Optimizing warehouse and distribution systems is the simplest transformation and upgrade path for distributors. Core Guide:
Why is the survival pressure on traditional distributors increasing?
With the evolution of social division of labor, how can distributors focus on core functions?
With giants like Alibaba and JD.com entering the FMCG channel, do traditional distributors still have opportunities?
Rising labor, material, and operational costs are prompting more traditional distributors to ponder: where exactly is the way out for the traditional distribution business? Against this industry backdrop, a growing number of distributors have put "transformation" on their daily agenda. However, saying it is easier than doing it. How should traditional distributors transform? Where should they turn? These have become unavoidable questions on the road to transformation.
Currently, the transformation paths for distributors are generally limited to a few options: expanding product categories, upgrading to B2B platforms, extending the industry chain, trying to open stores downstream, or separating the flow of goods and transforming into unified warehousing and distribution. But is transforming into unified warehousing and distribution truly a suitable path for distributor development? Recently, New Distribution exclusively interviewed Lin Wenliang, CEO of Yun Cang Pei (a leading FMCG warehousing and distribution platform in China, covering 68 cities nationwide, including almost all major cities, with over 600,000 service outlets, managing 400,000 square meters of warehouse space, and controlling over 17,000 vehicles). How does this veteran of supply chain view the development of the traditional distribution business?
Traditional Distributors Struggling to Survive in the Cracks
New Distribution has visited many domestic distributors, and although most are still profitable, their profit margins have significantly declined. For example, a first-tier soy sauce brand distributor in the Jiangsu-Zhejiang region achieved annual sales of nearly 100 million yuan in a county-level market early on. However, the expansion in scale did not bring revenue growth; instead, profits were eroded by rising operational costs, leaving the business stagnant.
"Previously, we rented warehouses near our homes, and the cost was not high. But over the years, housing prices have risen, and warehouse costs have increased accordingly, forcing us to move warehouses from the city to the suburbs. This reduced warehouse costs but increased distribution costs. Moreover, our employees are all relatives, and when wages rise elsewhere, we have to follow suit; otherwise, we cannot retain staff. How can we find time and energy to take on more brands?" The distributor told New Distribution that his case is not uncommon in the FMCG industry.
"The golden decade of FMCG is over." Lin Wenliang believes that in the 30 years since reform and opening up, especially in the early period, push supply chains dominated. The imbalance between supply and demand meant that as long as one was bold, almost all products could be sold; but now overcapacity is a problem all enterprises must face, and the supply chain must shift to a pull model. Additionally, rising labor and material costs are making operations more difficult for many companies.
Furthermore, besides objective cost increases, competition from peers and "cross-border" internet companies like Alibaba and JD.com are making traditional distributors' businesses increasingly difficult.
For traditional distributors, this is both a challenge and an opportunity.
Focus on Core Functions to Build Core Competitiveness
There is a consensus in the industry that traditional distributors assume three functions in the supply chain: market services, capital advances, and warehousing and distribution. Distributors undertake many and varied functions, but doing everything often means doing nothing well, which is why many distributors fail to build core competitiveness after decades in business. However, the development of social division of labor will increasingly strip away non-core functions from distributors. In this context, focusing on the three functions, differentiating in one area, and building core competitiveness should be the focus for traditional distributors.
In this regard, Lin Wenliang believes that in the process of distributor transformation, logistics will always exist, but the key is in what form. Capital advances and market services have gradually been socialized; the financial sector already has more third-party financial institutions, and market services will be gradually replaced by technology, with the utility of salesmen diminishing. For example, in the beverage industry, salesmen previously played a large role in terminal merchandising, maintaining shelves, and refrigerator displays. Now, many manufacturers are installing cameras and sensor chips on refrigerators or shelves to capture product display and inventory in real time through information tools, enabling brands and store owners to take targeted actions based on inventory and display. In the future, more and more customer relationship services will be internet-based.
"The future development of the logistics industry will definitely be specialized, socialized, and shared," Lin Wenliang emphasized. In this industry context, it is also a viable transformation path for distributors to separate warehousing and distribution to professional third-party companies, freeing up more energy to expand their business scale. Many brand owners have already made attempts at the logistics level, such as Coca-Cola and Nongfu Spring.
Distributor Transformation Should Follow the Trend
Returning to the topic of separating warehousing and distribution functions, why do many distributors often make a lot of noise but little progress when implementing it? Analyzing the reasons, they are mainly as follows:
Warehousing and distribution companies are small in scale, and there is fear of stockouts or shortages;
Concern that warehousing and distribution companies will steal distributors' business;
Third-party warehousing and distribution companies' operational capabilities are inferior to distributors';
They cannot effectively empower distributors, making them unattractive;
Yun Cang Pei has accumulated deep industry experience over its long-term development. Lin Wenliang told New Distribution that its current clients mainly fall into four categories:
- Brand owners, such as Coca-Cola, Budweiser, Nestlé, etc.;
- Traditional trading companies and traditional distributors;
- New retail enterprises, such as Ele.me unmanned shelves, Bianlifeng, etc.;
- Chain convenience stores and supermarkets.
The reason Yun Cang Pei has gained client trust is not only related to its listed company shareholder background but also its years of industry accumulation and customer reputation. At the business level, focusing on warehousing and distribution logistics without touching the flow of goods has helped Yun Cang Pei earn the trust of many brand owners and distributors.
At the system level, since Yun Cang Pei serves many brand owners and distributors with deep distribution systems, its operating system has undergone multiple iterations and updates, ensuring that when serving new distributors, it does not need to invest significant effort in developing new information systems, thus ensuring smooth service.
"The most ideal and efficient circulation chain for goods is when downstream customers place orders, products can be transported directly from the factory to retail stores. Yun Cang Pei provides all services from the product leaving the factory to the retail store, and we hope to create an ultimate short chain in the FMCG field."
In Lin Wenliang's view, the essence of unified warehousing and distribution lies in achieving intensive operation through resource sharing, thereby reducing costs and increasing efficiency. From a time perspective, different categories have different peak and off-peak seasons, leading to severe supply-demand imbalance in warehousing and distribution for many traditional distributors during peak and off-peak seasons. Unified warehousing and distribution minimizes this waste through resource sharing and effective product combination; at the same time, combining high- and low-margin products can increase the overall gross margin per vehicle order and reduce the fulfillment cost per order.
"With the development of the internet and rising operational costs, the entire FMCG distribution channel is becoming increasingly flat, and logistics is playing an increasingly important role. Enterprise development should follow the trend. B2C e-commerce has basically hit its ceiling after years of development, and traffic costs are rising year by year. In contrast, B2B has not yet produced a true giant. The interaction in B2B is different from B2C, and the decision-making process also differs greatly, which determines that giants will not expand as smoothly in the B2B market as in the B2C market. This also means that traditional distributors still have huge opportunities to complete their own transformation and upgrade through digitalization," Lin Wenliang added.
Star: New Distribution
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