On January 12-13, at the '2019 New Year Marketing Course' co-hosted by New Distribution and Teacher Liu's Forum, Zhao Bo, founder of New Distribution, delivered a keynote speech titled 'Speculations on New Marketing and New Channel Digital Transformation in the FMCG Industry.' The editor has compiled the content on channel transformation into text for readers.
Core Points:
No existing distributor function is irreplaceable;
Distributors have only existed in China for about 30 years;
Retail scenarios are increasingly fragmented and diverse, but distributors lack basic digital service capabilities;
Visibility, online presence, routing, agility, rapid response, and financialization are the basic requirements for the new supply chain in the new retail era.
I. Division of Roles Among Channel Members: Before discussing channel transformation, let's clarify the functions of distributors and secondary wholesalers in the FMCG supply chain. Starting with distributors:
First, distributors serve brand owners. To successfully represent a product, a distributor must at least have several functions: capital advance, inventory warehousing, marketing, logistics, and customer service. For most FMCG industries, off-season and peak season are very distinct. In the off-season, production capacity is surplus, while in the peak season, it is insufficient.
Take Nongfu Spring as an example. Every year-end, salespeople do one thing: the factory first introduces a strong policy, such as a 20% or 30% bonus, to encourage distributors and secondary wholesalers to pay and stock up massively. But during the peak season, there are no policies. The logic behind this phenomenon is simple: the company hopes to balance its off-season production capacity in time and space by leveraging distributors' warehousing, inventory, and funds.
From January to February, brand owners push inventory into distributors' warehouses. From February to March, distributors push inventory into secondary wholesalers' warehouses. From March to April, they push inventory into small stores. From April to May, brand owners conduct a series of consumer pull activities. Essentially, this is a physical transfer of goods in time and space by the brand owner, not just a forward transfer of inventory, but also a reverse transfer of funds. This is the traditional value of distributors.
What are secondary wholesalers? What is their value?
New Distribution believes that secondary wholesalers are essentially shared warehouses for small stores. Take Guangzhou as an example. Guangzhou is a century-old city with many urban villages, narrow roads, high population density, and severe traffic congestion—it is famously a 'traffic jam city.' However, there are many convenience stores in Guangdong. Because the economy is developed, rent is high, and small stores cannot stock too much inventory or occupy too much store space.
This brings a problem: the weather in Guangdong is changeable. For example, if it rains in the morning, not a single bottle of beverage sells; if it clears up in the afternoon, the beverages in small stores may sell out immediately. At this point, the small store owner calls the distributor and asks for 5 cases of water. The distributor's salesperson typically thinks, 'What? Are you crazy? 5 cases? You want me to deliver that?' Of course, they can't say that directly; they usually say, 'The minimum is 20, 30, or 50 cases for delivery.' Why? Because distributors serve brands, and a single SKU cannot be delivered in small quantities.
Where is the value of secondary wholesalers? When a store owner asks for one case of Mizone, one case of Red Bull, one case of Coke, and two cases of Nongfu, the secondary wholesaler can deliver them with a quick drive. The actual value of secondary wholesalers is as shared warehousing for small stores; they do not serve brand owners.
II. Trends in Channel Transformation: After clarifying the functions of distributors and secondary wholesalers, let's look back at the trends in channel transformation. This diagram is a representative industry channel structure before the emergence of B2B. Although distributors have been flattening channels, secondary wholesalers remain a crucial part of brand owners' distribution channels. Distributors and secondary wholesalers each performed their own functions, coexisting peacefully for many years.
However, since 2013, B2B in China's FMCG industry has developed rapidly. Brand owners have gone from not accepting, not recognizing, not engaging, and issuing statements denying it, to proactively contacting, trying cooperation, and even forming comprehensive strategic partnerships. Now, B2B has become a force to be reckoned with. According to incomplete statistics from New Distribution, there are currently 239 FMCG B2B companies in China, and the GMV transaction volume in 2018 exceeded 100 billion yuan! They basically cover the entire market from first-tier to sixth-tier cities nationwide.
The typical characteristics of B2B are extremely rich product variety, fast delivery, flexible promotional methods, and various empowerment tools for small stores.
But because it is digital e-commerce, the requirements for single-product gross margin are not as high as for distributors; B2B focuses more on turnover rate. B2B cannot provide capital advance or inventory warehousing for brand owners, so an agency operation role has emerged, commonly known as TP (Taobao Partner) operators.
Analysis reveals that B2B is essentially a super-digitalized E-secondary wholesaler. In 2018, New Distribution conducted research in Beijing, Shanghai, Guangzhou, and Shenzhen and found that in the urban areas of these cities, it has been difficult to see small secondary wholesalers in the past two years; they have basically been replaced by B2B.
With B2B in existence, what will the future channel structure look like?
One speculation is highly likely: future retail scenarios will become more numerous. This year, community group buying is very popular; last year, unmanned retail was hot. Of course, there are also content e-commerce, social e-commerce, video e-commerce, etc. These various fragmented scenarios bring a problem: it is difficult for distributors to directly supply and empower these fragmented, small, miscellaneous, and specialized channels.
These new retail scenarios are born out of internet-based, new retail, and digital supply chain empowerment systems, so they rarely build their own supply chains. Instead, they mostly cooperate deeply with socialized infrastructure, such as third-party warehousing and logistics, B2B platforms, etc.
In this process, the traditional competitiveness of distributors and secondary wholesalers will gradually be marginalized. For example, the merchandising actions of brand salespeople in small stores are essentially due to the inaction of the store owners themselves; it is a problem with the store's own operational capability. Professional convenience stores would never allow salespeople to arbitrarily adjust shelf displays. As competition in the retail industry intensifies, small stores will become more professional. Their operations will no longer rely on display fees or other manufacturer bribes to survive, but will focus on managing customers, meeting the needs of in-store shoppers, designing shelf displays, and improving sales per square foot.
Because B2B has supply chain empowerment capabilities, it has advantages over traditional distributors. These advantages are not only in centralized procurement but also in data processing capabilities. B2B offers various flexible promotional activities, 24-hour ordering, and various empowerment tools for small stores. We believe that B2B is the core infrastructure for future small-store retail scenarios.
At this point, we should think: when these channels are fully consumed by B2B, what will secondary wholesalers become? What will distributors become? This is a topic worth deep consideration for every distributor.
Looking at the development of the industry over the next decade, distributors will likely become DC (Distribution Center) operators, and secondary wholesalers will supply special channels. What about the original distributors? We believe that intermediaries will definitely exist, but whether distributors will exist is uncertain, because no existing distributor function is irreplaceable.
New Distribution believes that the future trend of FMCG distribution channels is toward higher efficiency, lower costs, and optimal experience. Specifically: visualization of commercial flow, routing of logistics, financialization of capital, and digitization of information. In terms of organizational form, it will focus on socialization and specialization, shift to more efficient organizational forms, and move toward greater transparency, higher efficiency, lower costs, larger scale, and higher technology. One-inventory (unified inventory) is also a major future trend, with B2B and B2C networks achieving instant delivery through one-inventory. These are very clear trends in the near future.
Regarding these topics, New Distribution will conduct in-depth discussions at the 5th FMCG + Internet Conference to be held in Chengdu in March 2019. Interested friends can follow the New Distribution official account for updates. We will officially announce details soon.
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