On March 21, 2017, the 2017 (2nd) China FMCG + Internet Conference was grandly held at the Chengdu Century City New International Convention and Exhibition Center, attracting thousands of distributors, manufacturers, and internet companies from across the country. The venue was packed, and the scene was unprecedented. Below is the speech by Zhao Bo, chief editor of New Distribution, on March 21, which provides in-depth research and analysis of the current industry situation and future development. We have organized it here for our readers. Click to read the original text to watch the live broadcast of the conference. Since 2014, China's FMCG B2B industry has gradually become popular. Many of you have come into contact with the concept of FMCG B2B and the impact of B2B on traditional industries. Since 2016, New Distribution has led over a thousand domestic distributors to visit more than ten B2B platforms nationwide. During this process, we gained many insights and feelings, but I also found that there is very little description of this industry. Whether it's about matching or self-operated models, media coverage is brief and one-sided, without systematic description of all supply chain links. New Distribution is a very young team, and describing this industry is certainly not very professional, so we invited many professionals to co-author the '2017 FMCG B2B Blue Book'. I think we will continue to improve this blue book in the future, so that everyone can understand the FMCG B2B industry through it. Due to time constraints, I cannot systematically describe the 70,000-word industry blue book, but I have selected a portion to share this data with you.

  1. First, let's analyze brand owners' attitudes towards B2B. In terms of sales, only 41.1% of brand owners saw sales increase in 2016. Tmall Supermarket and JD.com's convenience stores had the most severe impact on daily necessities and daily chemicals, while grain and oil saw the most growth. What do you think is the biggest reason for the impact on your company? This data is very interesting. Among the reasons are consumption upgrade, competition, and e-commerce impact. Consumption upgrade is not the most important, nor is e-commerce impact; competition within the same industry has the most severe impact on sales. Does your company have cooperation with B2B platforms? 37.4% of brand owners directly stated that they cooperate with factories, but 26.1% authorize through distributors, and 36.5% have no cooperation with B2B companies. When asked if they are willing, a large number of brand owners expressed interest. Do you think B2B can increase sales? 56.8% of brand owners believe it can. When asked if B2B is the future direction of channel reform, 51.4% are not sure, 10.4% firmly believe it is not, and 38.3% believe the future channel will definitely be B2B. How do you view possible price subsidies from B2B? 27% of brand owners view it positively, nearly 30% reluctantly, and 44% objectively. From this data, everyone is quite objective and accepting of price subsidies. However, regarding possible cross-regional selling (channel conflict) caused by B2B, half of brand owners cannot tolerate it, but 30% think it depends on behavior. Do you think B2B will impact the existing distributor system? The mainstream view is that there will be impact but not significant; 29% of brands believe it will revolutionize existing channels, and only 10% think it will have short-term or no impact. Summary of data: First, business is difficult. Second, sales are declining. There is no need for B2B to be the future mainstream trend; it may gradually replace distributors as the future mainstream channel. The reason to do B2B is just that it can bring sales, with a conservative and ambiguous attitude. Low-price selling is acceptable, but cross-regional selling is not. This is the brand owner survey. Of course, there are many more questionnaires; we will release them, and you can review them in detail later.
