---
title: "The Transformation Battle Has Begun: How Should Distributors Embrace the Internet?"
description: "The information revolution is rapidly spreading from the C-end to the B-end, and traditional distribution channels are being restructured. Distributors are facing increasing pressure, making transformation urgent. This article analyzes the challenges distributors face and outlines six models for their digital transformation."
author: "寇尚伟"
publisher: "New Distribution"
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published: "2016-03-12"
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# The Transformation Battle Has Begun: How Should Distributors Embrace the Internet?

> The information revolution is rapidly spreading from the C-end to the B-end, and traditional distribution channels are being restructured. Distributors are facing increasing pressure, making transformation urgent. This article analyzes the challenges distributors face and outlines six models for their digital transformation.

The information revolution is rapidly spreading from the C-end to the B-end, and traditional distribution channels are being restructured. Distributors are in an increasingly dangerous position, and transformation is urgent. But where should they turn?

Distributors have been talking about internet transformation for years without paying much attention to it. Most distributors just laughed at the slogan "eliminate middlemen," because at that time, the impact of e-commerce was mainly on the C-end. Although the B-end was also affected, the overall economic environment was good, and the market was still growing, so their lives were relatively comfortable.

However, since last year, the situation has reversed dramatically. With the fierce competition among O2O players, physical stores have become hot commodities, while distributors sandwiched between manufacturers and retailers are having an increasingly tough time. Recently, I have communicated with several distributor friends, and they all generally say that business is getting harder and harder.

**Where exactly is the difficulty for distributors?**

Summarizing their feedback, the main points are as follows:

1. **Macro environment impact.** As China's economy enters the new normal, all industries show weak growth, consumption growth slows, and some industries even experience severe decline.
2. **Too many competitors and serious homogenization.** This intensifies competition for terminal resources, driving up maintenance costs, while making product sell-through increasingly difficult.
3. **Extended payment terms.** In recent years, retailers have expanded blindly, leading to tight cash flows, and they pass this pressure back to distributors. Collections become harder, and payment terms lengthen.
4. **Rising labor costs.** In the past, a monthly salary of 3,000 yuan was acceptable, but now even 5,000 yuan may not attract workers. Moreover, due to the overall environment, the salary of salespeople has been declining, leading to high turnover and unstable teams.
5. **Impact of direct selling.** With the rise of WeChat business (micro-commerce), many third- and fourth-tier brands or new brands use WeChat to employ a human-wave tactic, greatly encroaching on traditional distributors' customer traffic.
6. **Impact of online competitors or same products.** E-commerce channels, especially Tmall and Taobao stores, are aggressively seizing market share from traditional distributors in certain categories like snack foods. Moreover, cross-channel dumping online has intensified, directly threatening agents' profits.
7. **Impact of O2O.** Since last year, under the national call for "mass entrepreneurship and innovation," a large number of entrepreneurs have flooded into O2O. After several rounds of cash-burning wars, they have caused considerable damage to distributors' businesses.
8. **Increasing difficulty in growing KA (Key Accounts).** Many distributor friends report that large supermarkets are developing their own private-label products, positioning the brands they represent as profit products with high prices, making it increasingly difficult to move volume.

In short, on one hand, the market is saturated, and China's economy has entered a phase of quantitative ceiling. On the other hand, the information revolution is rapidly spreading from the C-end to the B-end, and traditional distribution channels are being restructured. Distributors are like the meat in a meat bun, squeezed from both the manufacturer and the retailer ends.

**"Eliminate Middlemen" – This Time It's for Real!**

The slogans "de-intermediation" and "eliminate middlemen" have been shouted for years without substantive action, but this time it's different – it's for real.

On January 12, 2016, Alibaba held the "Global B2B Ecosystem Summit" at Yunqi Town in Hangzhou, grandly launching the "Hundred Cities, Ten Thousand Stores" plan and the 1688 service provider project, re-entering the B2B market. Then on January 16, JD.com held its annual meeting, where Liu Qiangdong announced that JD.com would launch the "New Channel Business Unit" in 2016, personally overseen by him, laying out three major networks to focus on fresh food and international business. In plain terms, JD.com is also entering the B2B market.

