Liu Chunxiong says that the current environment for distributors is: the internet revolution is nearing its end, and the supply chain revolution has begun. So, which has a greater impact on distributors: the internet that claims to 'eliminate' distributors, or the supply chain revolution that 'bypasses' distributors? This article is compiled from Liu Chunxiong's sharing at the closed-door meeting of 'Anneng Zhilian Supply Chain' at the 5th China FMCG Conference in Shenzhen, for the benefit of readers. (Partially edited.) The Ceiling for Distributors The distributor system based on counties and cities has been basically formed since 2000. There are roughly five types: Warehousing and distribution distributors: factory orders + distributor warehousing and distribution. Brand distributors: big brands drive sales, small brands generate profit. Category distributors: deeply penetrate a single category. Channel distributors: specialize in a specific channel. Platform distributors: full product range, one-stop supply. The future paths and development ceilings for these five types of distributors are also already set. Warehousing and distribution distributors: highly substitutable, no independence, dependent on manufacturers. They are not independent distributors; they fulfill specific financing and warehousing functions for manufacturers in the channel. Brand distributors: small regional agents, limited growth scale. Big brands have little room for growth, and small brands will disappear. Category distributors: only suitable for long-tail categories, such as snacks, condiments, frozen foods, etc. They will be greatly affected by hard discount stores in the future. Channel distributors: operate in a single channel, not complete distributors. Platform distributors: full product range, full brands, one-stop, regional oligopoly. Unlimited future space, especially with cross-regional development. Except for a few exceptionally excellent distributors, the ceiling for ordinary distributors is clear: county-level brand distributors 50 million; prefecture-level brand distributors 100 million; provincial capital brand distributors 300 million. Category distributors have a slightly higher ceiling. For distributors to achieve leapfrog growth, they must find a model that breaks through the ceiling. Otherwise, small growth cannot offset the rapid increase in operating costs. Supply Chain Revolution Bypassing Distributors If distributors are unaware of the supply chain revolution, here's a topic that makes it intuitive: snack hard discount stores. This year, snack hard discount stores have developed rapidly, greatly impacting distributors, supermarkets, and wholesale markets. They have taken away the snack food category, which has the strongest profitability in the channel, affecting not only revenue but also profits significantly. Some distributors have lost a major category in their product mix profit model. Some distributors say it has impacted revenue by 20%-30%. Currently, the supply chain revolution manifests in three phenomena: private brands, hard discount stores, and the chainization of B and C stores. If platform distributors are included, there are four phenomena. Private brands are currently showing an explosive trend. In Europe, private brands account for 38% of retail share. Large Chinese supermarkets are developing independent private brands, and medium-sized supermarkets have established a private brand alliance (Ant Business Alliance). Some distributors are also developing private brands. It is expected that within 10 years, private brands may account for one-third of offline retail share. Hard discount stores are also booming. Hard discount means no discounts, just direct low prices, super cost-effectiveness, extremely cheap. Retail hard discount stores are just a breakthrough for China's hard discount stores; the future will spread like wildfire. If snack hard discount stores are still vertical discount stores, comprehensive hard discount stores will definitely emerge in the future, with even greater impact. The chainization of B and C stores is a byproduct of platform distributors. Small retail stores connect with platform distributors through chainization, enjoying the benefits of scale that platform distributors bring. The above four phenomena are collectively called the supply chain revolution. This is a major trend affecting China's next 10 years. The supply chain revolution has a common feature: bypassing distributors. Retailers directly connect with manufacturers, product costs are workshop costs, with no operating expenses or channel circulation costs. Currently, private brands are mainly OEM by large factories, ensuring quality and low cost. The traditional channel is F2B2b2C, while the supply chain revolution is F2b2C. There is no place for B (distributor) in the channel. The internet once claimed to 'eliminate' distributors, while the supply chain revolution 'bypasses' distributors. So, where will distributors stand in the future? E-commerce already accounts for one-third of retail share, and private brands will account for one-third of offline sales in the next 10 years, leaving little room for distributors to develop. In the current context, distributors have only three choices for development: First, go high-end. High-end is definitely a trend, but it is also slow and cannot bring short-term sales growth; it contributes more to profits than to sales growth. Second, develop private brands. The prerequisite for private brands is scale. Without scale, there is no cost advantage. Currently, most small regional agents do not have scale. Some platform distributors may be able to develop private brands or establish private brand alliances. Third, transform into platform distributors. Of course, this is a more difficult choice, but it is also the choice that has a place in the future. Platformization of Distributors Ten years ago, the internet used B2B platforms to try to 'eliminate' distributors. Unexpectedly, now many distributors have picked up B2B weapons to save themselves and successfully platformized. What is a platform distributor? Platform distributors have two major characteristics: First, distributor + B2B platform This is the integration of two split roles. As a distributor, they must fulfill the role assigned by the manufacturer. Simply put, help the manufacturer promote and sell goods; as a platform operator, they must help retail stores build supply chains. Simply put, help retail stores purchase. Why is it called the integration of split roles? Distributors have channel thinking, standing on the manufacturer's side. Platforms have supply chain thinking, standing on the retail side. These are two completely opposite thinking directions. Second, one-stop supply Distributors' business is greatly affected by channel diversification and fragmentation. Many new internet-related retail formats have emerged, diverting traffic from traditional channels. At the same time, new retail formats also put forward new requirements: one-stop supply. Ordinary brand distributors find it difficult to achieve one-stop supply; only platform operators can do it. It is precisely the demand for one-stop supply to fragmented channels that makes it increasingly difficult for ordinary brand distributors to operate. Third, platform operators focus on specific channel roles Traditional brand distributors undertake four major channel functions:

