As a B2B platform providing online FMCG wholesale services to terminal retailers nationwide, Yijiupi has been established for nine years and has now developed into a cross-category, cross-regional, full-industry-chain FMCG B2B platform. It is a new-generation internet unicorn enterprise in China and a leading industrial internet enterprise. As of December 2022, the platform had over 1.8 million registered terminal users and over 200,000 monthly transacting users.
Four Reflections After Entrepreneurship
Chen Shengqiang, co-founder and COO of Yijiupi, summarized four aspects of his reflections on B2B entrepreneurship in recent years. Everyone must often hear concepts like "breadth, traffic, scale, and technology." They are undoubtedly very important for an internet company and cannot be ignored. What we need to reflect on today is precisely how B2B companies should view them, especially focusing on the possible opposite side.
- Reflection on Breadth and Density
Many years ago, there was a debate about whether B2B should be national or local, and Yijiupi chose the former. But in reality, national B2B companies are becoming fewer, and many have already fallen. Where did they fall? Possibly in rapid expansion and excessive pursuit of terminal numbers. Is breadth not important? The internet emphasizes breadth so much that almost all internet companies have this characteristic: they always enter the mainstream from edge users or edge products. Even if it's edge, as long as breadth is sufficient, there will be many users and scale. Typical of 2C internet. For example, in social networking, QQ initially started with students, a super edge user group, and gradually entered the mainstream. Internet sales companies, even if they don't have scale in local markets, can still become important channels for suppliers as long as they have enough breadth. This is a characteristic of the internet.
From the perspective of a single consumer, including B2B users like small shops, they don't necessarily buy more from e-commerce than from offline channels, but that doesn't prevent each person from contributing a small share. Within sufficient breadth, e-commerce still has a huge customer base and becomes a large platform relying on breadth. It can be said that traditional internet wins by breadth. However, in the FMCG industrial internet field, we find that user density and order density in local areas are the key to a company's healthy survival and development. Because fulfillment cost is the core cost of FMCG B2B, with over 60% spent on fulfillment, mainly including warehousing, distribution, and delivery services. Density plus scale forms low cost, which is the fundamental basis for online B2B to compete with traditional offline wholesalers. In B2B distribution mode, the core is to compete on delivery efficiency per vehicle, i.e., fewer delivery points and shorter driving distances. Obviously, order and user density are more hardcore. That is to say, for FMCG industrial internet, density wins rather than breadth wins. Is it that nationalization is wrong, or is the path of nationalization wrong? I think breadth without density is disastrous for FMCG industrial internet. So, the essence is not whether to nationalize, but the choice of the path to nationalization.
- Reflection on Category and Traffic
When pursuing traffic, you may not care much about categories. Using subsidies to exchange for traffic, using bestsellers at a loss to attract attention—these practices were common many years ago. A large number of B2B companies died from burning money for traffic, dreaming of monetizing traffic, but before the dream woke up, their blood had already dried up, and they fell. Why are they misled by this thinking? Because all B2C businesses that won all won on traffic, either by seizing a very good traffic dividend period when traffic was particularly cheap, or by having a very clear and more innovative way to acquire traffic, such as Pinduoduo's "cut a knife" (referral discount), which is essentially based on traffic. They mostly adopt the "investment flywheel" startup model: whether advertising or subsidies, they spend money to acquire users, and with user scale, they do other things.
Moreover, 2C users have a characteristic: users recommend each other, and traffic is easy to monetize because user needs are diversified. So, once you get traffic, even if the business isn't here, you can monetize elsewhere. Games, advertising, and many other monetization methods exist, so all internet companies say traffic is king. Will the FMCG industrial internet be the same? We are professional users; they are professional buyers who make a living from this. Buying goods is part of their work, so comparing prices is their instinct, and they will definitely do it. When there is wool to be plucked, they will come uninvited; when there is none, they will leave immediately. At this time, losing money and subsidies are only temporary for acquiring users. If there is no lasting value provided, they will soon leave you. They buy whatever product has value to them. The story of using traffic products at a loss and then making money from other profit products doesn't work here. Therefore, in the industrial internet field, I think focusing on category value is more important than traffic. It's not that traffic is no longer important, but the logic of acquiring traffic is different.
