---
title: "The Profit Path of FMCG B2B: Insights from Yijiupi CEO Wang Chaocheng"
description: "At the 3rd China B2B E-commerce Conference held in Shanghai on December 28-29, Yijiupi CEO Wang Chaocheng shared his views on profitability in FMCG B2B. He emphasized that transaction-based profit, driven by per-vehicle and per-unit economics, is the core foundation, followed by financial and service profits."
author: "王朝成"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-12-29"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/6iGqW6Z5W0Zr9GT6xmCVWQ"
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# The Profit Path of FMCG B2B: Insights from Yijiupi CEO Wang Chaocheng

> At the 3rd China B2B E-commerce Conference held in Shanghai on December 28-29, Yijiupi CEO Wang Chaocheng shared his views on profitability in FMCG B2B. He emphasized that transaction-based profit, driven by per-vehicle and per-unit economics, is the core foundation, followed by financial and service profits.

On December 28-29, the "3rd China B2B E-commerce Conference" was held in Shanghai, guided by the B2B Industry Branch of the China Electronic Commerce Association, hosted by the B2B industry media Tobey.com, and co-organized by Tencent Qidian, JD New Channel, Gangyin E-commerce, and Yunniao Technology. The conference, themed "Sedimentation, Value, Integration," aimed to review history and explore future development directions with B2B industry professionals. Industry and investment leaders including Wei Zhe, founder of Jiayu Fund; Zhu Junhong, chairman of Shanghai Ganglian and Gangyin E-commerce; Liu Fei, vice president of Alibaba Group B2B; Zhang Yichun, chairman of Zhongshang Huimin; Xiong Xinxiang, chairman of Boen Technology; and Fu Zhonghong, partner of Da Chen Ventures, attended and delivered speeches.

**The following is the transcript of Wang Chaocheng's speech:**

Sorry, I didn't prepare a PPT. Many years ago, I used to teach with PPT, but I had a psychological burden: after sending out a certain slide, many people came to me with questions. Since then, I've had a shadow and stopped using PPT, but I'll try to make my presentation rhythmic without slides. Today's topic is "The Profit Path of FMCG B2B." I can only talk about what I know; I know a bit about FMCG, and then I'll discuss profitability. I saw that Brother 2 gave me only 20 minutes, so I don't have time for too many formalities.

B2B has been extremely hot in the past two years. B2B might have the highest number of deals among all tracks. B2B is very fragmented; every industry can have B2B, every industry can go online, so countless institutions invest. But you'll notice a phenomenon: after B2B reaches Series C, there aren't many financings. Why? In each track, there aren't many Series C financings. A guest said earlier that B2B is easy to survive but hard to scale. I truly believe that. B2B profitability is very difficult. Many of you here are peers; how many are profitable? This is quite important. Alcohol is a unique industry with some interesting characteristics, so the alcohol trade itself is relatively good. It's not that I'm very capable; we find it relatively easy to be profitable. Let me talk about how B2B can be profitable.

**In general, there are three major models for B2B profitability.**

**The first model is transaction profit.** You buy in and sell out, and there's a price difference. If you can make money, that's transaction profit. I always believe that transaction profit is the foundation of a business. I conservatively think that B2B is essentially the process of traditional distribution going online. If traditional distribution can't make money, B2B probably won't either. So when I started Yijiupi, I looked at whether there were large alcohol distributors globally. If there are large alcohol companies worldwide, it means the B2B in this industry could potentially grow big. Fortunately, we found that there are many large companies, so we thought this industry could produce big players. But if you ask whether there are large publicly listed sand-selling companies globally, we haven't found any. Can B2B in such industries be big? In China, maybe, but globally, no. If something doesn't exist globally, from an industrial economics perspective, there might be inherent flaws. So my first view is that transaction profit is the core foundation.

**The second profit is financial profit.** Many people talked about this this morning, including Teacher Wei Zhe, saying B2B naturally has financial attributes; to B has capital flow attributes. We are also doing finance now. But not every company can do to B finance; I'll talk about my views on industrial finance later.