  1. Promotion function: complete brand and product promotion.
  2. Order function: take orders from retail ends.
  3. City distribution function: complete distribution to retail ends.
  4. Capital function: advance payment, credit sales, etc. Because brand distributors perform all four functions simultaneously, the 'small but complete' nature of distributors appears inefficient. If the four functions are platformized, achieving scale, or outsourced to third parties, supply chain efficiency will greatly improve. The four major channel functions and four major platforms currently have successful examples. Some newly established distributors do not have city distribution functions and focus on brand promotion. Promotion capability is the core capability of distributors. Distributors with this capability can collaborate with other distributors to achieve platformization of the promotion function. There are, of course, more successful cases of order platforms and city distribution platforms. Orders are commercial flow; orders are the premise for platform distributors to exist. City distribution platforms are likely to gradually become third-party. As long as there are commercial flow platforms and logistics platforms, financial institutions are willing to cooperate with platforms, and capital platforms are not a problem. Now distributors face the choice: which function should they choose as their platform? City distribution platforms emphasize economies of scale the most. Therefore, unless a distributor achieves super scale and can do an independent city distribution platform, they are only suitable for joining a national city distribution platform as a 'local operator'. Order function is the core function of the platform, and distributors must keep it in their hands. Promotion platform: this is a capability only a few powerful distributors have, not suitable for most distributors. Capital platform: this is a derivative platform function of orders and city distribution. Except for the order platform, which is a must for distributors, the others are optional. Oligopolization of Platform Operators The evolution of China's FMCG channels has always been strongly dominated by manufacturers. This has resulted in the miniaturization of distributors, such as small regional agency systems. The consequence is that distributors are extensions of manufacturers' functions in the channel, and manufacturers strongly dominate management, especially leading enterprises. This phenomenon may reverse with platform distributors. Brands, orders, and market share will concentrate on platform distributors. First, many terminals requiring 'one-stop' supply can only be served by platform distributors. Second, because platform distributors can centrally supply small retail stores directly, terminal coverage is higher, eliminating the phenomenon of secondary wholesalers. Therefore, more manufacturers are willing to give brand agency rights to platform distributors. Third, platform distributors can develop in different regions, even cross-region mergers and acquisitions. This was impossible in the past under manufacturer-dominated small regional agency systems. Cross-region M&A is a condition for the emergence of national distributors. The above three phenomena will inevitably lead to the oligopolization of platform operators. Oligopolization means that two or three platforms, or three or four platforms, monopolize a small region. The oligopolization of platform operators means the disappearance of many small independent distributors. Of course, distributors of industry leading enterprises should have slightly stronger survival capabilities. However, handing over public functions to third-party platforms, especially city distribution platforms, should be an unquestionable result. The Must-Choose for Distributors American futurist Naisbitt said that success is not because you solved a problem, but because you seized an opportunity. Every channel change is an opportunity for new types of distributors to stand out. The key is whether distributors see it as a problem or an opportunity. Currently, quite a few platform distributors have emerged, and their starting sales are higher than the ceiling of ordinary brand distributors. For some platform distributors, 300 million in provincial capitals is the ceiling for brand distributors, but it is the floor for provincial platform operators. The emergence of platform distributors has seized both the opportunity of the internet revolution (B2B platforms) and the opportunity of the supply chain revolution. The future of the five types of distributors is clear. For distributors to achieve leapfrog development, there is only one must-choose: platform distributors. Obviously, the channel transaction structure is changing, and the channel value of distributors is being reassessed. In the past, it was an upgrade competition; now it has entered an elimination competition. In this context, 'New Distribution' jointly initiated the establishment of the China Distributor Supply Chain Alliance with four large supply chain platforms nationwide. With digital platform-based distributors as the main body, it aggregates different roles in the ecosystem such as brand owners, retailers, and industry service providers, aiming to promote industry exchange, drive industry development, and assist alliance members in digital transformation and upgrading, creating the largest FMCG industry distribution supply chain platform community in China. By establishing an alliance information sharing mechanism, members share data and resources, accelerating the rapid growth of alliance members, and realizing values such as 'joint procurement, brand co-creation, and resource integration'. If you are interested or have questions, you can add WeChat for consultation. PS: Friends interested in the on-site speech content can follow the recent posts on the 'New Distribution' WeChat official account. We will compile and publish all guests' speeches for readers. Click 'Read Original' to see more highlights of the 5th China FMCG Conference and the 1st China FMCG Distributor Conference...