Traffic without category depth is just a passing cloud. Traffic obtained through your own category advantages is sustainable and competitive.
- Reflection on GMV and Profit
Today, which FMCG industrial B2B companies only compete on GMV? It seems everyone doesn't care much anymore. Because the industrial internet companies that once "soared" in GMV often fell first. And companies like Guolian Shares, which perform well in the industrial internet field, are in a state of steady growth, not too fast, with stable changes in profit and GMV. GMV is a symbol of scale and an indicator of market share. When financing, investors care about it very much. The growth rate of GMV indicates the speed of industry and enterprise development. Capital looks at the future and talks about growth, so it must care about GMV. If you don't have GMV, you're not sexy, so where does valuation come from? Understanding the pursuit of GMV may be a helpless move for entrepreneurs. Because capital drives it, you need to do this, or in the early stage of entrepreneurship, you should have high-speed growth. But to this day, I deeply feel that to-VC GMV harms both others and oneself. When an enterprise falls, all its investors are harmed, and it also harms itself. Sometimes founders blindly think that high GMV is great, but in fact, GMV that loses blood is a "cancer" for the enterprise. It's better to cut all non-profitable GMV.
All false prosperity and blown bubbles will burst. Capital ignores you when you have no money, and ultimately only votes for profit. Pursuing profit is the nature of capital. We must always pay attention to the value of profit to the enterprise. Why can't industrial internet achieve rapid growth? Can't we, like consumer internet, have high-speed, several-fold growth in every field for two to three years, or even five to ten years? First, we don't have mature third-party logistics; we have to build our own fulfillment system. Second, we need to gradually form the regional density mentioned earlier; otherwise, the business is not healthy, and forming this density takes time. Third, suppliers need to gradually deepen cooperation and build trust; in the early days, we even faced many "blockades." Fourth, B2B relies on ground promotion to develop customers; ground promotion personnel are the driving force for growth, which is very different from 2C advertising. B2B growth is indeed not that fast. Is GMV important? Of course, it is important, but we think healthy, profitable GMV is important, and the bigger, the better.
- Reflection on Technology and Cost
In the era of CHAT GPT, for a low-level person like me to talk about technology stories is really an accident. When it comes to technology, we have no comparison with big factories; can startups be stronger than them? Previously, we were worried about "cross-industry disruption." JD and Alibaba joining was terrifying, but in the end, they all went back to B2C and became auxiliary functions for group buying and other businesses. Those wholesalers we initially thought were the most "vulnerable" and without technology are actually the most resilient. Does that mean technology is really that important? The essence of industrial internet is digitalization, not a high-tech company. Industrial internet may not even enter China's STAR Market. The value of digitalization is only reflected in "connecting offline islands and linking the industry chain" and "real-time quantitative data to improve channel efficiency." It's not that mysterious. Therefore, today we particularly emphasize that "fee rate must be greater than interest rate." Everything, regardless of category or region, must make money for the company. All cost issues are major issues: ground promotion personnel efficiency, warehouse efficiency per square meter, sorting efficiency, logistics fee rate, backend personnel efficiency... We need to study how to improve efficiency from all angles. Only by improving efficiency can cost advantage be the fundamental way for internet to win. I think technology is just a basic element for industrial internet companies like ours. It's not that technology is unimportant; we invest 50 million yuan in technology every year, but cost and efficiency are more important.
Three Prospects
Buffett said: Be fearful when others are greedy, and greedy when others are fearful. After a round of highs and lows in industrial internet, we believe the "second spring" is coming. After the rectification period of the past two or three years, the "gold mine" of industrial internet is just beginning to be exposed.
