Crisis not only signifies elimination but also hides infinite opportunities. Only by striving to build survival skills in the downturn can one weather the winter and grow towards the sun. Undoubtedly, 2018 was a watershed year. The dramatic changes in the internal and external environment extended like dominoes to every corner of development across industries, and no one could remain unaffected. This subtle change always evokes the 'every 8th year' curse of China's economy. Setting aside changes in other industries this year, the changes in China's FMCG B2B industry in 2018 were equally profound. On one hand, B2B platforms that ignored business laws and fundamentals successively exited the market, and some media even began to smear B2B as merely a successful logic. On the other hand, giants like Tencent and Meituan entered the arena through investments or acquisitions, which to some extent injected a strong dose of confidence into other players on this track. Facing the aggressive advance of FMCG B2B platforms, some brand owners chose full cooperation, while others remained lukewarm... Taking time as a thread, New Distribution has selected ten representative events in China's FMCG B2B industry in 2018, hoping to let everyone understand the development of FMCG B2B in 2017 and draw a satisfactory conclusion to the soon-to-end 2018. 1 Yatang Xiaochao: Financial Fraud Exposed, Founder Flees Since 2013, the heat of the FMCG B2B track attracted countless entrepreneurs flocking in, and among the mixed bag, there were naturally speculators, and Yatang Xiaochao was one of them. Starting with Yatang Group, founded in 2012, it had six business segments: e-commerce, information technology, advertising, supply chain finance, Yatang Daojia, and Yatang Xiaochao. According to relevant data, Yatang Xiaochao, its convenience store brand, broke through 50,000 stores in just over a year. On July 16, the Chengdu Public Security Bureau issued a notice stating that Yang Dingping, chairman of Chengdu Yatang Holding Group, and others turned themselves in to the Tianfu New District Branch of the Chengdu Public Security Bureau on July 15, 2018, on suspicion of illegal and criminal activities. If in previous years FMCG B2B had been developing smoothly under the protection of capital, the Yatang Xiaochao incident undoubtedly tore a gap in the history of B2B development. This event made people view the development of the entire B2B industry more rationally. Although small store owners greatly increased their acceptance of ordering through B2B, they became more cautious about prepaid deposit ordering methods. Investors also began to view the FMCG B2B track with a more rational attitude. 2 JD Open: New Channel Officially Launches Joint Warehouse and Distribution System As more retail enterprises entered the B2B track, it became an industry consensus for B2B companies to develop chain stores downstream. Against this backdrop, JD New Channel launched a joint warehouse and distribution system to respond to changes in the external market environment. On March 20, JD New Channel held the 'Boundless Commerce, Same Heart' - JD New Channel Borderless Retail Industry Summit in Chengdu. At the meeting, Zheng Hongyan, Vice President of JD Group and President of JD Mall's New Channel Business Unit, announced that JD New Channel would launch a new joint warehouse and distribution system to comprehensively upgrade B2B channel efficiency. Tang Bo, General Manager of the Terminal Business Department of JD Mall's New Channel Business Unit, told New Distribution that JD New Channel would unite small and medium distributors and wholesalers, using their existing warehouse and distribution resources as joint warehouses and delivery networks for New Channel. It also welcomed brand owners to connect their channels and warehouse resources to New Channel's online platform, promoting openness and integration among multiple parties to maximize channel efficiency. It is reported that the joint warehouse and distribution system has 'greater density, wider coverage, and deeper penetration.' Qualified 'joint warehouses' (meeting criteria for goods, warehouse, vehicles, and personnel) will join JD's Zhanggui Bao as third-party merchants, supplying and delivering to retail stores within a 3-5 kilometer radius. The project covers major cities nationwide, reaching down to the town level, and will first be implemented in high-frequency, high-service-demand categories such as grain and oil, alcoholic beverages, and milk. In the view of New Distribution, the arrival of the borderless retail era has not changed the essence of retail: cost, efficiency, and experience. Improving supply chain efficiency is a crucial step in embracing the retail revolution. Under JD's 'integrated openness' strategy, JD New Channel will continue to upgrade retail infrastructure and channel efficiency with a more open attitude, working with brand owners, channel partners, retailers, and consumers to create a complete borderless retail landscape. 