, for B2B platforms with complete supply chain capabilities, unmanned retail is something that can be done with the flow. The question is whether various platforms will accelerate their layout.
2017 has finally come to an end, and the supply chain behind China's new retail is like the Spring and Autumn and Warring States periods in Chinese history. Looking ahead to 2018, what will it be like?
-END-