"Ordered today!" On October 27, small shop owner Zhang Ya told Ebrun with a smile. The free shipping threshold for orders on Retail Link was 288 yuan, which made Zhang Ya hesitate. Every Tuesday and Friday when there were promotions, he would put limited-time discounted items into his shopping cart. From the National Day holiday when the city partner promoted, until October 27, another promotional Friday, his order only reached 242 yuan, so he hadn't placed the order. On the 27th, following the city partner's suggestion, he ordered two boxes of Snickers, two bowls and four boxes of Dove chocolates, reaching 200 yuan, and got a 10 yuan red packet back... Getting a "stingy" small shop owner to order is not easy, but for Retail Link, the simple act of submitting an order is significant, as it represents one more transaction data point in Alibaba's network of small shops. Alibaba's goal in the consumer goods supply chain is to connect brand owners, distributors, terminals, and consumers, ultimately linking every link in the industry chain through the internet, realizing Professor Zeng Ming's S2b2C model. This digital transformation in the industry chain is driven by supply chain efficiency upgrades, which in turn are driven by terminal structure optimization. Unmanned convenience stores, which are closer to high efficiency, and office retail, which is closer to consumers, are typical examples of technology plus business transforming society. In China's vast 2-6 tier cities, counties, and towns, Retail Link, New Channel, Benlai Market, Yi Dinghuo, Zhanghe Tianxia, Gongxiao E Home, RT-Mart e-Lufa, Zhongshang Huimin, and many other large and small players have entered the channel-down FMCG supply chain market. Facing 6.8 million mom-and-pop stores, they are actively laying out and seizing small shops. 1. The Battle for Small Shops According to Kantar Consulting's "2016 China FMCG Internet B2B Market Report," among the 6.8 million convenience stores in the Chinese market in 2016, only 1.1 million were using B2B e-commerce platforms to order goods, accounting for less than 17%. FMCG is even more so, with over 57% of FMCG companies having traditional channels account for more than 60% of sales. Zhang Ya's supermarket is on Tuanjie Road, Liangyuan District, Shangqiu City, Henan Province, adjacent to Shangqiu Normal University and residential areas. It has a prime location, covers less than 50 square meters, and has a daily turnover of about 1,000 yuan. "The Retail Link salesperson (city partner) came the second day, and then e-Lufa (RT-Mart's B2B business) came, same routine: first download the APP, then join a WeChat group. The only difference is that Alibaba's salesperson is more active, sending promotional information every day, and even sending red packets to shop owners who post order screenshots in the group to encourage others to order," Zhang Ya said, then added after thinking, "Also, JD.com's Zhanggui Bao salesperson came twice recently, asking me to install the APP, but I didn't. There's not enough space." While first- and second-tier cities have experienced the group-buying and car-hailing wars, third- and fourth-tier towns are experiencing the battle between Alibaba and JD.com to seize small shops. The core of seizing small shops is to occupy the shop owner's mobile phone home screen. In the competition for Zhang Ya's shop, JD.com seems to be at a disadvantage. But JD.com's expansion ambition is no less than Alibaba's. JD.com adopts a combination of ground promotion and recruitment meetings. Besides ground promotion, it uses its strong brand power for "meeting sales." On September 28, JD.com's first recruitment meeting for JD Convenience Stores was held in Baoding, Hebei. The venue was filled with mom-and-pop shop owners from Baoding, and more than a dozen people stood in the back rows, listening attentively. At the meeting themed "Breaking the Pattern, Upgrading Small Shops," Wang Zheng, General Manager of Marketing for JD.com's New Channel Division, and Ba Enlong, General Manager of Convenience Store Operations, introduced JD Convenience Store's innovative business and cooperation models. After the meeting, nearly two-thirds of the small shop owners joined JD Convenience Stores, taking a small step toward Liu Qiangdong's goal of one million convenience stores. The second recruitment meeting in Ankang, Shaanxi, was held on the afternoon of October 26. According to public reports, over a hundred small shop owners participated. This was the first recruitment meeting in the northwest region. Alibaba and JD.com are fiercely competing for small shops, but Zhang Ya doesn't care; he cares more about product prices. To attract them to bypass traditional distributors and achieve online procurement, a large number of B2B e-commerce platforms have adopted price war strategies similar to B2C e-commerce to stimulate price-sensitive small shop owners. "Retail Link, e-Lufa (RT-Mart's), these ordering platforms, I order when there are discounts," Zhang Ya said. His positioning of Retail Link and RT-Mart e-Lufa represents the attitude of most small shop owners toward online B2B platforms. 