**The third is service profit.** B2B itself is service profit; it's clear and standard, so we don't need to list it. In our industry, we provide warehousing and logistics distribution to traditional distributors, which is also service profit.

First, let's talk about what transaction profit is. There's an important concept: the relationship between gross margin and profit. In to C e-commerce, everyone knows gross margin. If an industry has a 20% gross margin or 15%, industries with low gross margins can't make money. But in to B, transaction profit has nothing to do with gross margin. Why? Because to B delivery costs differ from to C. If you're to C, you send a package for 5 yuan delivery cost; if the item is worth 20 yuan, you have 20 yuan gross profit, and you can earn 15 yuan. To B is different. In to B, you use a van from a warehouse, like we do in FMCG, to deliver to terminal stores. A van trip costs about 300 yuan to go out and come back, 150 yuan for wages, 4500 yuan (likely a typo, but I'll keep as is), about 80 yuan for fuel, plus parking, repairs, and depreciation. A van costs 50,000 yuan, depreciated over four years, plus 300 yuan parking. Whatever is loaded on the van, you pay 300 yuan. Suppose the van is full; in FMCG, we load 250 cases. The fixed cost for a trip is 300 yuan. Alcohol might be heavier, beverages lighter, but it's basically fixed. If the cargo value is only 5,000 yuan, and you have a 5% gross margin, the delivery cost is 250 yuan, but your fixed cost is 300 yuan, so you lose money. At 5%, you're losing. Let me tell you, in our alcohol business, if we load a van with alcohol worth 50,000 yuan, and we have a 2% gross margin, that's 1,000 yuan. With a fixed delivery cost of 300 yuan, we earn 700 yuan. Because to B is a high-growth business, and assuming capital costs are covered by equity financing with no cost, a 2% gross margin on alcohol is more profitable than a 5% gross margin on beverages. At 5%, to B beverages is a loss; at 2%, alcohol is profitable. This shows that to B has little to do with gross margin.

**What is the foundation of transaction profit? It's the per-vehicle profit model, not the gross margin model. If you calculate the per-vehicle profit model clearly, you'll understand how much money the business itself makes.** Good to B internet companies have a basic model: per vehicle is profitable, but the company is still losing money because fixed costs are high—you have R&D and management personnel. If your business runs five vanloads a day in a city, and each van earns only 500 yuan, that's 2,500 yuan, but management and platform costs are huge, so you can't cover them. But theoretically, if the company scales to 20,000 vanloads a day, it becomes profitable because you earn 1 million or 10 million a day, covering all costs. So this business is like to C. In to C, delivery costs are not fixed per van; they vary. If the product makes more money, delivery costs are higher; if it makes less, delivery costs are lower. So I say to B is different from to C. There's an old Chinese saying: men fear entering the wrong industry, women fear marrying the wrong man. Some to B industries are good, some are tough. That's the first profit model.

