In the past two years, all FMCG companies have had a tough time. Labor costs have risen, sales have declined, and to keep financial reports looking good, they have had to cut marketing budgets and lay off staff on a large scale. It is said that a well-known beverage brand reduced its frontline sales force by nearly 5,000 people last year, and its old rival in the southwest region cut its sales team by 35% last month... In this brutal market environment, all brand owners are trying to find a lower-cost, higher-efficiency channel distribution model.

Just as traditional distribution models are struggling under the weight of declining sales and rising costs, B2B has emerged as a new force in the past two years. At the Third FMCG + Internet Conference, New Distribution released the "China FMCG B2B Competitiveness White Paper," which found that among 22 major economic cities in China, there are 124 B2B platforms covering them, with an average of 14 platforms per market. JD.com and Alibaba are also among them. Despite lacking strong support from brand owners, B2B continues to expand rapidly and grow wildly. According to incomplete statistics from New Distribution, B2B has almost completed coverage of mainstream channels in markets below the third tier. The coverage rate of mom-and-pop stores in surveyed cities has also reached as high as 67%.

B2B's market influence is growing, and many brand owners have realized that B2B is a force to be reckoned with in China's future channels. Some more forward-thinking brand owners have begun signing contracts with major B2B platforms one after another. Recently, the media has been reporting that Mengniu signed with Alibaba's Ling Shou Tong, Yili and Danone strategically signed with JD's New Channel, and Mondelez and Master Kong strategically signed with Hui Xia Dan, among others. The significance behind this is that brand owners are beginning to strategically experiment with B2B and recognize its business model.

During exchanges with executives from many companies, New Distribution found that although they cooperate with B2B, the vast majority of brand owners only treat B2B as one of the distribution channels for existing products, rather than as a new distribution model for the new era. They hope that B2B can create new sales increments without conflicting with existing channel members. The problem is that B2B naturally creates some channel conflict with distributors, especially for brand owners with high market coverage density and well-established distribution systems; the greater the impact on their channels.

Here, brand owners have a cognitive misunderstanding: they treat B2B as a distribution channel similar to KA, rather than as a new distribution model.

In fact, B2B and traditional distribution models highly overlap in the objects they serve. Breaking this down, the cooperation between brand owners and B2B roughly falls into three situations:

  • Situation 1: For existing products, let B2B distribute in new (incremental) markets to help brand owners complete market coverage. For example, some brand owners are only strong in first- and second-tier markets and weak in third- to sixth-tier markets, hoping to use B2B to cover lower-tier markets.
  • Situation 2: For new product launches, let B2B be the first to launch. They want to use B2B platforms' rapid penetration capabilities to achieve initial market coverage in a short time.
  • Situation 3: For existing products, let distributors fully embrace the internet and integrate with B2B platforms to complete the internet transformation.

The above three situations inevitably encounter different problems:

  1. If old products don't sell well in new or weak markets through distributors, it goes without saying that B2B won't sell them well either.
  2. For new products, short-term penetration is not a problem, but large-scale sell-through still requires brand owners to find solutions themselves.
  3. If channels overlap, online and offline conflicts will inevitably arise, especially the stock conflict between self-operated platforms and traditional distributors.
  4. If it's only information matching, distributors will also be very resistant to such orders.

The reason these problems arise is essentially that brand owners mistakenly treat B2B as a channel similar to KA or CVS, thinking that once they hand over the goods, B2B will quickly "digest" them. But where the goods are digested is a topic worth exploring.

Here, let's first define the traditional "channel": a retail format that directly reaches consumers can be defined as a channel.

KA, CVS, and even B2C all directly reach the C-end (consumers). Once consumers purchase, the entire consumption process ends. However, the goods "digested" by B2B do not go directly to consumers but to terminal mom-and-pop stores, which then resell the goods until they are sold to consumers.

B2B has its own unique distribution characteristics and model, which are quite different from distributors. For brand owners, understanding B2B requires a thorough review from the beginning.

