---
title: "The New FMCG Channel Ecosystem Is Carving Up Your Business"
description: "The moment to change the channel ecosystem is coming. The rise of e-commerce has taken about 30% of traffic from traditional channels, and now the combination of premiumization and digitalization is reshaping the traditional channel ecosystem, with dealers needing to transform or be replaced by platforms."
author: "刘春雄"
publisher: "New Distribution"
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published: "2023-05-29"
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# The New FMCG Channel Ecosystem Is Carving Up Your Business

> The moment to change the channel ecosystem is coming. The rise of e-commerce has taken about 30% of traffic from traditional channels, and now the combination of premiumization and digitalization is reshaping the traditional channel ecosystem, with dealers needing to transform or be replaced by platforms.

**Introduction: The moment to change the channel ecosystem is coming...**

**Author** 丨Liu Chunxiong  **Proofreader** 丨Gou Gou  **Layout** 丨He Wen

**What is the new channel ecosystem?** Take e-commerce as an example. Today's e-commerce consists of four major ecosystems:

**1. E-commerce order platforms.** Including Alibaba, JD.com, Pinduoduo, Meituan, Douyin, mini-programs, etc.

**2. Payment platforms.** Including Alipay, Tencent Pay, etc.

**3. Logistics platforms.** Including Cainiao, SF Express, ZTO, etc.

**4. Grass-planting (content marketing) platforms.** Including Bilibili, Xiaohongshu, Douyin, Video Accounts, etc.

In the early days of e-commerce, there were only e-commerce order platforms, no e-commerce ecosystem. For example, the early 8848 could only pay in traditional cash. The development of e-commerce is actually the perfection of the ecosystem. The birth of a new thing is highly likely the birth of a new ecosystem. From the e-commerce ecosystem, at least two points can be confirmed: first, specialization; all are professional platforms. Second, platformization; platforms are shared, and multiple professional platforms constitute an ecosystem. This is a new ecosystem completely different from traditional channels. In the new ecosystem, there is no role for traditional channels.

What is the traditional channel ecosystem? The traditional channel ecosystem is based on deep distribution, roughly in two aspects: First, there are four main channel chains: manufacturer (F), distributor (B), retailer (b), and consumer (C). Some channels also include sub-distributors (second-tier wholesalers). Second, distributors have four main functions: promotion (brand promotion, new product promotion), order (sales volume), city distribution (delivery to stores), and capital. The channel ecosystem of deep distribution has two characteristics: first, only vertical ecosystem, no horizontal ecosystem; vertical ecosystem is the vertical coordination of FBb three parties. Second, the four functions are carried by the distributor (B), forming a "small but complete" channel pattern. The biggest feature of the deep distribution channel ecosystem is that it solves the problem of distribution to more than 6 million retail terminals and more than 8 million catering terminals under China's vast territory.

**How will China's channel ecosystem deepen?** The emergence of the e-commerce ecosystem has taken about 30% of traffic from traditional channels. So, besides the continued impact of e-commerce, what other factors affect traditional channels?

**There are two main factors affecting Chinese marketing: one is premiumization, the other is digitalization.**

**Premiumization** From 2013 to 2016, China's FMCG industries reached their sales peak and began to decline continuously. For example, liquor sales have fallen more than 50% from the peak, and beer sales have fallen more than 40% from the peak. Under the industry sales decline, the deep distribution model fell into a competitive stock dilemma. More intensive deep distribution only consumes costs for all parties and is hard to bring sales growth; that is the dilemma. The way to solve the dilemma is not more intensive deep distribution, but premiumization. Use the growth of premium products to make up for the decline in mass product sales. When mass products enter a dilemma, premiumization is entering a golden period. After three years of the pandemic, consumption has shown K-shaped differentiation, with both consumption "downsizing" and consumption upgrading. If premiumization is a normal trend, then consumption "downsizing" is only a short-term interference to the trend.

Deep distribution is a channel model that matches mass product distribution. Then, **as the industry moves toward premiumization, relying solely on distribution can no longer solve the problem; it must shift to a bC integrated channel model oriented toward C-end promotion.** The three core actions of traditional deep distribution are: distribution (distribution), promotion, and in-store guidance. The core is distribution. The three core actions of bC integration are: 2C organization, scenario-based, and experience. The core is promotion and sell-through. From deep distribution to bC integration, the underlying logic of the traditional channel ecosystem has changed.

**Digitalization** The second core factor affecting Chinese marketing is digitalization. For FMCG brands, supply chain digitalization, intelligent manufacturing digitalization, R&D digitalization, and channel digitalization are the four core parts of digitalization. Among them, the other three aspects have corresponding standard modules. **Channel digitalization has become a relatively backward area for leading FMCG brands.** China's channel digitalization started with SFA and B2B, both of which are B2B. B2B digitalization, because there is no C, is only an upgrade of informatization. The real digitalization has two major elements: **one is the C-end, and the other is real-time online.** Therefore, real-time online C-end is a necessary condition. The bC integration that matches premiumization precisely brings the opportunity to reach the C-end, creating conditions for connecting, activating, and operating the C-end.