  2. Distributors' attitudes towards B2B. Comparing 2016 sales revenue with 2015, 41.4% of distributors saw sales increase, consistent with brand owners, but 30% saw a decline, with daily chemicals being the worst hit, declining severely. From net profit data, half of distributors saw net profit decline, and less than 30% saw profit growth. Operating expenses in 2016 compared to the same period in 2016 (likely a typo for 2015), 70% of distributors saw operating expense ratios rise. Regarding whether brand owners reduced expenses, 70% of distributors said brand owners reduced expenses in 2016. Why? When they can't maintain sales, brand owners protect profits, which inevitably increases distributors' own expenses. Regarding future company development direction, over 60% of distributors plan to transform, 30% plan to maintain, and 3.1% plan to switch industries, feeling they can't continue in distribution. Do you think B2B is the future transformation direction for distributors? Only 26% of distributors believe B2B is the future direction, 44% are not sure, 18% don't understand B2B, and only 12% say it is not. From this data, although brand owner education on B2B may be good, market education is still insufficient based on attitudes over the past two years. Do you have peers doing B2B around you? 61% of distributors say they already have peers doing it, and only 9.1% (less than 10%) say they haven't heard of it. If you had the opportunity, how would you like to do B2B? Options include franchising, self-building, and participating in peer equity. There is no interest in equity participation; franchising is the main view, self-building accounts for 30%, and peer equity participation just over 20%. From this data, franchising and self-building are mainstream views for distributor transformation to B2B. Which form do you think is most suitable for distributors? Unified warehousing and distribution for same-city logistics, B2B electronic trading, and chain convenience retail systems. Half of distributors believe all three should be done, with unified warehousing and distribution still being the mainstream view. Summary: Costs are rising, sales are declining, profits are falling, and business is difficult. Most distributors believe transformation is necessary, but they are not sure if B2B is the ultimate direction. Insufficient understanding of B2B is the main reason distributors dare not act. Unified warehousing and distribution is currently the first choice for distributors doing B2B. They prefer franchising and self-building, not equity participation.
  3. How do small retail stores view B2B? From the age of store owners, 30-40 years old is the mainstream. Have you ever ordered from a B2B platform? 60% of store owners have not. This data comes from Beijing, Jinan, Tai'an, Weifang, Dezhou, Jining, Heze, Changchun, and two prefecture-level cities in Henan and Hebei. The data should be relatively representative, covering from first-tier to fifth-tier markets. The data clearly shows that in Beijing, 100% of small stores have ordered from B2B platforms, but in county-level markets, B2B ordering is very rare, meaning B2B penetration in county markets is very low. Where do you usually order from? 60% of small store owners still buy from salespeople, 17.4% still buy from wholesale markets, 22.6% use both, and less than 2.3% use dedicated B2B platforms. B2B's industry penetration this year is less than 0.2%, but with 2.3% of ordering volume, the data is quite impressive. Do you think B2B platform ordering is convenient? A small half of store owners say they don't know how to use it. Is it that our platforms are not user-friendly, or is our education insufficient? This needs discussion. If someone invited you to join a convenience store franchise, would you be willing? Most owners are satisfied with their current operations but are aware of their operational shortcomings. 57% of small stores say they would decide based on circumstances. If you were to join, what would you value most? Help with operational improvement is the most valued, followed by help selling goods. Everyone is not very sensitive to brands; small retail stores think they do neighborhood business, so brand sensitivity is low. Summary: Small stores are mainly under 200 square meters, with daily orders under 300 and transactions under 3,000 yuan. Management is loose, operations are a weakness, but there is awareness of change. The problem of product age due to chaotic purchasing makes small stores very sensitive to whether suppliers are reliable, but they are not opposed to new things. They have insufficient understanding of B2B; at this stage, it is just a supplement, and they are least worried about sourcing. What do your customers really need? After presenting the survey, the results were unexpected; user feedback differed from our assumptions. In 2016, when visiting B2B platforms, I had some insights. My thoughts on B2B platforms are a bit sharp, but I think they are my true feelings. I want to share some of my views on B2B platforms, brand owners, and distributors here. Why are brand owners ambiguous about B2B? Why are distributors waiting? Why don't small stores see it as a necessity? Many people come to B2B thinking of cutting from unified warehousing and distribution logistics or small retail stores, but few