3 Red Bull Blocks Retail Link: A Document Pushes B2B into the Spotlight Yatang Xiaochao, with its P2P background, may be just one case in the history of FMCG B2B development, but the biggest variable affecting B2B industry development is brand owners. In March, a document from Red Bull pushed the booming B2B into the spotlight. At the end of March, Guangzhou Red Bull issued a notice severing all ties with Alibaba's B2B platform Retail Link, prohibiting distributors, sub-distributors, and second-tier wholesalers from supplying it. The purpose of the block was to 'maintain market price system stability and protect the interests of distributors and channel customers.' The notice stated it was a 'unified deployment and requirement of the southern market war zone,' indicating the wide scope and Red Bull's determination. Looking back at last year's news, during the 2017 'Double 11' period, Retail Link participated for the first time, and Red Bull sold 730,000 cans in a single day, making it one of the most popular brands among small stores. This 'blockade order' was to some extent self-inflicted traffic loss. An insider from Red Bull's headquarters, Hua Bin Group, explained externally: 'Red Bull has its own price management system. However, the purchase price offered by B2B platforms to terminals is far lower than the official guidance price. Red Bull is a relatively popular product, and Guangzhou is a region with high Red Bull sales. If not controlled, it would harm the entire brand's sales.' The Red Bull supply cut incident, on one hand, revealed the increasingly sharp contradictions between the wild-growing B2B platforms and brand owners in the early stages of B2B industry development. On the other hand, it showed that after several years of development, B2B has become a force to be reckoned with in the FMCG distribution chain. It is certain that the trend of channel digitalization is irreversible, and the visualization of the distribution chain has become a consensus among many brand owners. In this context, how brand owners correctly handle the contradiction between the offline existing market and B2B, and how B2B platforms dance harmoniously with brand owners without disrupting their existing distribution systems, have become issues that must be considered by both sides. 4 Dianshang Hulian Incident: Founder Marginalized, Operational Crisis If the Yatang Xiaochao incident was an isolated event, the predicament of the leading B2B platform Dianshang Hulian brought the industry's development problems to the public for the first time. On April 20, a reader reported to New Distribution that the well-known B2B platform Dianshang Hulian had a female employee attempt suicide due to unpaid wages. Prior to this, Dianshang Hulian had been repeatedly exposed for branch closures, unpaid supplier accounts, marginalization of the founding team, and large-scale layoffs. New Distribution immediately verified the truth with a friend who had worked at Dianshang Hulian, further confirming the authenticity. He also revealed to New Distribution that Dianshang Hulian had forced employees to leave at the end of March, retaining only a few employees to handle aftermath matters. The two months of owed wages could only be paid at 80%, to be fulfilled on April 20. However, as of April 21, the relevant person in charge of Dianshang Hulian was unreachable. It is worth noting that at the beginning of the year, Dianshang Hulian had just announced a 350 million yuan B+ round of equity financing, invested by Beijing Zhenru Investment Management Co., Ltd. But now, no information about investing in Dianshang Hulian can be found on Zhenru's official website, and the founder of Dianshang Hulian had to admit the failure of the financing. The break in the capital chain reflected to some extent the chaos in Dianshang Hulian's internal management, but this is definitely not an isolated case. Subsequently, B2B platforms such as Bang Xiaodian, Dinghuobao, and Xingliyuan were also exposed to capital tensions, forced transformation, or even suspension of operations. In the early stages of development, relying on low prices to seize the market, surviving on capital, and rapidly gaining market scale is a common practice in the internet industry. However, in the absence of continuous capital supply, if a platform lacks the ability to generate its own cash flow, problems are inevitable. When the tide recedes, people truly see who is swimming naked. Self-sustaining capability became the core competitiveness among B2B platforms at this stage. In addition, Zhenru Investment's reversal also reflected a change in capital's attitude towards B2B. After understanding the laws of industry development, capital became more rational in its view of B2B. 5 Yijiupai Acquires Huijinhuo: B2B M&A Officially Begins Unlike platforms like Yatang Xiaochao and Dianshang Hulian, which were still fighting to 'survive,' the leading platform Yijiupai had already begun planning investments and acquisitions of regional vertical-category B2B platforms. On May 8, Yijiupai and Huijinhuo, a leading B2B company in snack food, officially announced a strategic merger. After the merger, Beijing Yijiupai E-commerce Co., Ltd. would hold 100% of the equity of Chengdu Huijinhuo Network Technology Co., Ltd., marking Yijiupai's first external acquisition since its establishment. Wang Chaocheng, founder of Yijiupai, said: 'The Huijinhuo team is excellent and very professional in food B2B. Their joining will inject the best food genes into Yijiupai, helping us quickly take a leading position in China's food distribution based on our leading position in alcoholic beverages and drinks. Acquiring Huijinhuo is an important step in steadily advancing our platform strategy.' In Wang Chaocheng's view, food, especially snack food, is the most valuable category in FMCG B2B: high gross margins, low brand concentration, scattered upstream and downstream, numerous SKUs, and prone to expiration. Traditional distribution without digital operations is difficult to scale, making this category a paradise for data-driven B2B models! 