Since Ma Yun proposed New Retail in 2016, the promotion of New Retail and private domain labeled "de-intermediation" has not been ideal, indicating that the e-commerce B2C logic is not the correct digitalization path for traditional channels. The combination of bC integration and channel digitalization is bC integrated digitalization, and the two can be seamlessly compatible. bC integrated digitalization has three major characteristics: first, there is no online-offline integration, no distinction between online and offline, with the main purpose of obtaining increments; second, b-end connects C-end, and FBb three parties jointly operate the C-end; third, C-end orders, FBb three parties share profits. Currently, circle-based bC integration based on strong relationships and community-based bC integration based on strong ties have mature technical operational techniques.

**How will the channel ecosystem evolve under the form of channel digitalization?** Let's first look at how the four functions of distributors will evolve.

**1. Order function.** bC integration must be full-chain digitalization, and platform orders will increase. Order platformization is certainly a trend.

**2. City distribution function.** Full-chain digitalization means that orders will be generated between any two nodes, so the channel changes from distribution to full-chain delivery. Just as the emergence of delivery platforms like Cainiao has greatly improved delivery efficiency, city distribution platforms will appear in the future.

**3. Capital function.** In traditional channels, distributors have difficulty financing. The main form of distributor capital is inventory, and inventory has no financing ability in the traditional financial system. However, with the emergence of third-party platforms such as order and delivery, orders and inventory have financing ability.

**4. Promotion function.** This is the primary function of distributors. If a distributor has only one function left, it should be promotion. The three major actions of bC integration are actually brand promotion and premium product promotion. The four channel functions—order, warehousing and distribution, and capital—are all derived from the promotion function. Without the promotion function, the others can be quickly replaced. If distributors only have the promotion function, they will certainly feel lost and insecure. Therefore, for large distributors, they should participate in the construction of digital platforms. My suggestion is:

**First, must participate in digital order platforms.** Large distributors should actively participate in the full-chain digitalization of brand owners and also establish distributor-led bC integrated digitalization (B2b2C). Because small supply chains are not capable of building digital systems, but digitalization is indispensable.

**Second, either gradually give up warehousing and distribution, or become the local landing partner of city distribution platforms.** City distribution platforms replacing distributor warehousing and distribution is an inevitable trend, just as several domestic logistics platforms have formed oligopolies. Warehousing and distribution are absolute economies of scale; without scale, survival is impossible. However, city distribution also requires local landing to form a network system, especially since full-chain digital delivery includes 2B, 2b, and 2C delivery forms, and large platforms need local landing partners. When owning order and delivery platforms, the platform will definitely combine with the financial system, becoming a capital landing partner, thus bearing one of the financing parties. As for the promotion function, because it must shift from the distribution action of deep distribution to the sell-through action of bC integration, this is the future foundation of distributors.

Channels will still bear four functions in the future, but because besides the promotion function, the other three functions are replaced by platforms, forming a new ecosystem for FMCG channels. In the new ecosystem, distributors either become spectators or local landing partners of platforms. For large channel distributors, e-commerce is just carving up 30% of the market share. Full-chain digitalization and the resulting channel platformization may upend the old nest of large distributors. This is not intimidation, nor is it creating anxiety; it is logical deduction. To be, or not to be: that is the question.

The e-commerce system is a digital system, and the e-commerce ecosystem is a new ecosystem composed of platforms. The channel digitalization system is a digital system, and the full-channel ecosystem is also a new ecosystem composed of platforms. So, will future digital ecosystems all be composed of platforms? I think so. In the traditional channel ecosystem, distributors carry four functions in one, which is a management ecosystem. Although it is "small but complete," it may be the optimal solution when coordination capabilities are weak. The important role of digitalization is to greatly enhance coordination capabilities. The emergence of platforms certainly has economies of scale, but because the synergy effect of digitalization is obvious, the new digital ecosystem will definitely be platform-based.

So, under large platforms, how do distributors survive? Compared to platforms, individual distributors are too small. We have to mention the characteristics of Chinese channels, which is that the value of people is too important. **Chinese channels are human chains, with special emphasis on "customer relationships" and connections.** Currently, the industries where bC integration is relatively mature are **first, circle bC integration**, because there are "strong relationships" between b and C; **second, community bC integration**, because there are "strong ties" between b and C. Even in the era of deep distribution, the value of distributors was not because of capital and warehousing, but because they had a deep distribution team. The reason large distributors are large is precisely because they can manage a relatively strong team. After entering the platform ecosystem, distributors can focus on team building and product promotion, which is precisely the foundation of distributors.

Chinese distributors have always been localized, but recently we have seen cases of cross-regional mergers and acquisitions among distributors. The M&A cases particularly emphasize the acquisition of small terminals; the smaller the terminal, the greater the value of relationships and customer connections. China's channel digitalization has gone through a round of B2B peak, which was unsuccessful. bC integration is the second round. According to the law suggested by the Ducker Curve, the second round often leads to success. The moment to change the channel ecosystem is coming, and I hope you are there.

Liu Chunxiong, advocate of new marketing, dean of the Marketing Digitalization Research Institute. Currently associate professor at Zhengzhou University, author of the new marketing trilogy: "New Marketing," "New Marketing 2.0: From Deep Distribution to Three-Dimensional Connection," and "New Marketing 3.0: bC Integrated Digital Transformation."


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