think from the perspective of the entire supply chain involving brand owners, distributors, and small stores. Because brand owners don't just look at cost savings in one link; they look at cost savings across the entire chain. This is a supply-demand analysis chart for the beverage industry. In January and February, actual production capacity and market demand are highly mismatched. By May and June, production capacity peaks, but market demand cannot be met, creating a huge scissors gap that B2B platforms cannot fill. For example, collecting payments from small stores in December, producing in January and February, and distributors stocking up cannot be satisfied by B2B platforms. Brand owners want to cooperate with B2B, but platforms cannot solve this supply-demand pain point. This is a serious issue. Standardized management costs: B2B platforms pay taxes on employee wages, while distributor salespeople drive tricycles and work unknown hours, and mom-and-pop stores work until late. The cost difference between individual economy operations and standardized management is also different. In the north, many distributor channels are already highly flattened. From brand owner to distributor to retailer, there is no longer a second-tier distributor. In first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen, there are still some second-tier distributors, but in prefecture-level cities, second-tier distributors are basically eliminated. In the design of profit links, brand owners have no space for second-tier distributors. As a super second-tier distributor, B2B platforms are in an awkward position; brand owners do not leave much profit for B2B platforms. Capital: Mengniu has daily cash flow of 200-300 million yuan. Can B2B platforms meet that? It's difficult. Many platforms like JD and Alibaba have payment terms; if all brands had to pay within a month, they would collapse. So for full-chain efficiency, I think all B2B platforms, brand owners, and distributors must consider this issue. In a sense, distributors cannot be replaced. I am making this conclusion today, but not being replaceable does not mean distributors can live well. Concerns about existing volume The current coverage density and sales volume of 2B platforms are insufficient to support brand owners' existing volume. For brand owners, B2B is currently just a supplement. Yesterday during discussions, I thought President Deng spoke well: helping brand owners solve sub-brand issues, or 2B platforms cooperating with brand owners in ODM form to solve part of the sales volume. This cross-supplement is feasible. New product promotion is weak, lacking effective promotion methods, supply chain chain-owner product channel profit design issues, lack of new marketing methods, and issues like push-and-exchange goods and merchandising execution. These problems are difficult for 2B to solve at this stage. Current problems in FMCG B2B: sunk costs, scale traps, ineffective and inefficient education, and rigid investment. Sunk costs. Entering the market too early leads to high education costs. Zhanghe Tianxia and Dianshang Hulian should be the earliest B2B platforms in China, but they all face a problem: entering the market very early, with no problem in the business model, but unfortunately, all users need education, leading to huge investments in user education. Many people say B2B platforms burn money and are unreliable, but that's not true. How can you not educate small stores? Platforms need a lot of promotions and ground staff to educate small stores. This is what pioneers in the industry must do, and there's no way around it. Moreover, at this stage, half of small stores still don't know how to use 2B platforms. So, the market still needs to continue burning money for education. Scale trap Many 2B platforms, influenced by the Meituan O2O war, Didi war, and now the bike-sharing war, think of first occupying territory, then capturing the market, and using scale barriers to block competitors. But when scale increases, efficiency does not, which is an awkward problem. This leads to a long loss period, requiring continuous investment to maintain operations. Many platforms implement systems before traffic increases, which are huge investments, causing resource waste. If sales are not above 300 million, WMS in warehouses is meaningless and unnecessary, but it looks good to investors and government, yet invisible costs cause a lot of work and time waste. Coverage of multiple business modules, such as doing both B2B and retail stores, leads to too many modules and long chains. Connected but not locked: warehouses across the country form a network, but without linkage, they don't create much value for brand owners. On this platform, you can instantly increase volume, but many brands cooperating with 2B find they don't bring significant sales. Conclusion: Scale is a result, not a start. Scale is the result of our operations, not something to do at the beginning. Where does B2B efficiency come from? High-frequency products should be placed in forward warehouses, and low-frequency products in central warehouses, to save supply chain turnover efficiency. The promotion of any product is not just about supply chain efficiency but also communication efficiency. Only by solving communication efficiency can you distribute goods. Facing