'In this situation, Yijiupai's distributed platform and highly informationized operations will have great advantages in food distribution, with the ability to quickly replace its traditional backward distribution model.' After several years of rapid development, Yijiupai's acquisition of Huijinhuo is undoubtedly a landmark event in the history of FMCG B2B. This means that the competition among top players for market share has basically come to an end, and competition in the entire industry has extended from a single dimension to the entire industrial chain. The B2B track has officially entered the stage of big fish eating small fish. For traditional distributors transforming into B2B platforms, constrained by objective factors, although it is difficult to gain significant attention in the capital market, by deeply cultivating regions, rooting in segmented categories, and establishing absolute competitive advantages in local markets, being invested in or acquired by leading B2B platforms can also be an excellent development path. 6 Tencent Invests in Hui Xiadan, Officially Entering FMCG B2B After internet giants JD and Alibaba entered FMCG B2B, with the acceleration of Alibaba and Tencent's competition for offline retail enterprises, Tencent's entry into FMCG B2B seemed natural to many in the industry. Also in May, Tencent finally made its move. On May 15, the FMCG B2B platform Hui Xiadan officially disclosed that it had received strategic investment from Tencent. In terms of philosophy, Hui Xiadan advocates 'no self-operation, no self-built logistics, no disruption of existing distribution systems, no disruption of market prices, and adherence to platform empowerment, openness, and sharing,' which has become a powerful driving force for platform development. That is, the Hui Xiadan team firmly believes that the distribution system in the FMCG industry has unique value and cannot be simply destroyed or replaced. The relationship chain from brand owners to distributors to stores is very solid. At this time, the role of a B2B platform should be to empower this system to improve efficiency and increase increment. Hui Xiadan's cooperative and open model is strongly supported by brand owners, and it has successively established deep cooperation with many brands such as Coca-Cola, P&G, Mengniu, Uni-President, and Yihai Kerry. From Tencent's perspective, with more than 6 million traditional stores in China and a total sales volume exceeding 2 trillion yuan, these community stores connect more than one billion consumers and are a significant part of the smart retail online-offline integration strategy. As the first B2B enterprise to receive Tencent investment, Hui Xiadan's pure platform business model undoubtedly fits Tencent's positioning of providing basic services like water, electricity, and coal. From this perspective, Tencent's investment in Hui Xiadan seems natural, and it also made people notice the value and significance of the pure platform model in the digitalization process of FMCG distribution channels. Only by starting from the perspective of brand owners and gradually upgrading channels digitally can the rejection of brand owners with deep distribution systems be avoided. From Tencent's perspective, investing in B2B platforms is the fastest way to penetrate small formats. After completing the layout of large supermarkets and hypermarkets, the 6.8 million mom-and-pop stores will inevitably become the next entrance for traffic competition. Using B2B to cover small and scattered traditional retail stores is currently an excellent path, and investing in Hui Xiadan is just the beginning. 7 One and a Half Years After Entering B2B, RT-Mart e路发 Achieves Profitability The full industrial chain penetration of the FMCG distribution field has become an industry consensus. On one hand, native B2B platforms that need to invest heavily in infrastructure such as warehousing and distribution have been slow to become profitable. On the other hand, retail-type B2B that enters FMCG B2B from a retail perspective finds it relatively easier to achieve profitability, and RT-Mart e路发 is a representative example. On August 8, Sun Art Retail Group announced its 2018 interim results, disclosing that its B2B business e路发 had reached sales of 2.5 billion yuan by the end of June, with expectations of doubling sales for the full year. According to industry insiders, e路发 may have achieved profitability this year after covering costs in its first year of operation. As RT-Mart's internal 'No. 1 Project,' the B2B business is highly anticipated by Sun Art Retail to reverse the losses of Feiniu.com and guide the online segment to profitability. This shows that RT-Mart's supply chain volume exceeding 100 billion yuan, over 400 stores across multiple cities, and fresh food operation capabilities are favorable conditions for developing B2B business. It uses stores as warehouses in their coverage areas, radiating 30 kilometers around, providing B2B services to small B merchants such as mom-and-pop stores, canteens, restaurants, wholesalers, and entertainment business districts. At the same time, RT-Mart uses e路发 as a foundation to open 10,000 Feiniu convenience store franchise qualifications and 10,000 town agency quotas to expand into blank markets. From a supply chain