B-end e-commerce represented by Alibaba and JD.com is devastating for traditional distributors. Their model bypasses all intermediate links from manufacturers to retailers, directly controlling retailers and replacing distributors.

The industry calls this model centralized B-end e-commerce. Its purpose is clear: to eliminate traditional distributors, suppliers, secondary wholesalers, and all other intermediate links, using internet tools to restructure traditional channel structures. Regardless of the feasibility of this model, being targeted by two giants like Alibaba and JD.com means at least a painful ordeal. According to my understanding, JD.com is currently recruiting aggressively, deploying a large number of field personnel, and has already launched subsidy wars against retail stores, causing many stores to "defect." Although Alibaba has not yet made a move, once it does, it will certainly be a major action.

At the same time, another model of B-end e-commerce is flourishing, such as Pi Duoduo and Zhanghe Tianxia, which the industry calls distributed B-end e-commerce. Unlike the centralized model, distributed B-end e-commerce is centered on existing distributors, using internet tools to optimize traditional channel structures (e.g., through collective procurement, unified storage, unified distribution, and unified sales to improve efficiency and reduce consumption). It plays the role of an integrator.

Although from a model perspective, distributed B-end e-commerce is not as radical as Alibaba or JD.com, advocating symbiosis with distributors, it implies a premise: only distributors who accept the internet and upgrade according to its requirements can board this train. So regardless of the type of B-end e-commerce, they all aim to restructure traditional channel structures, cutting unnecessary distribution and management links. Distributors who cling to outdated practices will only face a dead end.

**Six Models for Distributor Transformation**

The wolf is coming! This time it's real! In the information age, all business elements will be restructured. Products, channels, communication, operations, and other aspects will all undergo internet transformation. The essence of "Internet+" is to improve efficiency and reduce costs. In this process, all redundant links will be eliminated. Distributor transformation is urgent.

The internet is both a shock and an opportunity for traditional distributors. Once they take to the wings of the internet, they can fly higher and farther. Based on cases in the market, I have summarized six models for distributor internet transformation.

**Comparison of Six Models**

**Model 1: Terminalization**

In the traditional channel structure, a product goes through at least 5-7 links from factory to consumer (manufacturer-distributor-supplier-secondary wholesaler-retailer-consumer). With layers of markup, the final price to consumers is at least 20% higher than the original. High gross margins, high costs, and high energy consumption are typical characteristics of traditional channel models. E-commerce loves to disrupt "three-high" industries. Books, clothing, 3C, agricultural products, etc., have already been or are being disrupted, and now they are targeting FMCG. How to avoid being disrupted? Only by acting first, cutting unnecessary distribution and management links, and directly controlling or building your own terminals. In the past, this was difficult, but now with internet platforms, it can be well achieved.

**Representative: 1919**

The core of 1919's model is "e-commerce + store commerce," i.e., O2O. By integrating community stores and self-built terminals, it achieves online-offline integration: order online, deliver from the nearest store offline. This bypasses the multi-level turnover of distributors and retailers, cuts out the layers of markup and fees in the middle, and achieves zero distance with manufacturers and consumers. It ensures quality and low prices while meeting consumers' need for immediate convenience.

**Model 2: Servitization**

Transforming toward terminalization requires significant investment, and terminal operations, brand building, and O2O services are unfamiliar areas for traditional distributors, so the risk is high. In comparison, transforming toward servitization is more stable, as distributors are already in the service business.