2. Crazy Expansion Zhang Ya's shop is supplied through the "Retail Link" platform, breaking away from the traditional distributor model. "Retail Link" established a project team in mid-2014. In August 2016, the Retail Link platform under Alibaba B2B was exposed to the public and officially operated. In 2017, especially in the second half, Alibaba is increasing its B2B business expansion. To match this, Alibaba has transferred the China Supply Chain team, known as the "Iron Army," to recruit city partners nationwide through cooperation to complete ground promotion. On August 28, 2017, the first Tmall Convenience Store was put into operation at Weijun Supermarket, 418 Xixi Road, Hangzhou. According to Ebrun, Retail Link has now been promoted to 14 provinces in North China, Central China, East China, South China, and Southwest China. Except for the three northeastern provinces, the northwest region, Yunnan, Guizhou, Guangxi, Hainan, Qinghai, and Tibet, which are relatively remote or underdeveloped, Retail Link is flourishing. Alibaba's public data shows that the current number of Retail Link users has reached 600,000. In the next fiscal year, Alibaba will promote 1 million Retail Link small shops offline. While Alibaba is crazily seizing small shops, JD.com is not to be outdone. Perhaps it is Liu Qiangdong's rural experience that gives him a strong attachment to rural areas and small counties, so JD Convenience Stores adopt a "dimensional reduction" approach: starting from fourth- to sixth-tier small towns, even rural areas, with strong control over stores. They not only digitize terminals in terms of brand authorization, store renovation, and intelligent management, but also focus on supply chain and warehousing in transforming offline stores. Compared to Liu Qiangdong's down-to-earth approach, Alibaba, based in Hangzhou, has a path for Tmall Convenience Stores to expand from second-tier cities to smaller towns. Like Weijun Tmall Supermarket (the first model of Tmall Convenience Store), it has its unique characteristics: close to universities, consumers are willing to accept new things, sensitive to store style, and have a high demand for novel products, but their price sensitivity is far lower than that of vegetable-buying housewives. Both Tmall Convenience Stores and JD Convenience Stores attract franchisees with zero franchise fees, while the cost of joining a city brand convenience store is 200,000-300,000 yuan. According to the capital requirements for a small shop to join Tmall Convenience Store, a simple calculation shows that an 80-square-meter shop, with only the cashier counter and store sign renovated, requires an initial investment of about 44,000 yuan, plus a monthly purchase of 10,000 yuan. This quotation is not a large amount for a small shop, but the "stingy" boss has many more considerations when upgrading his shop, because the products they sell are often low-priced goods. The B2B apps that shop owners can see can easily fill a phone screen 3. The Vitality of the Peripheral Nerves Zhang Ya's shop covers only 50 square meters, with cigarettes taking up half the space, and bottled water and beverages accounting for another 30%. "50%-60% cigarettes, 20%-30% water and beverages, this is the general data for a 30-50 square meter shop. For example, near a school, the proportion of stationery may increase significantly. The larger the area, the richer the categories, and the lower the proportion of water and cigarettes. For example, in a 100-square-meter convenience store (domestic), cigarette sales account for 25-30%, while water and beverage sales account for about 12-15%," confirmed Bao Yuezhong, a columnist for Ebrun and founder of the New FMCG, New Retail Innovation Practice Studio. From the above data, it can be seen that for small shops in second-, third-, and fourth-tier towns, there are two main product categories: cigarettes and water/beverages. Cigarettes are monopolized and basically not involved in e-commerce sales. Water and beverages have always been a battleground for merchants. Water and beverages (packaged drinking water, milk beverages, carbonated drinks, etc.) are the FMCG of FMCG, because they have frequent "meetings" with consumers and are easy to form brand concentration. Zhang Ya clicked to order on his phone, and the purchase was successful. The goods arrived on the third day. But Zhang Ya said that ordering from local suppliers could arrive the same day or the next day. Moreover, after the goods from Retail Link are delivered, there is a complete lack of follow-up services such as shelf organization. Zhang Ya expressed "dissatisfaction" with this. The distributor delivering to Zhang Ya's shop previously used the traditional self-distribution model. Small distributors drive their own Wuling small trucks, carrying goods to various small supermarkets in the area for mobile sales. They unload a few boxes of products that are about to run out, and collect expired products from the last order that haven't sold, taking them to big supermarkets for promotions. Finally, the distributor, who is also the driver, collects cash, has the salesperson organize the goods, and drives straight to the next shop. This traditional distributor self-distribution method seems backward and primitive, but in the vast rural small towns and small cities, this method is much more efficient than centralized warehousing and distribution, and it is flexible and adapts to the distributor's operations. Of course, this