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The Death of FMCG Distributors
In 2015, a consumer goods manufacturer in Hubei forced inventory onto distributor Lao Wei, making it impossible for him to sustain his business. Besides repaying over 60,000 yuan monthly to the bank, the couple owed millions in industry financing. As the market turned cold, creditors and interest collectors came in droves. Driven to desperation, Lao Wei and his wife chose to end their lives.
In 2017, a major FMCG giant delayed reimbursing expenses after forcing inventory, leaving the distributor to borrow heavily and advance large sums. The delay lasted two years, eventually leading to a 4 million yuan loan that could not be repaid, resulting in a lawsuit and forced execution. Under immense pressure, the distributor's wife jumped from the seventh floor of a shopping mall in Beijing's Gongzhufen area, causing permanent disability.
These disabilities and deaths are not just the annihilation of a body, nor just the passive choice of a businessman after bankruptcy and debt. Behind them lies the helpless act of major FMCG manufacturers, who, after growth peaked, pushed pressure downward to maintain performance and justify themselves to superiors.
Behind these shocking events is the fact that manufacturers, in the new normal of an L-shaped economy, still use models and operations from the high-growth era, like carving a boat to find a lost sword, leading to accidents.
When distributors exit in such explosive and decisive ways, giving manufacturers no chance to negotiate, we see manufacturers at a loss, not knowing how to respond.
The Reversal of Power Between Manufacturers and Distributors
Everyone knows that being an agent for big brands like Coca-Cola has very low gross margins, and distributors often complain about this. But why do we never see complaints leading to giving up Coca-Cola? On the contrary, the agency rights for Coca-Cola remain highly sought after.
There are two reasons:
First, low gross margin but fast turnover and high volume mean total gross profit is still decent, enough to cover basic costs.
Second, by borrowing the authority of Coca-Cola and using its channel network, distributors can attract many small and medium brands, gaining an advantage in negotiations and securing satisfactory gross margins to compensate for profit losses.
This business model of "compensating losses inside the dike with gains outside" requires distributors to control the share of Coca-Cola's business, ensuring it doesn't occupy all their funds. During rapid economic growth, explosive low-end consumption and endless sales growth made this control seamless. As the overall market grew, even though distributors controlled the proportion, Coca-Cola's data still showed growth. Both sides were happy.
This era ended in 2013.
2012 was the last year of double-digit growth for the FMCG industry. In 2013, the industry reached its historical peak in sales volume. Since then, it has been declining, and now annual growth is only 3%, mainly contributed by new brands.
Once the market slows, the internal contradictions caused by distributors' control immediately surface. Brand owners still demand growth. Distributors, under the pressure of "accept the targets or leave," retreat step by step, continuously diverting more funds from high-margin brands, even borrowing, to fill the gap, until total gross profit equals costs. In extreme cases, due to overstocking, they can't even break even and suffer losses.
In reality, most distributors won't wait until losses drive them to jump off a building. As soon as they see the trend turning bad, they will exit.
Since 2016, some big brands have had to find new agents in the market because original agents quit without notice, leaving frontline sales staff in a difficult position.
Going back two years, this was unimaginable. At that time, agency rights for big brands were highly sought after.
Why has the situation reversed?
In a word, big brands are no longer profitable.
Losing Progressiveness, Big Manufacturers Lose Dominance
For channels, there are only two types of brands: one with high gross margins, which I'm willing to push hard; the other with low margins but big brands, which have strong natural sell-through, requiring little effort. Although margins are thin, costs are also low, and you can make money effortlessly.
In the past, big manufacturers innovated in the second point, from high-altitude advertising bombardment to ground-level deep distribution, helping channel partners make money easily. Therefore, for the past 30 years, big manufacturers have led channel reform and guided distributors.
But in today's market environment, the potential of these innovations has been exhausted, and rising labor costs are adding insult to injury.
When sales are growing, cost increases can be temporarily ignored because sales growth can dilute costs. When sales stop growing, agents find profits squeezed by both sales and costs.
For some transparently priced FMCG products, gross margins are already quite low, and any slight impact from sales or costs pushes them to the break-even point.
Agents can tolerate one year without profit, but it's hard to tolerate two years. If they see no hope of profit after two years, agents gain the courage to say "no."
In the past, manufacturers rarely compromised with agents. This time, when some agents proactively said "no," manufacturers actually compromised.
This shows that distributors' profit difficulties are so severe that they threaten manufacturers' safety.