Whether it's centralized B-end e-commerce like JD.com and Alibaba, or distributed B-end e-commerce like Pi Duoduo and Zhanghe Tianxia, I believe that the service function of traditional distributors cannot be replaced by anyone. This is because China's terminal system is extremely fragmented, unlike the mature and centralized systems in Europe and America, where controlling a few large KAs like Walmart and Carrefour can achieve national coverage. This fragmentation means that controlling all terminal channels is impossible, even for giants like JD.com and Alibaba. Distributors' service functions, such as customer relationship maintenance, financial services, and logistics distribution, cannot be replaced by anyone at least in the short term. Distributors have local advantages. If they strengthen their services, even if they lose product agency rights in the future, they can survive by providing third-party services. Services can be divided into logistics distribution, financial credit, information, and operational management services. According to the service object, they can be divided into B-end services (for retailers) and C-end services (for end consumers).

**Representative: Che Bianli**

Che Bianli is a representative of C-end services. It was jointly established by the three largest electric bicycle distributors in Zhengzhou (agents for Xinti, Emma, and Yadea). Unlike FMCG, electric bicycles have a large market for after-sales maintenance and rescue services. Traditionally, these services were provided by each brand separately. Che Bianli breaks this brand boundary, acting as a third-party service provider, using internet tools like apps and navigation to provide fast door-to-door service for users of any brand.

I once talked with Mr. Song, one of the founders of Che Bianli. The project originated from the saturation of the electric bicycle market. Since 2014, the market has seen negative growth, severe homogenization, and shrinking profits (currently only 50 yuan per vehicle), while rent and labor costs have risen. So, while maintaining their existing wholesale and retail business, they gradually transformed into third-party service providers, integrating offline repair points through an intelligent information system to provide fast and timely service to users.

**Model 3: Platformization**

What is a platform? Simply put, it is an integrator of traffic, including information flow, logistics, and capital flow. The ultimate form of a platform is an ecosystem closed loop. Currently, C-end e-commerce platforms like Alibaba and JD.com are transitioning from integrating information flow and logistics to integrating finance (capital flow). Platforms earn pipeline fees, which is the most durable and stable business model. In the future, whoever integrates traffic best will be the winner.

Currently, the traffic dividend of C-end e-commerce has been exhausted, so the chance of a new large platform is slim. But B-end e-commerce is still in the development stage, and the B-end market is much larger than the C-end. As long as the model is clear and positioning is precise, it is entirely possible to see platform companies of the scale of JD.com or Alibaba.

**Representative: Wanshangou**

Wanshangou was formerly a distributor in Yantai. Several years ago, it recognized the crisis for channel players and began transformation. The steps were: First, the company purchased a piece of wasteland from the government and built a modern logistics warehouse. Second, it formed an alliance where all member distributors could use the warehouse for free, and it provided logistics, financial loans, and other services. Third, while using the warehouse for free, it required all secondary wholesalers and distributors to trade on Wanshangou's website. Fourth, based on website transaction volume, funds could stay for at most one night; if stored in the website account, interest was paid. Finally, through the terminal outlets served by distributors, it developed an O2O model using the trading website.

By providing free warehousing, Wanshangou completed the integration of regional distributor resources and terminal outlets. It is reported that its registered users have reached 5,000, with daily transaction volume exceeding 500,000 yuan.

Platformization has the advantage of a closed loop and can enjoy traffic dividends, but it is not easy. First, the initial investment is large; building an online platform and integrating offline resources require capital. Second, educating and cultivating small b (retailers) is difficult; most street shop owners are middle-aged or elderly. How to persuade them to use an online procurement system? Even if persuaded, how to teach them to use it? This will incur high education costs. The education and habit cultivation of small b is also a common challenge for all B-end e-commerce platforms.

Additionally, platformization is also the direction for organizational management transformation of traditional distributors. I once interviewed a beverage distributor in Qingdao. He told me that a few years ago he faced a personnel management crisis: labor costs were rising, but employee motivation was declining. One measure he took was a contract system: he divided all his terminal outlets into packages according to a certain ratio and contracted them to salespeople, each responsible for maintaining a fixed number of stores. This not only reduced management costs but also boosted employee morale and steadily increased profits. This distributor's approach is worth learning from. As the cost of corporate operations rises, distributors should change their mindset and turn their companies into platforms for employee entrepreneurship, i.e., "platform + individual business."