business model has very high costs. It is estimated that having a truck and hiring a salesperson for delivery requires a monthly expense of 12,000 yuan (including truck depreciation, labor, fuel, etc.). If calculated at a 15% profit margin, monthly sales of 80,000 yuan are needed to break even. 4. Distributors Will Not Disappear It may disappoint some "e-commerce revolutionaries," but distributors will not disappear. "For manufacturers, the entire Alibaba system and JD.com system are nothing more than a distributor. It's already managed within the system, so why single out e-commerce?" An anonymous dairy FMCG e-commerce manager told Ebrun. Seizing small shops through e-commerce, whether it's doing retail terminal platforms like Tmall Convenience Store or JD Convenience Store, or supply chain platforms like Retail Link and New Channel, in the eyes of manufacturers, it's just like introducing a boss who is good at using internet tools into the distributor system. Some merchants revealed to Ebrun that previously, e-commerce platforms were usually incorporated into a branch of the brand's distribution system, mainly to avoid shaking the channel interests accumulated by the brand from its roots. Wang Jingyue, CMO of Baicaowei, told Ebrun about cooperation with Retail Link: "Baicaowei started offline, exploded online, and this year has a strategic plan to lay out offline. It happens that Retail Link is also focusing on offline, which is the right timing. Retail Link will cover 1 million small shops nationwide in the next year, which means high requirements for brand production, logistics, etc. Baicaowei's 400 million yuan headquarters base and 10 major warehousing bases across the country are the geographical advantage. The so-called harmony is based on the seven years of cooperation between Baicaowei and the platform since it went online, and the channel resources and brand advantages of both sides can complement each other." Bao Yuezhong said about the future of channels: "The future channel will inevitably be a diversified structure, and online B2B will only account for a portion." In the past, people emphasized the suspected "affair" in the "love triangle" among small shops, channel distributors, and B2B platforms. The original channel distributors and small shops lived a "make do" married life, and then the "beautiful and busty" B2B platform appeared in the small shop's life, "pestering" them. B2B platforms want to replace the "legitimate wife" status of traditional channel distributors, but "killing distributors" can only be an unrealistic slogan. The "3P" (distributors, small shops, B2B platforms) is a pattern that will exist now and in the future. In this triangle, the small shop is the main body, connecting consumers and serving as the entry point for offline traffic, while the other two, B2B platforms and channel distributors, serve the small shop and then the consumers. The "love triangle" among small shops, channel distributors, and B2B platforms will exist for a long time It is impossible to make small shops and channel distributors "divorce" because they have formed habits together, efficient coordination, and long-term kinship (customer relationships). 5. Brands Determine the Right to Speak In the past two years, e-commerce platforms like Alibaba have emphasized "empowerment," targeting brand owners, distributors, and retailers. Unlike the previous overemphasis on online operations, empowerment more means giving traditional physical businesses digital capabilities. This flexible and integrated approach is obviously more in line with the actual interests of upstream and downstream stakeholders and respects the shop owner's purchasing habits. Upstream brand owners are powerful and have absolute say in channel control, forming a stable channel hierarchy. For example, Nongfu Spring has clear division of labor at all levels of channels. As a brand owner, to ensure capital recovery, product circulation, and smooth information flow, the innovation it needs to do is to further cut off the "branches," eliminating traditional, inefficient small distributors. Coca-Cola sells the factory's original syrup to domestic manufacturers, and after production, the entire supply chain is integrated through distribution channels. Because of its strong brand power, below the first-level wholesalers (such as COFCO), most so-called distributors are just cargo movers for Coca-Cola, earning a handling fee of 5 yuan per piece. So, do the e-commerce platforms trying to seize small shops have any say in front of brands like Coca-Cola? Although it will take time, all e-commerce companies participating in the siege of small shops know that the key to solving the small shop problem is to digitize the small shop, making all employees of the retail shop online, circulation online, products online, and customers online. Only then can they grasp the "nose" of the small shop. "The entire market still has 80% of the traditional distribution system to be integrated," Gao Shan (pseudonym), former e-commerce head of health brand By-Health, told Ebrun. In the offline market divided by the 80/20 rule, besides the key cultivated channels, more distribution channels that have not been carefully managed have room for internetization. "What manufacturers want is distribution, sales, and