The supply chain system of brand owners, from production, warehousing and logistics, channel distribution, price sharing, and marketing, is designed to meet basic consumer needs. Through small SKU, large-scale industrial production, specialized layered distribution systems, and high-density market coverage penetration, they achieve product competitiveness. Yes, this is what the marketing circle often calls "big single products."

At this stage, most brand owners still think in terms of "big single products," still considering how to deliver "existing" "industrialized" products to consumers more efficiently, at lower cost, and more conveniently. The problem is that traditional consumers are slowly disappearing. With consumption upgrading and the internet supplementing consumer information, consumers are no longer the ones who are satisfied with "promotions." Users are being stratified. What each person pursues in the consumption process is no longer just material satisfaction; it is shifting from eating well to safety, health, and personalized needs. The market is gradually becoming highly fragmented. Where users are, what they think, and what they want to consume are issues that every brand owner must deeply consider.

Today, when discussing the understanding of B2B, the problem is not B2B itself, but brand owners' inability to adapt to consumer changes, their reluctance to let go of existing business, and their fear of unknown spaces.

In terms of high-density distribution capability in a single market, B2B is not as good as professional distributors. Distributors excel in high-density channel coverage, achieving ubiquitous product exposure. They have accumulated resources over many years of deep cultivation in local markets, have years of reputation and customer relationships, are very familiar with local markets, and have rich practical experience in professional product management. These are incomparable to B2B before it accumulates large-scale data. However, B2B has never been a channel; it is a new product distribution model. It is a new distribution model that can meet the needs of highly fragmented consumer groups, consumption habits, and consumption characteristics, and satisfy personalized needs.

For example, if a brand produces a product with strong product power, high profit, and great future market potential, but in a provincial capital market with a population of 10 million, only about 200,000 to 500,000 people currently have this consumption demand. According to traditional distribution thinking, this product can only be sold in KA systems with high traffic. The problem is that with KA systems being hit by B2C and experiencing sharp declines in foot traffic, hypermarkets cannot support effective sales of such products. Due to extremely high return rates, distributors cannot focus on distributing such products long-term. This leads to a product with great future star potential being abandoned because after investing a lot of money without effective market feedback, it can only be left unresolved.

B2B's advantage lies in the fact that many long-tail products, personalized products, and niche products that distributors cannot distribute on a large scale can be distributed visibly and precisely through B2B's full-network capabilities, thereby achieving accurate coverage of personalized consumer groups for brand owners.

Not only niche products, but many products in market distribution will increasingly need precise store consumption data support in the future. B2B can help brand owners develop more products that are suitable for consumers and meet personalized needs.

Moreover, B2B can provide precise support based on its powerful integrated data for in-transit inventory, channel inventory, in-store sales frequency, category distribution structure, and consumer profiles. This is incomparable to traditional distributors.

In general, distributors have their advantages, and B2B has its strengths.

So how should brand owners distinguish between them and effectively utilize this emerging channel model?

For brand owners, meeting consumers' personalized and diversified needs is the primary consideration, and through whom to distribute is actually not important.

Whether a brand owner develops a product that meets the needs of 1 million, 10 million, 100 million, or 1 billion people, in the future, it is only a matter of channel coverage density and distribution precision. Originally, products were produced to theoretically meet the consumption needs of 1.4 billion people. Therefore, they required professional, specialized distributors, even exclusive professional agents, to distribute the product professionally, achieving high-density seamless coverage of the market.

For products that meet the needs of 1 million people, such as large long-tail personalized products, they can consider distributing through B2C channels, or even WeChat business channels. For "semi-niche" products that fall between B2C and traditional distributors, between mass and niche, they need both offline traditional distribution capabilities and the ability to achieve large-scale coverage in a light model like B2C, as well as data support. Only B2B can achieve this.

In the past, without B2C and B2B, brand owners could only produce products with very large audiences. In the future, when demand for mass consumer goods is declining and new consumption demands are rising, whoever can seize this consumption upgrade opportunity and use B2B and B2C to meet personalized and diverse consumers will become the overlord of the future consumer goods industry.

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