perspective, e路发 can not only share RT-Mart's supply chain resources exceeding 100 billion yuan but also cooperate with multiple Alibaba ecosystem resources such as Hema Fresh, Tmall Xiafan, Taobao Xuanxuan, and Tmall Smart Maternal and Child Zone. For example, Hema's fresh private label products, seafood, meat, bakery, ready-to-eat, and ready-to-cook foods will successively engage in joint procurement with RT-Mart. By the end of June, RT-Mart's B2B business had 400,000 registered members, a year-on-year increase of 60%. The number of SKUs was approximately 18,000, a 50% increase compared to November 2017. FMCG and fresh food accounted for 78% and 19% of sales, respectively. The rapid entry and profitability of retail enterprises like RT-Mart into the B2B track is representative, indicating that retail enterprises can not only profit by serving C-end consumers through price differences but also use stores as warehouses to serve surrounding B-end customers, providing another possibility for retail enterprise development. From a B2B perspective, the rapid entry and profitability of retail enterprises into B2B also has significant reference value. 8 Retail Link Covers Over One Million Stores, Ranking First in B2B Industry Although Tencent has officially entered B2B, its pace is clearly slower than Alibaba's. After three years of development, Retail Link, backed by Alibaba's ecosystem, has completed the layout of one million retail stores and successfully become the industry's leading B2B platform. On September 3, on the occasion of its third anniversary, Alibaba Retail Link's 'Trees Make a Forest, Rivers Merge into the Sea' strategy conference was grandly held at the Yunqi Town International Convention and Exhibition Center. According to Lin Xiaohai, after more than three years of development, Retail Link has established a smart supply chain based on a three-level warehouse and distribution system in 17 provinces across the country, with a sales ground promotion team of over 5,000 people, more than 300 enterprise partners, and coverage of over one million small stores. This means that in provinces covered by Retail Link, one in every six stores is a Retail Link user. On the upstream supply chain and infrastructure level, Retail Link, together with Cainiao, has built 50 warehousing systems including regional, city, and front warehouses in 17 provinces, successfully attracting over 3,500 brands to join Retail Link, and signing strategic cooperation agreements with 42 of them. Lin Xiaohai analyzed that within two to three years, Retail Link's rapid development is closely related to changes in the market environment:
Consumer behavior is digitalized, scenarios are fragmented, and demands are diversified.
The number of retail stores is decreasing, and services urgently need upgrading.
FMCG B2B is developing rapidly, and industry consolidation is accelerating.
Traditional distribution systems have obvious pain points, and digitalization is the only way out. With Retail Link officially announcing that it has become the industry's leading B2B platform, this also means that the competitive landscape among top players on the entire FMCG B2B track has formally taken shape. Under the Matthew effect, more and more B2B platforms will fall behind. However, this does not mean that other B2B platforms have no opportunities. By deeply cultivating categories and rooting in regions, gradually forming their own cash generation capabilities, such platforms still have huge development space. With Alibaba Retail's completion of layout in 17 provinces, its development has entered a new stage. In the future, Retail Link will gradually shift its development focus to internal refined operations, which to some extent means that Alibaba will transition from pursuing market scale to pursuing profitability. 9 Yijiupai Receives Another Huge Financing from Meituan and Tencent The adjustment of internal organizational structure reflects Tencent's determination to fully transform into industrial internet, and the FMCG supply chain, due to its rigid demand and high frequency, determines that it will inevitably become an important track for Tencent. After partnering with the pure platform B2B Hui Xiadan, Tencent again joined forces to invest heavily in Yijiupai. On September 20, Yijiupai announced the completion of a $200 million Series D financing, with a valuation of $1.1 billion, officially joining the Chinese internet 'unicorn enterprise club.' This round was co-led by Meituan Dianping and Tencent, with follow-on investments from Everbright Holdings and others, and existing shareholder Source Code Capital increasing its stake. Guangyuan Capital continued to serve as the exclusive financial advisor for the financing. Chen Shengqiang, COO of Yijiupai, stated that the funds from this round will be used for four aspects: national regional expansion, improvement of platform categories, development of strategic products, and renovation of national warehousing. As of the end of June 2018, Yijiupai had covered 83 cities in 26 provinces, with over 3,000 employees. The current monthly GMV exceeded 1 billion yuan, with over 40,000 SKUs on sale. The full-year GMV for 2018 is expected to reach 20 billion yuan. In May 2018, Yijiupai acquired the snack food B2B platform 'Huijinhuo,' initiating strategic layout in the snack food category. Within just three months after the transaction, Yijiupai's food transaction volume grew severalfold. In the next two