In the past, big brands dominated agents because big brands brought profits and led merchants in marketing. But since 2010, most manufacturers have done little in marketing, and in recent years, they've lost direction in the internet age. It's no surprise that channel partners are jumping ship when manufacturers can't lead them forward.
Only Manufacturers That Can Lead Channel Partners Have Progressiveness
Only manufacturers that can lead channel partners out of difficulties and continue forward can prove their progressiveness.
To solve channel partners' difficulties, it's about increasing revenue and reducing costs.
Increasing revenue is impossible in the short to medium term. China's economy is in an upgrade and adjustment period, and the global economy is still mired in the aftermath of the financial crisis. The market will certainly be sluggish for a considerable time.
So it can only be cost reduction.
Where to cut costs?
Many people's first reaction is "de-intermediation." B2C e-commerce compressed intermediate layers, allowing brands to meet consumers directly, achieving global dominance in scale.
Therefore, since B2B e-commerce was proposed in 2013, the industry has been conducting vigorous social experiments, with the loudest slogan being "kill the middleman," hoping manufacturers directly reach terminal stores.
But Wanchaobang's Chen Siting believes that in China's vast and deep market, distributors, despite various shortcomings, still play an irreplaceable role in the entire industrial chain, such as in commercial flow—customer relationships, and capital flow—advancing funds for stores or manufacturers.
Completely ignoring distributor value not only makes many businesses impossible but also conflicts with brand owners' existing channel systems, ultimately fizzling out.
Chen Siting believes that at this stage, B2B e-commerce should most importantly help first-tier distributors reduce the massive waste caused by inefficient logistics and warehousing.
The first type of waste is logistics and warehousing itself.
In the traditional FMCG circulation chain, first-tier distributors connect brand owners and retailers. They need to build their own warehouses to store goods and provide distribution based on retailer needs. With limited warehousing and transport capacity, second-tier distributors are needed, taking a share of profits.
How much energy can intensive logistics and warehousing unleash? Look at how B2C e-commerce, led by Taobao, rose. It can be said that without the platform approach of outsourcing logistics to third-party companies, China's B2C e-commerce couldn't have dominated globally.
But paradoxically, on the same land, B2C delivery has reached the pinnacle of "same-day delivery," while B2B logistics models remain stuck 20 years in the past. Even Walmart, which in the U.S. took B2B logistics to the level of launching its own satellites (actually a super distributor with its own stores), can only rely on distributors for supply in China. This is why Walmart cannot achieve the same status in China as in the U.S.—its core competitiveness, logistics efficiency, cannot be utilized.
Chinese distributors are too traditional. To this day, most Chinese distributors are small but complete, integrating four flows: commercial, logistics, information, and capital, all borne by themselves. From warehouses and delivery trucks to warehouse managers, drivers, and salespeople, they are small but complete.
Because Chinese distributors are generally small, the small-but-complete model leads to underutilization, such as idle warehouses and underloaded delivery trucks.
This efficiency waste was originally masked by the high-growth market. The market was so good, money was so easy, who cared about such losses?
But who can afford it today?
For example, a leading brand has 16 distributors in Beijing, each renting over 1,000 square meters of warehouse, totaling 17,000 square meters. No one thought there was a problem.
But if centralized in one warehouse, only 7,000 square meters are needed, saving 10,000 square meters and 5-6 million yuan annually.
Wanchaobang is the operator of this warehouse, responsible for unified warehousing and distribution.
Wanchaobang's approach is to rent a centralized large warehouse of 10,000 square meters locally, providing custody, warehousing, and distribution for these first-tier distributors, helping them deliver goods to various terminals.
The benefits of unified distribution are even more obvious.
Currently, distributors handle few brands, so they configure delivery vehicles based on peak order volume, often 5-6 vehicles. But daily order density is insufficient, so vehicles often go out not fully loaded, resulting in staggering empty-load losses and very high fulfillment costs per order.
Originally, distributors had to invest 500,000-600,000 yuan in cash for vehicles, warehouse rental, etc. Now, distributors no longer need warehouses, vehicles, or to manage goods, inventory, sorting staff, drivers, etc. They can focus on what they're good at—securing customers.
Wanchaobang's standardized warehousing and distribution services free them from heavy investment, with zero investment in warehousing and distribution, and save over 20% in warehousing and distribution costs.
The second type of waste is caused by inefficient logistics and warehousing.