catering to customers' shopping habits," the aforementioned dairy FMCG person pointed out. Tmall Convenience Store and JD Convenience Store are both systematic solutions for traditional retail terminals in the existing market, using e-commerce methods to integrate the 80% long-tail market in traditional channels. "The entry of Retail Link and New Channel into the FMCG B2B field further demonstrates the huge size of the existing market in the entire FMCG B2B field and confidence in the industry's prospects," Yang Lixiang, CEO of Zhanghe Tianxia, said in an interview with Ebrun. The "3P" among small shops, B2B platforms, and distributors reflects only part of the truth of channel transformation. The emergence of Tmall Convenience Store and JD Convenience Store has made B2B business take on the mission of using digitalization to connect the circulation and consumption links. In this process, the consumer-centric "4P" has also become the strongest trumpeter for many B2B platforms to seize small shops. 6. Digitalizing Small Shops Alibaba and JD.com are crazily seizing small shops, not just to become another supply platform for small shops, but more importantly, to achieve the digitalization of small shops. "It's not so much that all e-commerce platforms are seizing the supply and marketing system of small shops, but rather that digitalization is fully occupying small shops," a regional head of an e-commerce supply and marketing platform told Ebrun. This transformation in 2-6 tier cities is not turbulent but gentle, even infiltrating. An industry insider told Ebrun that this supply chain digital transformation should be divided into at least three stages. The first stage is the war to seize small shops, as shown by the smoke of ground promotion across the country. In this stage, besides offline activities of Retail Link, Zhanggui Bao, e-Lufa, Zhongshang Huimin, Zhanghe Tianxia, etc., online wars are also being staged in many 2-6 tier cities like Shangqiu. The second stage is the evolution from platform to SaaS, which is currently a more objective and practical operation method. For example, Zhongshang Huimin's Huitong Pay business launched in 2015, the current Tmall Convenience Store supermarket management system (it is said that Retail Link has begun to promote intelligent cash register systems in small shops), and JD.com's Huiyan system can all be seen as important practices in the SaaS stage. In the third stage of small shop digitalization, which is happening simultaneously, Liu Qiangdong is straightforward and bold: JD Convenience Store's goal is to open 1 million stores within five years, using its existing strong supply chain advantages to complete a thorough revolution. Yatang Xiaochao has more than 40,000 franchise stores and 200 direct-operated stores nationwide. In the next five years, Yatang's goal is: 1.5 million Yatang Xiaochao franchise stores, 100,000 Yatang Xiaochao suppliers, and 500 million Yatang members. Zhanghe Tianxia (Gongxiao Daji)'s Kupu + Zhanghe Convenience Stores have achieved the goal of 1 million stores. In the future, these convenience stores will serve as nodes of future data, eventually forming a networked big data. Yang Lixiang said that Zhanghe Tianxia gathers millions of supermarket users, generating transactions every day. These accumulated data will provide brand owners with the most effective basis for product production and brand transformation. Brand owners can upgrade products through circulation of hot and cold items, quickly bringing rich profits to the terminal and themselves, increasing promotional efforts and advertising support for hot products, and driving traffic to the terminal. Yang Lixiang believes that because the market is large enough and each company has its strengths and weaknesses, there will not be a national decisive battle at this stage, but fierce battles will occur in some regions, and some companies that cannot raise money or fight may fall. In the future, competition in this field will be more intense. The first-tier platforms will expand from their advantageous regions to the whole country, acquiring and merging regional small platforms with capital to expand their business territory, preparing for the next national decisive battle. Xu Hai, a city partner of Retail Link, rushed into Zhang Ya's shop excitedly: "There's another promotion! Double 11 materials are free! Hurry up, buy 99 yuan worth of Double 11 materials, and Retail Link will return a 100 yuan order coupon, which is equivalent to free! Super cost-effective! Boss, have you decided?" Zhang Ya was busy playing a mobile game. Hearing Xu Hai, he looked up and replied "Oh," then ignored him. Behind Zhang Ya's indifference, e-commerce companies are frantically racing to occupy small shops everywhere, which seems to be the establishment of another internet-based business empire. (At the request of the interviewees, Zhang Ya and Xu Hai are pseudonyms) Source: Ebrun 2017 (3rd) FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to explore a new chapter of cross-border integration! Registration is hot, with only 20+ tickets left... Long press the QR code below or click "Read Original" to register Click the links below to review the first and second FMCG + Internet Conference highlights: 2016 "FMCG + Internet" Summit Forum -END-