Of course, some say that in the internet model, terminals want one-stop shopping; selling everything is the essence of the internet. I agree. From the user's perspective, the more products you sell, the higher the user stickiness. Terminals need everything, so selling everything is wonderful; they can order everything at once. But you have to calculate how much money the products on the van make in total, and whether the van is profitable. If you have 250 cases, 200 are losing money, and 50 are making money. The more products, the better. The C-end model is completely one-stop; JD and Alibaba sell everything because C-end users have all needs. Theoretically, any product satisfies human needs, and a person needs everything, so JD and Alibaba sell everything in C-end; it's definitely one-stop. But B-end is different. For example, in the tobacco and alcohol industry, they sell tobacco and alcohol. No one uses the internet to sell tobacco. Alcohol and beverages—initially, there were no alcohol and beverages. We mainly sell to tobacco and alcohol stores. Alcohol accounts for a higher proportion than beverages because we mainly sell alcohol. A vanload with beverages might be worth 25,000 to 30,000 yuan. We make about 4% gross margin, earning 1,000 yuan per van. So not every van is profitable. Among scaled FMCG companies, Yijiupi has the best financials. That's the profit logic I'm talking about. If you run a convenience store and sell everything, that might be right, but it's likely to be a loss because most products lose money, and a few make money. How do we handle convenience stores? We calculate which products are loss-making and which are profitable. Should we sell loss-making products? There's a theory that if you sell everything, high frequency beats low frequency. In to B, I'm skeptical about high frequency beating low frequency. Many of our peers do FMCG very well, but convenience store owners will install two apps: buy alcohol on one, buy beverages on another. How did tobacco and alcohol store owners stock up in the past? They bought from different suppliers: one for alcohol, one for beverages, one for food. The only philosophy is whether your price is competitive. We are the most competitive; we sell hundreds of millions a month, so we achieve low costs. If our alcohol price is more competitive, store owners will install two or three apps to compare. So in to B, price is very important. Because you're serving a professional operator whose desire to make money is paramount. He's a professional buyer, unlike C-end. I buy an iron once every five or ten years; if it's a bit more expensive elsewhere, what does it matter? As a B, I buy every day. Why should I buy from you? How much is that convenience worth? Not much. I sit at home and stock up every day. So the biggest difference between to B and to C is that to B is a professional buyer who needs price advantage as a key issue. Many say service is important, we have low prices, timely delivery, good products. I tell you, that's nonsense. Don't care about upstream suppliers' resentment. If you don't resent them, you're dead; your platform has no traffic. So all to B entrepreneurs know your users are your bread and butter. No internet company can escape price wars. Regarding price wars, I have a consulting company that is the largest alcohol consulting firm in China. Many domestic alcohol factory owners call me and say to raise prices. I say if you raise prices, you're dead. Investors have invested so much money; the company is worth 10 billion and still cheap. If you want to adjust, adjust; why ask me? What is efficiency improvement? The manifestation of efficiency improvement is being cheaper than the original channel. If you're cheaper and still make money, that's your B2B core competitiveness. Have you optimized business processes? Have you reduced warehousing costs? If you can't do these, and can't provide cheap prices to terminals, then anything else is definitely deceptive. That's media talk, not the true nature of to B. So the first core I talk about is transaction profit.

**The essence of transaction profit is per-vehicle profit and per-unit profit.** In FMCG, the cost per trip is 0.3 yuan per case, warehousing and handling 0.6 yuan, plus ground promotion wages. Below 1.9 yuan is definitely a loss. Add management costs, 1 yuan per case. If you can't earn 2 or 3 yuan per case, it's definitely a loss; the more you sell, the more you lose. How did traditional traders make money? Traditional traders have lower costs than us. For beverages, a traditional trader has a small shop, so retail gross margins are higher, wholesale margins lower. The shop is a small warehouse, so no warehousing cost. Second, no handling cost because the owner does it himself. Third, logistics costs are lower because he uses an electric bike; no fuel cost. Can you compete with that? So some industries are not easily to B-ized.

Second, scale. **After calculating per-unit profit in to B, the second thing is to study whether your industry is scalable.** This morning, Wei Zhe talked about scale; scale is very important. The essence of scale is that doing 50 or 100 cities is different from doing 1 city. This is particularly significant in FMCG. Some startups doing to B will fail if they do 50 cities; each city is losing money. But some things are meaningful in 50 cities, like alcohol. If you do 50 cities, and you sell Moutai every day, you're definitely the largest supplier in China. You can negotiate with Moutai and Wuliangye distributors for hundreds of cases at once; the order is huge. Sometimes you can save over 20 yuan per bottle. A case can be shipped from one point to anywhere in China for 7 yuan. So you have scale. For food and beverages, you can't do this. Beverages in Guilin—I estimate you're the largest beverage supplier in China. How do you centrally procure beverages? If you talk to Nongfu Spring about taking 10,000 bottles a day, you can't ship from one point because logistics costs exceed your savings. So your reach is short; accumulated scale across regions is meaningless. Of course, Guilin has some meaning; I'm just giving an example. Regional scale is meaningless. At that point, you produce locally; if you have high volume in one city, you can still get low prices from suppliers. Because water is produced locally, your scale doesn't matter. So there are two key points for transaction profit: first, the per-vehicle and per-unit model, which is related to category; second, whether the category has regional scale economies. If not, it's troublesome; doing large volume is meaningless. If yes, then scaling up the category is meaningful for upstream. If there's no regional scale economy, it's meaningless for upstream.