Prospect 1: Digitalization Empowers FMCG Industrial Internet Companies
Based on industry deep cultivation and infrastructure, using digital technology to empower the industry chain to jointly build an efficient new FMCG channel may be something industrial internet will definitely do.
For terminals, most of the value of B2B platforms is still reflected in low-cost, full-category purchasing, helping terminals find better-selling goods and lower-priced goods. In the past four or five years, everyone has been exploring "chain brand + terminal system," but it seems there hasn't been a very successful case. In fact, driven by the development of near-end e-commerce in recent years, especially last year, we believe that quantitative change may soon lead to qualitative change. "Terminal system + chain brand" will truly become a realistic direction, because now C-end users are buying more and more on their phones, to the point that they buy FMCG on their phones. When users form habits, what if you haven't sold goods on Meituan or Ele.me? Then you need a system. Many terminals will face the choice of "either join or exit."
Empowering terminals is one aspect; empowering distributors is another. B2B can never become the distributor for all categories and all of China. Most FMCG B2B companies have withdrawn from low-density areas. Offline distributors have more realistic low costs in small-scale operations, but they lack digitalization. We have more realistic digitalization and complete systems. Merging the two is a feasible and inevitable path, so we think this is a development direction. We will launch robot warehouses with lower costs than humans to serve distributors. Yijiupi is also empowering some distributors with its advanced systems to achieve win-win cooperation space.
For empowering brand owners, it's not that high-end. I think the continuously rising labor costs have made it impossible for traditional brands, at least small and medium-sized ones, and even some large brands, to independently do their own "deep distribution." They really can't afford it! There will definitely be a certain degree of distribution sharing. B2B is the best distribution sharing, because a few B2B companies can complete national distribution of brand products. Through the "Yi Jing Xiao" APP, we have achieved full online communication with suppliers, fully online supply chain, standardized, transparent, and efficient. Through a bank third-party custody platform, we ensure real-time clearing and settlement, with automatic system payment, so suppliers don't have to worry about when they'll get paid. With an open, mutually beneficial, and "core interests"-protecting attitude towards brand owners, not disrupting prices or channeling goods, helping brands sell more, and protecting supplier information and user privacy, I believe we can definitely establish win-win cooperation with brand owners. Currently, the proportion of direct supply from manufacturers to Yijiupi has exceeded 20%, and in some categories, it has reached 50%. Previously, there was almost none; all supply came from distributors or wholesalers. Now, almost all supply comes from manufacturers and general agents, becoming our resident merchants.
Prospect 2: Channel Brand (Product) Innovation
This is a very important prospect for B2B. Based on digital online channels, jointly launch a new generation of channel brands or channel products with brand owners and terminals. New Distribution, together with more FMCG internet participants, cultivates new products and new brands. I think this is a remarkable exploration. All B2B enterprises will participate, and we will also participate. This is a direction to cooperate with brand owners to create and launch new channel brands. Traditional channels cultivate new brands, e-commerce cultivates Taobao brands and Douyin brands. Different channel methods have opportunities to cultivate new brands. I believe digital channels will gradually cultivate their own channel brands, including ODM and OEM. These are actually where enterprises make money.
Prospect 3: Capital-Assisted Resource Integration
Industrial internet will soon usher in a new wave of IPOs. FMCG industrial internet companies will achieve industrial resource integration with the help of capital. Enterprises do addition; capital does multiplication. Capital never misses any round of industrial development, or rather, capital can always keenly capture opportunities and promote industrial development. Industrial internet experienced the first wave of development in 2015, and now it's ushering in the second wave. That wave was in the primary market; this wave will have secondary market performance. Industrial internet with capital support will definitely participate in the integration of high-quality enterprises, using its own channel capabilities to integrate with the merged enterprises, empowering each other, and thus gaining greater capital operation space.
These are my three prospects for FMCG B2B industrial internet. In general, everything returns to the essence of business. We will soon witness the moment of mining the gold mine of FMCG industrial internet.