the arrival of giants, all technological gaps will be leveled, and all models will converge. Where does B2B's core competitiveness come from? Technology, no matter how awesome, will be worthless in two years. I think B2B's core competitiveness comes from operations. Like liquor, 98% is water and alcohol, only 2% is different, but that 2% is the value. I think all 2B core competitiveness comes from operations, through the high integration of technology + model + operations, and realizing B2B's value through services. I suggest three questions: First, the game between existing volume and supply chain. Second, the relationship between efficiency and scale. Third, retail, supply chain, and cross-border matching. The so-called cross-border matching means not just earning price differences, but combining internet technology, big data, and finance. Some thoughts on manufacturer transformation, which also touch on today's conference theme: Empowerment and Evolution. Look at this picture: on the right is Facebook, on the left is FaceQ. These two images clearly express the views and mindsets of two generations: Facebook-style labeling. Internet + post-90s + consumption upgrade have significantly changed consumer behavior and habits. Originally, producing one product was enough because your target was one person; you produced what they needed. But post-90s don't care; they want their own personality and image. At this time, their avatar is like this, thousands or tens of thousands. What do you do? Do you still use one product? Unfortunately, you can only meet the needs of a very small portion. This is very critical. That is, the times have changed, users are stratified, and Facebook-style labeling and tagging are two generations' different views on products and consumption. That is, originally you needed big single products, now you need small and many, and you must shift from brand indoctrination to new media methods and user communication. Brand owners must redefine the 'three marketing forces': product power, brand power, and channel power, returning to the essence of products: quality and health. Rapid iteration, new products, meeting diversified and changing needs. New brand image, new communication paths, new communication methods. Channel transparency, dataization, and financialization (precise distribution under big data, efficient and intensive supply chain) are key factors for the future supply chain and channels. I think brands will become increasingly expensive, increasingly scarce, and also increasingly worthless. Trends in channel transformation Brand owner scale vs. channel scale. Honestly, this description is not precise; I don't know how to describe the problems we discover and face in the industry transformation process. In traditional products, brand owners can achieve scale operations but are unwilling to let channel members scale. The most classic practice is to split distributors, flatten channels, and achieve high-density coverage of outlets. In the era of channel-driven products, brand owners must shift from scale growth to efficiency growth, but to meet tagged users, they must produce different products for different users to meet diversified consumption needs, which increases channel management difficulty by N times. To achieve this, efficient supply chain systems (dataization, integration, verticalization, intensification) must be used, so channels must achieve scale. Channel scale is definitely a future trend. Future B2B platforms will have full-network distribution capabilities. If you are still a small distributor, others may not cooperate with you. Several evolutionary ideas for the future functions of intermediaries: business flow, logistics, capital flow, informatization, visualization of business flow, routing of logistics, financialization of capital flow, and dataization of information flow. Logistics is placed in central intensive warehouses for efficient distribution, compressing channel inventory as much as possible, requiring efficient distribution systems. Financialization means capital is no longer just inventory; it must generate new value through financialization. Dataization enables precise user profiling. I think whether it's distributors, brand owners, or B2B, this will be the future. Under the same volume, if speed (efficiency) increases, the internal driving force must undergo essential changes. What's the difference between these two cars? One runs 80 km/h, the other 300 km/h. Is the internal driving force the same? Originally, distributors sold only one product; now they sell 100 products. The internal driving force is not the same. In the same channel, if speed differs, the internal driving force must also differ. This era requires distributors to evolve into a new species of supply chain. What is this species? I don't know. But I think it should have four major traits: First, alliance and division of labor. Second, technology-driven. Third, organizational reengineering. Fourth, cross-border hybridization. The power of hybridization is the greatest. What is hybridization? Traditional distributors and the internet are not additive but hybrid; new species will definitely emerge. Addition is not enough; relevant integration and hybridization must occur. 2017 FMCG B2B Industry Blue Book Report Click the QR code to download -END-