Take the aforementioned leading brand: daily delivery volume is 150 tons, and 16 distributors maintain full product range with normal inventory of nearly 8,000 tons. After unified warehousing and distribution, only about 2,000 tons are actually needed. Saving over 6,000 tons of inventory means reducing capital occupation by 100 million yuan, with annual capital gains exceeding 10 million yuan.
After unified warehousing, inventory freshness improves. A leading brand's ham sausage has a 3-month shelf life. After consolidation, time in warehouse decreases from 1.5 months to 0.5 months, and the saved time is added to shelf time, extending it to 2 months, greatly reducing transfer rates.
In the last 3 months of shelf life, FMCG products are already near-expiry and hard to sell. Distributors must take them back for special promotions, with promotional expenses accounting for 5%-10% of sales. Some leading brands spend over a billion yuan annually on promotions.
"This money can be split 40-60 with distributors."
In fact, even without these efficiency improvements, distributors' original model is unsustainable.
With the further advancement of large-scale urbanization in China, economic laws are pushing distributors out of cities because land prices are rising, and warehouses are becoming unaffordable. GLP's warehouse rent on Beijing's South Sixth Ring Road is about 50-60 yuan per square meter per month. For the same area in the city, even converting to a parking lot yields much higher returns than warehouse rent.
As for existing warehouses in the city, most distributors, to save costs, rent simple and crude warehouses without fire safety management systems, food safety management systems, or first-in-first-out inventory management principles. Warehouse goods are uninsured, and fire hazards are severe. Last year, a wholesale market in Daxing Xihongmen caught fire. Not to mention goods damage, 19 people were burned to death, and the authorities filed a case for suspected major liability accident.
This fire further strengthened the Beijing government's determination to evacuate such warehouses. Don't think this is just a special case for megacities. With the rise of China's super city clusters, this phenomenon will quickly spread to first- and second-tier cities.
If you can't even find a suitable warehouse, how can you do business?
Many brands have lost half their distributors in Beijing, largely because they couldn't find warehouses.
The Data Significance of Independent Logistics for Brand Owners
What Wanchaobang does with unified warehousing and distribution is nothing new—isn't it just 3PL (third-party logistics) that Western developed countries have long had?
But Chen Siting believes Wanchaobang is 4PL (fourth-party logistics, using information network platforms to integrate many warehousing, transportation, 3PL partners, etc., to provide logistics and warehousing services for customers), because Wanchaobang is built on the internet.
The greatest transformative power of the internet on society comes from information connectivity.
For manufacturers, the channel has always been an information black box. After goods are shipped to distributors, manufacturers don't know who bought them, how much inventory is in the warehouse, at what price they were sold, or whether there's channel diversion.
If they really want to know, there are ways, but they cost money. For example, logistics codes on goods can trace diversion; sending personnel to inspect markets can reveal price chaos. "Inspection personnel might be won over by distributors and sales staff."
But once a supply chain uses Wanchaobang, data enters the Wanchaobang platform from the moment it's generated, becoming online-visible and fully controllable.
With Wanchaobang, the familiar sales process for distributors doesn't change; Wanchaobang digitizes all orders. When a salesperson places an order, the distributor immediately receives it and reviews it online. Once approved, the warehouse receives the instruction and starts picking and dispatching simultaneously. Within half an hour, the delivery driver receives a delivery message and comes to the warehouse to pick up the prepared goods.
Chen Siting calls this "full online," where once an instruction is issued, all parties receive the trigger simultaneously and start order processing without delay.
In this business process, data generation itself doesn't change; it's still the same data, but centralized on the Wanchaobang platform. It's precisely on this platform that barriers between data are removed:
One distributor's delivery data can be integrated with another's for unified delivery, reducing empty vehicle runs;
Manufacturers can clearly see where each SKU flows, which orders can be merged, and reduce inventory across all distributors in the region;
Distributors can see real-time work dynamics of salespeople and other staff, rather than waiting for lagging monthly statistics;
Store owners using the Wanchaobang system can receive goods on time the next day or even the same day, whereas before they needed 3-4 days. The time compression improves their turnover. Even, when Wanchaobang's delivery scale reaches a certain level, enabling multiple deliveries per day, stores can reduce order quantities but increase frequency, achieving the ultimate retail principle—frequent purchases and fast sales.
This means the entire supply chain can operate with less capital and higher turnover.
Why Wanchaobang?
Some say what Wanchaobang does can be explained in two sentences; what's so hard about it?
The difficulty lies in the details.
