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The transformation of traditional distributors is not a new topic; it has been explored and practiced for over a decade, with countless participants from governments, brand owners, and distributors, each trying from different angles.
With the rise of B2B platforms since 2014, the penetration of the internet has injected new vitality into this old topic. After four years of development, it shows no signs of stopping.
The penetration of the internet is significantly reflected in the removal of intermediate links, and the FMCG industry is no exception. But in the disintermediation of the FMCG industry, what is removed and what is retained? Distributors are the main body of intermediate links; which part of distributors will be removed, and which part will remain?
What are the characteristics of FMCG distribution channels?
Before analyzing, let's look at the characteristics of FMCG channels. There are many discussions online about the current state of FMCG channels, so we won't repeat them here. Instead, we'll analyze the characteristics and their causes from a different angle.
The above diagram is a schematic of the channel structure, from which we can derive the following characteristics and causes of FMCG channels:
1) Brand owners and retailers are unique
As nodes in the supply chain, brand owners and retailers have unique attributes, while the intermediate channel structure is a network with cross-connections. Issues that manufacturers often focus on, such as cross-regional selling, occur here.
2) From top to bottom, transaction volume and amount decrease, while product categories increase
As B-end users, the essence is profit-seeking.
FMCG covers a wide range of customers. With low dependency and low attention, consumers tend to buy products that are convenient to obtain, so the end market is the main battlefield for brand owners, giving rise to the saying "the terminal is king."
But the closer to the end market, the smaller the market capacity for a single product, and the higher the cost of localized services. Therefore, channel players in the end market must enrich their product categories to focus on terminal demand and seek profits.
3) Repeated transactions and repeated taxation
In the current traditional business model based on buying and selling, goods are continuously bought and sold in the channel. Each transaction node's seller only focuses on their own interests, ignoring the value of supply chain collaboration. Under current tax law, enterprises must pay value-added tax on sales. So for distributors, they are essentially doing warehousing and logistics, but in reality, they must pay VAT.
4) From top to bottom, financial characteristics weaken, and service characteristics strengthen
Brand owners need substantial funds to maintain production and sales, while most channel players in the end market do not have sufficient funds to obtain regional privileges. Therefore, during the development of FMCG channels, distributors with financial strength purchased regional privileges (distribution rights) from brand owners. However, the high cost of localized services and competition with low market entry barriers force them to continuously subdivide their regions to profit from privileges.
If we tag channel players with two labels: finance and service (where service includes warehousing, logistics, etc.), we can roughly see the proportion they bear under these two labels:
Combining the above characteristics with the penetration of the internet and the emergence of B2B platforms, we can see some changes that have occurred, are occurring, or will occur.
What does disintermediation remove?
1) Vertical integration: channel flattening, and it is a top-down weakening
This is relatively easy to understand. On one hand, first-tier brands have long passed their brand formation period. On the other hand, with the rapid development of internet finance, the difficulty of funds entering the physical business is decreasing, and the monopoly formed by capital in the original channels will continue to disintegrate.
A typical representative is the general distributor. In the past, relying solely on capital to profit will become increasingly difficult in the future. This type of distributor will find it harder and harder, and they are out of touch with the ground.
2) Evolution from buying and selling to service functions
More and more brand owners are beginning to realize that channel players and retailers are not their customers but partners. The brand owners, distributors/wholesalers, and retailers in the channel are a community of shared interests, with a relationship of interdependence.
Transactions between channels are of decreasing value to brand owners. Brand owners must unite with localized service providers and retailers to build an efficient marketing system to remain invincible.
At the same time, technological progress will inevitably lead to changes in consumption habits. Wholesalers that cover too small an area, have outdated concepts, and are unwilling to go online will soon have no business. For this type of wholesaler, natural elimination will occur.
Therefore, in the FMCG supply chain channel, only suppliers that provide localized services and follow the trend of internet development, leveraging the advantages of the internet, are the inevitable existence that connects brand owners with terminal retail and special-channel customers.
3) Decentralization, re-intermediation, and profit is king
FMCG is affected by many factors such as product characteristics, consumption characteristics, regional consumption habits, and localized service costs. Centralized platform business models (like mall + express delivery) similar to 2C cannot provide a good user experience.
In the future, the FMCG distribution field will form regional platforms that rely on offline retail terminals (not just convenience stores), localized service providers, and platform operators to better serve consumers through online-offline integration.
Intermediate links can form comprehensive service providers in regional markets through horizontal alliances, continuously deepening in logistics, warehousing, and marketing.
The essence of business is production-circulation-consumption. Before goods are consumed, all links should be value-added links, which also illustrates the profit-seeking nature of the circulation process. Only after consumers consume can the entire supply chain's interests be realized.
"No middleman to earn the difference" is indeed the biggest marketing lie, but it is undeniable that with the advent of the internet, for some distributors (general distributors), the days of holding funds and distribution rights to rest easy are gone forever. The rights are given by brand owners, not yours; also, the outlets are not yours. If you cannot provide better services and value to terminal users, you will naturally be eliminated.
Where should traditional distributors go?
1. Embrace the internet, transform from buying and selling to service - core enterprise strategy
Distributors have excellent localized service capabilities, such as warehousing, distribution, and after-sales. By leveraging the advantages of the internet, they can effectively reduce service costs, improve service quality, and gradually grow into regional core enterprises.
2. Leverage the internet, transform from distribution to operation - regional platform operation strategy
Sharing and win-win, as described above, no need to repeat.
Segment channels and develop specific operational strategies for different channels, such as retail terminals, catering, entertainment venues, welfare group purchases; further segmentation, such as retail terminals can be divided into communities, offices, commercial places, campuses, street stalls, etc. Provide customized services to meet the needs of different groups and enhance their experience.
Move towards chain operations, free rather than self-operated chains. Do not simply change the signboard. Not only should you improve the store's external image, but also assist stores in differentiated operations. Root service awareness in business philosophy, and lock stores with service, not control.
3. Transform from independent distribution to joint operation - go with the flow
The trend of the internet is unstoppable. For distributors, participating in it is not only about reducing costs and increasing efficiency, but more importantly, ensuring you still exist on the future battlefield.
A distributor once mentioned: These convenience stores are all mine, why should I share them with others? I analyzed for him: This store is open there, it belongs only to the owner. You provide services for your product categories. I believe no fewer than 20 distributors like you are providing services to it, and of course, competitors are not excluded.
Whether it is B2B platforms or distributors, whether integration or competition, ultimately it will return to the essence of business. Everyone should fully analyze their own strengths and weaknesses. In the process of transformation, if everyone has the same advantages, competition is likely; if advantages are complementary, cooperation is likely. Do something and leave others undone. With the continuous penetration of the internet, sharing and win-win will become the main theme.