years, Yijiupai will further expand its national regional layout, combining self-operation and distributor onboarding to rapidly scale transaction volume. For the co-lead investors Meituan Dianping and Tencent, FMCG B2B is undoubtedly a very important track. On one hand, FMCG B2B has significant development space. Even in the United States, where modern channels are the most developed and dominant, FMCG B2B has created several large companies worth tens of billions of dollars. In contrast, China is dominated by traditional channels with scattered terminals, facing a market of 6.8 million small stores, which will inevitably give rise to larger-scale B2B supply chain enterprises. In the capital winter, Yijiupai's ability to secure another huge financing is truly remarkable. Besides its business layout with Tencent and Meituan, Yijiupai has been deeply cultivating the alcoholic beverage category for many years and has long become the first brand in alcohol B2B. The high gross margin characteristics of its product categories also determine that Yijiupai is more likely to achieve profitability than most B2B platforms. From the perspective of the entire FMCG B2B industry, Tencent's entry into Yijiupai means that the strong will become stronger on this track, and the Matthew effect is beginning to show. Meituan's additional investment in Yijiupai also demonstrates the latter's important position in Meituan's industrial chain layout. Kuailv can provide catering supply chain support for Meituan's B-end business, while Yijiupai can effectively complement Kuailv in standardized categories such as alcoholic beverages and drinks, further improving Meituan's full industrial chain layout in catering. 10 Alibaba Invests in 1919, Beginning to Harvest Vertical E-commerce Tencent completed its layout in alcohol B2B through investing in Yijiupai, and Alibaba naturally would not turn a blind eye. On October 19, the NEEQ-listed company 1919 announced that it had received a strategic investment of 2 billion yuan from Alibaba Group. After the completion of this Series C financing, Alibaba became the second largest shareholder of 1919, holding approximately 29% of shares, with 1919 valued at 7 billion yuan. Hu Weixiong, President of Tmall's FMCG Business Unit, stated that the two parties will cooperate in user acquisition, store sharing, joint marketing, and distribution and supply chain upgrades. From Hu Weixiong's introduction, the upcoming cooperation involves the entire chain of alcohol consumption.
On the consumer side, the membership systems of Tmall and 1919 will be interconnected, using big data for joint user acquisition;
On the store side, some of 1919's stores will be renamed as Tmall & 1919 dual-brand stores for smart store renovation;
On the logistics side, 1919 will become Cainiao's front warehouse;
On the supply chain side, 1919 will develop Tmall-exclusive products, lock prices and inventory for scarce goods, and become Tmall's alcohol procurement center. Alibaba's turn to vertical e-commerce is partly due to the need for ecosystem synergy. In its latest fiscal year 2018 annual report, Alibaba clearly stated that it will not make investments or acquisitions for purely financial reasons, but will focus on strengthening Alibaba's ecosystem, creating strategic synergies, and enhancing the company's overall value. On the other hand, it is related to competition with Tencent. After Tencent clearly made new retail a priority, it cast a wide net in e-commerce and retail, successively investing in JD, Vipshop, Pinduoduo, Miss Fresh, as well as startups like Hui Xiadan, Duozhuayu, Xiaohongshu, Youzan, and Haoyiku. For defense, Alibaba needs to find high-quality targets. This investment in 1919 also means that at the alcohol B2B level, Alibaba and Tencent have formed a competitive landscape of 1919 vs. Yijiupai. Looking at 2018 as a whole, the strong become stronger, and small and medium players continuously exit, which seems to be the main theme of the FMCG B2B track. After the wild growth in the early stages of industry development, competition among platforms ultimately returns to competition in refined operational capabilities and profitability. In this situation, only B2B platforms that adapt to brand owners' channel development needs, effectively use information tools to improve the efficiency of the entire industrial chain, and gradually form their own cash generation capabilities during development can achieve long-term and sustainable development. In this regard, JD New Channel and Retail Link, backed by JD and Alibaba, are no exception. After completing the national market layout, 2019 will inevitably be the beginning of their shift to internal refined operations and achieving profitability goals. But obviously, achieving this goal is no easy task for either JD New Channel or Alibaba Retail Link. From the broader development direction, the penetration of information tools into offline will not stop, and the determination of internet giants to develop industrial internet will not change. Whether it is Tencent and Meituan increasing their bets on B2B, or Alibaba increasingly investing in vertical category e-commerce, it all indicates the acceleration of internet penetration into offline distribution channels. In this process, no one can remain unaffected, and only by actively participating can one avoid being eliminated by the tide of the times. 'Star' New Distribution Get FMCG industry insights at the first time -END-