Take delivery and handover: delivering to grocery stores is completely different from e-commerce express. C-end delivery is cash before goods, but B-end handover is more complex. Over 50% is cash on delivery, which includes unpaid orders, partial payment, batch settlement; receiving includes full acceptance, full rejection, partial rejection, and returns upon receipt, etc.
These original offline actions and data might not need to be transmitted back to the system in real time, but now they need to enter the system in real time. It involves subsequent order processing, product returns, reconciliation, etc., which is relatively complex. If developers don't know these details, the APP they develop won't be used by terminals because the functions they need aren't there!
Originally, Wanchaobang also hired software companies to develop, but after trying three software companies in succession, they all failed.
They failed because of these business details.
Finally, Chen Siting decided to develop it themselves. Their own developers stayed in distributors' warehouses, delivering with drivers, discovering needs, discussing needs, and finally forming a requirements document of about 300 pages, which was confirmed after multiple discussions.
During this period, Wanchaobang's developers delivered nearly 100,000 items. "Nothing can be done easily without suffering losses, sweating, and shedding layers of skin."
And the Wanchaobang APP not only needs to accurately implement functions but also consider user experience, not increasing the burden on salespeople due to mobile features.
"We can now accurately place an order in an average of 8 seconds, making it easier for salespeople to use."
It's also for this reason that Wanchaobang finally set its development direction as an APP specifically for the FMCG category. "Only then can the system be slim and targeted." Because unified warehousing and distribution details in other industries differ from FMCG, if all integrated into one software, the interface would be very complex, and salespeople wouldn't want to use it.
This system includes subsystems for order management, product management, promotion management, warehousing management, distribution management, route planning, reconciliation, etc., forming an information system with 11 software copyrights.
In this system, it can achieve "multi-category, multi-owner, multi-batch, multi-status, multi-terminal, integrated warehousing and distribution." It allows real-time online inventory queries to prevent overselling and customer dissatisfaction, and can also forecast orders.
Another benefit of unified warehousing and distribution is unified standards, full palletization, with manual loading and unloading costs of 0.5 yuan per load/unload, saving 0.3 yuan. Unloading 5,000 items used to take a distributor a day; now it takes just 1 hour.
Wanchaobang also makes supply chain finance, which channel partners desperately desire, possible. China's supply chain finance has always been weak, not because banks are snobbish or don't trust distributors, but because Chinese distributors are not standardized. Their warehouses don't even have insurance, so who would dare to do supply chain finance with pledged warehouse receipts? If money is lent and goods burn down one day, who would the bank cry to? Moreover, individual distributors are small with uneven data, and banks doing one order at a time would earn less than the cost of running around.
A third-party platform like Wanchaobang perfectly solves this problem. Because the scale is large enough, warehouses have property insurance, with 50 million yuan in coverage and an annual premium of 0.1%. Various data on goods are accurate and transparent, reducing bank review costs and speeding up processes. Moreover, FMCG prices are rigid, unlike bulk commodities with large price fluctuations, making them most suitable for supply chain finance. "With 500 million yuan in high-circulation goods, you can do 400 million in finance," Chen Siting said.
It can be seen that with Wanchaobang's model, the larger the scale, the better the integration effect and the more efficient. China's FMCG industry has 6 million community small supermarkets, convenience stores, small shops, and mom-and-pop stores. The B2B scale is around one trillion yuan. Integrating 100 billion might squeeze out 1 percentage point of redundancy. Integrating 1 trillion might squeeze out 10 percentage points. The larger the integration scale, the greater the redundancy squeezed out. These were all net losses, and the entire industrial chain—from brand owners to distributors to second-tier wholesalers to terminal stores—none of them got this money, and ultimately consumers paid for it.
Wanchaobang doesn't touch existing interests; it starts only from eliminating channel redundancy—the waste that settles in the channel that no one earned—improving efficiency for all parties. Most importantly, it helps big-brand distributors, who are in dire straits, reclaim profits.
Saving distributors is saving manufacturers.
As the integrator, Wanchaobang's income comes from several aspects:
- Warehousing and distribution fees from distributors;
- Matching transaction commissions and supply chain finance service fees;
- Advertising fees: platform advertising fees, vehicle body advertising fees, etc.
These revenues will grow as the scale becomes larger. Wanchaobang, as a third party, integrates and salvages the profits sunk in the circulation process. In a trillion-yuan industry, a 1% loss is 10 billion yuan. When this hundred-billion-level waste is recovered, how much will Wanchaobang get?
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