---
title: "Where Does the Efficiency of FMCG B2B Come From?"
description: "The article first explains why B2C thinking cannot be applied to B2B: in B2C, users are consumers with unbounded horizontal needs, so platforms need long-tail categories; but in B2B, users are stores with vertical and limited needs, and the core is to optimize supply chain efficiency to reduce transaction costs. It then discusses three dimensions to improve efficiency: restructuring traditional distribution through specialization, flattening channels where possible, and achieving large-scale efficient operations through technology."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-10-26"
language: "en"
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# Where Does the Efficiency of FMCG B2B Come From?

> The article first explains why B2C thinking cannot be applied to B2B: in B2C, users are consumers with unbounded horizontal needs, so platforms need long-tail categories; but in B2B, users are stores with vertical and limited needs, and the core is to optimize supply chain efficiency to reduce transaction costs. It then discusses three dimensions to improve efficiency: restructuring traditional distribution through specialization, flattening channels where possible, and achieving large-scale efficient operations through technology.

**Let's first talk about why we can't use B2C thinking to do B2B:**
Currently, the industry has recognized a basic fact: B2B is different from B2C. **In B2C mode**, users are consumers, and their needs are horizontal and unbounded. So the more categories and the longer the tail on the platform, the better. Although the frequency of interaction with the platform is very high, transactions with stores on the platform are not continuous. Today you buy a kettle from this store, tomorrow you buy clothes from another platform. Because the transaction relationship between the two parties is unstable, the store's GMV becomes a basis for trust. This is also why a large number of Taobao stores engage in fake transactions. In addition, small stores themselves have no connection with users and need to rely on the platform's massive traffic to acquire customers. Consumers need to compare prices across the platform's vast array of products to find the lowest total cost. Therefore, both small stores and consumers cannot bypass the platform to transact offline separately.

But in **B2B transactions between two parties**, the users are stores, and their category needs are vertical and limited. For stores, 80% of transactions come from 20% of best-selling items (tobacco, alcohol, beverages, milk, daily necessities). Stores' demand for products is stable and long-term. They need to purchase a certain product today, and if they run out tomorrow, they need to purchase again. The turnover rate determines the frequency of purchases. So in the early stage, B2B platforms do not need long-tail products but rather low-priced A-category products. In addition, before B2B existed, many transaction relationships between the two parties already existed. For both parties, it's just a change in the way of transaction. Whether to go on the platform depends on which transaction method has the lowest cost.

Furthermore, whether traditional distributors or B2B supply stores, the consumer shopping scenario remains in convenience stores. The transaction scenario has not changed, and the essence of the transaction has not changed. All backend changes can only revolve around one topic: **optimizing supply chain efficiency to lower store procurement costs and increase efficiency**. So whether it's traditional distributors or the internet, the core is still efficiency improvement. That is to say, at this stage, B2B has only one thing to do: focus on reducing transaction costs and improving efficiency.

> **B2B is about improving efficiency, but where to start?**
As mentioned earlier, the transaction relationship between distributors and stores has always existed. From transaction to service, from products to delivery, it is all completed by the distributor's sales staff. This determines that the distributor's operation is low-cost but cannot be highly efficient.

Like the general trend in society, the efficiency of enterprise distribution must come from division of labor. But the premise of division of labor is scale. The value of B2B is to separate the four flows: people, goods, capital, and information. Through the scaling of information, orders, logistics, and capital, division of labor is achieved, ultimately leading to efficiency improvement and cost reduction.

For platforms, to improve the operational efficiency of the entire industry through scaling, from which dimensions should they start?

> **First dimension: Traditional transaction links have always existed, but under low cost and low efficiency, how can we restructure them into a highly efficient distribution model?**
As mentioned in previous articles, the so-called restructuring means breaking the original supply chain system, reallocating the functions of roles in the supply chain through division of labor, making their functions singular, and improving efficiency through collaboration. Currently, I think the restructuring of the industry should be carried out from four dimensions:

**1. Warehouse and logistics:**
Bus-style: The warehouse and distribution segment is independent. Through unified warehousing + bus-style logistics, logistics costs are significantly reduced.

**2. Customer acquisition/service:**
Specialization: New product promotion and old product maintenance are completed by a combination of manufacturer sales representatives and third-party ground promotion services. Here, we have to mention roles like ground service staff and city partners. The author believes that their current function allocation is problematic. Stores have too many SKU categories, and China's specific national conditions do not allow only one service person per point. If they undertake product promotion and service work by brand or category, that is, one store has multiple ground service staff or city partners, each responsible for different categories or brands, each doing their own job, then the difficulty of vertical entry and penetration for single products will be greatly reduced. Only then will it be possible for platforms to promote new products.

**3. Transaction:**
Datafication: All stores' transaction data is something every manufacturer desperately wants to obtain. However, due to insufficient informatization in the traditional supply chain, manufacturers cannot obtain real first-hand information. But when transactions are on an online platform, the authenticity of the data is revealed, and the true value of the platform is also demonstrated.

**4. Capital:**
Financialization: Through transaction data, supply chain finance can be realized, solving the problem of capital use efficiency for manufacturers.

> **Second dimension: In many FMCG industries, the distribution model is still very primitive. Can we create efficiency by compressing links and levels, and flattening the channel?**
Typical industries here include alcoholic beverages, snacks, maternal and infant products, stationery, cosmetics, etc. There are also some categories that rely on second-tier distributors for distribution. These are channels that can be compressed and flattened. But the premise is that the gross profit per vehicle must be high enough to cover delivery and backend costs and still leave sufficient profit.

Not all industries can achieve efficiency improvement by compressing links. In the traditional beverage industry, most second-tier distributors use seasonal order patterns: they buy large quantities at low prices in the off-season and sell them in the peak season to obtain profits. For platforms, this is impossible. In addition, some industries have products with volume, weight, and industry profits that require high scaling to level out delivery costs. These industries are not suitable.

**Wang Chaocheng, CEO of Yijiupi, gave very appropriate advice on category selection:**
First, it's best if the category cannot be B2C. If the industry sells well online, it means offline is getting worse one by one.
Second, it's best if it cannot be chained. If it's a highly chained industry, doing B2B will also be miserable.
Third, the industry should be large in scale. If the industry is too small, with a total capacity of only tens of billions, it's meaningless. It's best to have hundreds of billions to trillions.
Fourth, the industry's long-tail rate should be high, and the gross margin should preferably be high.

> **Third dimension: Can we achieve large-scale, high-efficiency operations at the operational level to improve efficiency?**
For platforms, the true core value is reflected in making platform scaling possible through technical support, thereby achieving a high degree of division of labor among people, information, capital, and logistics. Technical optimization is the cornerstone of all B2B platforms. With technical support, among the five modules of product/operations/warehousing/technology/customer acquisition, any short board will slow down the platform's overall operational efficiency.

**It is undeniable that the overall operational efficiency of most platforms is currently not high enough. Even if they are more efficient than distributors, their costs are still not as low as distributors'. I think there is still a long way to go for platforms to transform traditional industries. This is just the beginning. I believe that in the FMCG industry, it is only a matter of time before unicorns with tens of billions in scale appear in various categories.**

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