Second, financial profit. The essence is supply chain finance. The essence of finance has three points: **First, accurate valuation.** When lending, know how much to lend. Yijiupi's lending method is simple: distributors and regional distributors need 20 million in loans during holidays. If a distributor lacks funds to stock up, and hasn't completed this year's tasks, we lend. How much? You put up 30% margin, and we provide the remaining 70%. What's 70%? Yijiupi's price is 1,060 yuan per bottle; 6,360 yuan at 70% discount. We lend that. That's accurate valuation. If you don't have transaction data, the manufacturer's listed price is high, but the actual transaction price is low; lending would be a loss, and they wouldn't sell to you. So first, accurate valuation. **Second, monitoring.** What does monitoring mean? I transfer money to the distillery; the distillery sends goods to the distributor. But we don't send to the distributor; if we do, they might sell it. We send to our warehouse and hold it there. They must pay to redeem. They can redeem daily, taking a little each day. Interest accrues daily. We basically don't do unsecured loans; we are extremely conservative financial providers. We only finance goods, and only fast-moving goods; we don't finance slow-moving goods. **Third, sellability.** If there's a default, we dispose of it immediately. For us, it's simple: we have 80 cities nationwide, and we can sell over 100,000 cases of alcohol a day. We can easily dispose of it and sell it immediately. That's supply chain finance. We provide supply chain finance to upstream and regional distributors. Our advantage is nationwide warehousing; we have warehouses in most prefecture-level cities. Nearby distributors can get loans. That's the network's value; your network can monitor goods. Another point in finance is that you design different interest rates for different objects. For example, for upstream, the rate is 10-12 points; banks are about 6-7 points. Our advantage is flexibility: if you repay part of the loan, we stop charging interest that day. Banks charge quarterly. So our nominal rate is higher, but the effective rate is lower. This suits inclusive finance. We do this. For downstream, like small shops, the loan term is shorter, maybe 5-10 days. So the faster the turnover, the higher the rate; the slower, the lower. The larger the amount, the lower the rate; the smaller, the higher. Our rate design differs, and the way we finance goods also differs.

The third profit method is service. We've grown big now; we do wholesale ourselves. Many large traditional distributors still supply terminals directly and can't go online. We can negotiate: you can use our warehousing and logistics services. Our logistics cost per case is 1.2 to 1.3 yuan. Regional distributors can't achieve that; they have few product categories. In China's FMCG distribution, many distributors handle one or two categories. In a day, orders to a certain area might not be consolidated; their delivery cost is also 300 yuan per trip, which is high. If you give me your logistics and warehousing, I become a provider of warehousing and logistics. We can also handle order processing on our platform, provide financial services, logistics, and warehousing. We essentially become an infrastructure provider for China's alcohol distribution. **You can use my e-commerce for order processing, my warehousing for storage, my logistics for delivery, and if you lack funds, I can lend you money. This is an important future direction in to B.** In the past, there were about 80,000 distributors in China's alcohol industry and 2,000 distilleries. You are actually the largest shared platform for alcohol merchants, or you are the largest alcohol merchant yourself. You must become an infrastructure provider, a platform for shared economy in infrastructure. Otherwise, how do you reduce costs? So I say to B reduces costs in three areas: first, order processing cost. In the past, distribution relied on salespeople visiting; one salesperson managed only 40 terminals. Now our salespeople manage over 200. Second, ground promotion and logistics cost: one case costs just over 1 yuan. Third, warehousing cost: our warehousing cost is 0.2 yuan per case per month. Everyone knows how much China Railway charges. By sharing, we increase utilization, improve warehousing efficiency, and reduce costs. Finally, there are three carriers for profit: transaction profit, financial profit, and service profit.

Time is limited, so I can only briefly share what I consider my dry goods and experience. I hope it helps. Thank you.

**Source: Tobey.com**
-END-
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