**Model 4: Symbiosis**

Of course, not all distributors have the strength to build a platform. Besides building their own platform, another transformation path is to join a third-party platform, using it to achieve internet transformation of operations and organizational management, establishing their own small platform within a large platform. This is similar to the "endosymbiont" (the smaller party) and "host" (the larger party) in biology, forming a symbiotic partnership to grow together through sharing.

**Representative: Pi Duoduo**

Pi Duoduo is a typical representative of distributed B-end e-commerce, claiming to be the Uber of the FMCG B-end e-commerce. Its model is centered on existing distributors, using information tools to restructure the value chain nodes and organizational structure of the FMCG industry. It divides regions to form numerous small platforms, each composed of one operator and multiple suppliers, service providers, and retailers, with platforms mutually independent. In other words, distributors' original market areas remain unchanged, but through the platform, they can share resources among distributors, benefit from platform traffic, and enjoy information and financial services provided by the platform.

The advantage of the symbiosis model is that it can achieve complementary advantages, resource sharing, rapid efficiency improvement, and cost reduction. For example, in terminal distribution, if distributor A's delivery vehicle is not full, it can accept nearby orders to provide delivery services for distributor B for a fee. For A, this avoids waste from underloading; for B, it can complete deliveries that were previously impossible or difficult at a small cost. This is the benefit of sharing.

For distributors, because the platform has a complete trading system and training system, they can almost "move in with just a suitcase" and quickly establish their own small platform, saving effort and worry. From the platform's perspective, the advantage of the symbiosis model is that it can quickly accumulate early users with the help of distributors' resources, and the resistance to integrating small b is relatively reduced. The difficulty is handling relationships among distributors, such as how to persuade previously competing distributors to cooperate. Also, the division of labor and functions of distributors need to change; some become operators, while most become suppliers or service providers. Under the new division of labor, can they cooperate well and build trust? This requires a process of adjustment.

**Model 5: Alliance**

With the market downturn, spontaneous distributor alliances have emerged in many industries, banding together to weather the crisis. The benefits are: first, resolving industry rivalries and avoiding vicious competition; second, leveraging collective procurement advantages to obtain goods from manufacturers at lower prices.

**Representative: Liquor Merchant Alliance**

On June 20, 2014, after months of preparation and warm-up, Hunan's first non-governmental liquor industry organization, the Liquor Merchant Alliance, was launched, initiated by Zheng Yingping, a veteran in the liquor industry. One major benefit of distributors uniting is centralized procurement: small merchants can combine limited funds to enjoy the most favorable policies from major brands like Moutai, Wuliangye, and Yanghe. For agents, this accelerates capital recovery and reduces pressure on general distributors. Additionally, uniting many distributors allows them to help each other and jointly promote sales.

The industry downturn and e-commerce impact will force more and more distributors to unite, forming alliances within or across industries to support each other. Industry associations and local chambers of commerce will play an important role in this process.

**Model 6: Direct Selling**

Last year's toxic mask incident severely damaged the reputation of WeChat business (micro-commerce), and voices predicting its decline are everywhere. Despite many problems with micro-commerce, I always believe that WeChat is a good distribution channel, especially for new brands and small third- and fourth-tier brands. The past problem was falling into the trap of pyramid schemes. The correct way to open micro-commerce is direct selling, where brand products reach consumers through 1-2 levels of agents.

**Representative: Micro-commerce**

Distributors have many advantages in micro-commerce: first, familiarity with products; second, capital advantages; third, network and customer base advantages; fourth, logistics and distribution advantages. Small and medium-sized distributors without major brands can consider expanding their business scope through direct selling.

In conclusion, no matter which transformation method, "to forge iron, one must be strong oneself." First, you must solidify your existing business foundation. If you are a piece of mud, no one can help you climb the wall.

Source: Kuai Xiao Gong Chang (Fast Consumer Factory)

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