---
title: "Why B2B Operations Are the Future for Large FMCG Distributors"
description: "After a decade of market education, Chinese FMCG B2B has entered a more mature phase. Distributors with sufficient scale can use digital ordering, operations, warehousing, and delivery to become regional supply-chain platforms."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-02-01"
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# Why B2B Operations Are the Future for Large FMCG Distributors

> After a decade of market education, Chinese FMCG B2B has entered a more mature phase. Distributors with sufficient scale can use digital ordering, operations, warehousing, and delivery to become regional supply-chain platforms.

After ten years of development and market education, China's FMCG B2B sector has entered a more mature phase.

Digital upgrading has become a clear industry trend. But distributors continue to hesitate because they see the real operational difficulties of B2B transformation.

Several practitioners discussed those challenges in the third installment of the Li Feng New Distribution seminar series, “Why Are B2B Operations the Future Development Path for Leading Distributors?”

## The Pain Points Facing Prefecture-Level Distributors

Luo Kai, general manager of Luoyang Hecai Trading, used the city of Luoyang to explain the challenges distributors face during digital upgrading.

A distributor in a prefecture-level city may represent many brands, from top national names to first- and second-tier challengers.

To maintain stable and healthy market development, a brand often expects one distributor to cover every channel: hypermarkets, independent supermarkets, convenience chains, and others.

Most of those channels are manageable and produce reasonable output. Small and medium-sized stores are different.

Once a distributor becomes more professionally managed, it usually establishes a team dedicated to small outlets and divides territories according to product categories.

Whether the team is organized by territory or by brand, however, it often goes through repeated restructuring. Employee turnover is high, and turnover causes customer loss. That weakens the trust on which small-store distribution depends.

The first problem is low output per small store.

With monthly salaries of RMB 4,000 to RMB 6,000 in a prefecture-level city, labor alone can approach ten percent of operating cost.

Many distributors gradually focus only on A-class small outlets. One representative may be responsible for 200 stores, but only 70 to 80 actually trade in a typical period.

Over time, distributor owners and brand salespeople often hand the remaining small stores back to wholesale markets while concentrating on large chain accounts.

Wholesale markets can serve A-class small stores through one-stop purchasing and perform well in many regions, especially when distributors of leading brands are under pressure and channel prices become inverted.

The wholesaler provides broad assortments and low prices on major products. The authorized distributor, by contrast, must protect the brand's price structure.

Brand owners therefore need to leave sufficient economic room for both distributors and wholesalers.

In practice, a wholesaler buys from whichever source offers the lowest price. The wholesaler earns the profit while often selling goods that did not come from the local authorized distributor.

That recurring conflict is one of the most persistent problems for distributors in prefecture-level cities.

The second problem is channel consolidation.

Hypermarkets increasingly use centralized warehousing and distribution. Convenience chains are expanding. The number of channels directly served by the local distributor becomes smaller.

At the same time, hypermarket contract terms become more demanding and accounts receivable rise rapidly.

These pressures force distributors to ask two questions:

- How should small and medium-sized stores be served?
- How should a prefecture-level distributor develop?

The answer requires digital upgrading and reform.

## The Missing Link between Distributor and Small Store

Across the broader commercial ecosystem, a link is still missing between production and consumption: an efficient way for distributors to cover small retail outlets directly.

Generation Z has become a central consumer group for snacks and beverages. These consumers favor near-field shopping and often purchase from the convenience store downstairs.

Consider a prefecture-level city of one million residents. When combined with the outlet base served through deep distribution, the city may contain 2,500 to 5,000 small stores.

If each store produces RMB 1 million in annual sales, the addressable market reaches RMB 2.5 billion to RMB 5 billion.

Each distributor therefore needs a detailed understanding of its own market and must analyze the opportunity according to its specific position.

## What a Distributor Should Consider before Transforming

Some distributors build a mini program, but the result is only a front-end ordering portal. It does not include the warehouse and logistics systems required behind it.

Several issues must be addressed before transformation.

### 1. Begin with the Actual Business Model

A wine and beverage distributor operates differently from a milk-powder or grain-and-oil distributor.

Digital tools can influence customers, but some categories still require intensive in-person visits. Team structures and management models also differ by category.

The distributor must understand its own business before deciding on a digital direction.

### 2. B2B Requires Scale and Patience

A B2B project needs time and capital. The initial investment period may last one to three years.

A snack distributor with multiple brand agencies and sufficient scale may be well positioned to consider digital upgrading. A smaller business without cash support may not be.

### 3. Create a Real Operations Function

Distributors historically paid little attention to platform operations, and many had no operations department at all.

An e-commerce platform makes that function essential.

The company must track registered users, monthly active customers, daily visitors, ordering customers, activation rate, and other operating indicators.

## The Distributor Must Create Value for Both Sides

What value does enabling small stores create for brand owners?

It makes the distributor's role visible to both upstream and downstream partners.

A distributor has a durable reason to exist only when it continues providing value to customers.

The distributor should therefore act as a brand operator. When a manufacturer entrusts a product to the distributor, the distributor must consider customer satisfaction, local market cultivation, and full regional coverage.

It should also build its own company brand and use that identity to develop the market.

Products and channels both remain decisive in a prefecture-level city.

Product selection is a major difficulty for small stores. A wholesale market may quote different prices to different customers. A large distributor platform can instead provide a broad assortment from one source.

Luoyang Hecai Trading, for example, carried more than 4,000 SKUs across snacks, wine and beverages, condiments, household products, and other categories. It continued optimizing both categories and individual products.

Its one-stop ordering platform used an official account and mini program. Orders placed before 6 p.m. arrived the next day, while store owners could order at any time and devote more attention to running the outlet.

Competition among small stores is not only about price.

A prefecture-level distributor platform and its retail customers should grow as one supply-chain system.

The degree to which a store depends on the distributor reflects the value the distributor creates.

Once the distributor becomes part of the city's commercial foundation, its competitive position changes substantially.

## Why B2B Operations Represent an Opportunity

During the seminar, New Distribution founder Zhao Bo examined B2B through the logic, current state, and direction of the industry.

At a certain stage of economic development, distributors inevitably become more supply-chain oriented.

In China, that supply-chain transition combined with internet capabilities to create the “supply chain plus internet” B2B model.

China's FMCG B2B sector began around 2012. Alibaba and JD.com both entered in 2015, launching LST and New Channels respectively. Large numbers of distributors joined those programs.

The sector experienced a boom, then entered a cooling period when invested capital did not generate the expected returns.

Despite the slowdown, more than 100 B2B platforms continued operating in China. By the time of the article, most had become profitable.

The industry had moved from emergence to a bubble, through a trough, and back into steady development.

Ten years of market education had produced an important sign of maturity: **small-store owners had broadly accepted ordering through B2B platforms.**

At the end of December 2022, New Distribution surveyed more than 50 small stores in each of five cities across different parts of China.

Almost every store used two or three B2B platforms.

That indicated substantial improvement in platform efficiency and showed that store owners had accepted the model.

Flexible ordering and timely delivery made B2B an important distribution force in FMCG.

One Shanghai platform had become the city's broadest supply-chain service provider, covering roughly 50,000 outlets. Its volume exceeded that of many distributors, and it purchased directly from factories.

Similar supply-chain platforms had emerged in Chengdu and Xi'an.

## From Distributor to Regional Operating Platform

The distributor business model had already expanded beyond conventional agency and wholesale distribution into online transactions.

Some platforms extended further downstream into small-store franchising and integrated business and consumer operations.

Others provided supply-chain finance to stores or separated warehousing and delivery into an independent logistics company.

Many people continued to doubt the logic of B2B. But both the operating model and practical results had demonstrated commercial viability.

The following three to five years represented a critical window.

**During that transition, distributors that moved first would gain earlier access to the opportunities created by digital upgrading.**

B2B was no longer simply a front-end ordering tool. For a distributor with sufficient scale, it was a path toward becoming a regional supply-chain and operating platform—one that integrated products, customers, data, warehousing, delivery, and store services into a stronger local business system.


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