Recently, the author visited the well-known urban distribution company Yihuodi, and through communication with its CEO Qin Yu, discovered that urban distribution companies still have significant opportunities in the retail FMCG industry. Today, the author will discuss with you where the opportunities for urban distribution companies lie.
- Current State of the FMCG Urban Distribution Market
First, let me introduce Yihuodi. Founded in July 2014, Yihuodi is a subsidiary of the listed company Transfar Zhilian and is also one of the first batch of pilot enterprises for non-vessel operating common carriers (NVOCC) designated by the Ministry of Transport. Yihuodi positions itself as an "urban logistics expert," committed to providing customized, one-stop urban logistics solutions for various medium and large B-end enterprises. Yihuodi was also the designated urban distribution service provider for the 2016 G20 Hangzhou Summit and the 2017 Dalian Summer Davos Forum, and the recently popular Big Data Expo (Guiyang) has also chosen Yihuodi as the overall urban logistics carrier for two consecutive years.
Qin Yu told New Distribution that China's urban distribution can be divided into three sub-tracks:
- C-end distribution: mainly last-100-meter courier logistics, timely delivery of small personal items, etc., with transport carriers mainly being riders;
- Small B-end distribution: main customer groups include professional markets, wholesale markets, and temporary pickup and delivery for mom-and-pop stores, also including some personal large-item moving services, with transport carriers mainly being vans and some flatbed trucks and box trucks;
- Medium and large B-end distribution: planned urban distribution logistics for medium and large enterprises, mainly including warehouse-to-warehouse, warehouse-to-store, and warehouse-to-home scenarios, with transport carriers mainly being box trucks.
"But regardless of the sub-track, there is a mismatch between service and market. Because the largest stock in the urban distribution market is the distribution of retail and FMCG goods. However, in reality, China's current urban distribution services for retail and FMCG are mainly completed through the dealer system, not by urban distribution companies. In the business composition of urban distribution companies in the above tracks, the distribution volume of retail and FMCG goods does not account for an absolute proportion, which is an awkward situation."
- Why Is It Difficult for Urban Distribution Companies to Enter the FMCG Market?
In the process of channel digitalization, urban distribution is a very important module. In the future, logistics distribution will definitely be separated from the functions of dealers, forming a professional, integrated nationwide capability. Moreover, as the trend of personalized consumer behavior becomes more obvious, multi-screen has led to the fragmentation of consumer information. The demand generated at the consumer end has shifted from the past purchase scenario of retail small stores to countless electronic screens. However, at the logistics level, not many urban distribution companies have entered the FMCG industry. The main reasons are as follows:
1. The granularity and precision requirements for logistics distribution in China's FMCG industry are relatively high
The United States has a sparse population and large retail markets, with distribution points concentrated, allowing for planned logistics to complete product distribution. In regions like Taiwan and Japan, population density is high, making it easier to form high-density retail chain systems, such as 7-11, which also provides fertile soil for the development of the urban distribution logistics industry. However, China's retail market is quite different from countries like the United States and Japan.
According to statistics, the number of traditional retail small stores in China is about 5.6 million, mostly distributed in low-tier markets such as counties, townships, and towns. These small stores undertake the distribution task of nearly 7 trillion yuan in the FMCG market. The highly dispersed distribution points determine that China's FMCG industry has to rely on a large number of dealers to undertake logistics distribution functions to complete services to these points, which leads to the overall "small and scattered - small and scattered" characteristics of the upstream and downstream of the industry.
2. Complex delivery process, relatively slow expansion
C-end product circulation has complex sorting but a particularly simple delivery process; while the B-end market in the FMCG industry has simple sorting but a relatively complex delivery process, because it involves settlement, returns and exchanges, terminal display, reverse logistics, and many other services. This leads to a relatively slower expansion speed for the urban distribution market in the FMCG industry.
3. The profits on the channel path are insufficient to support the cost of same-city logistics distribution
In the past two years, with the rapid rise of various operating costs, the profits at all levels of the FMCG industry have been severely compressed, which makes it difficult for logistics and warehousing costs to be absorbed by professional third-party social division of labor.
Qin Yu believes, "The premise of social division of labor is that every link in the circulation of goods is profitable, so that third-party urban distribution companies have enough motivation to provide professional services. If the FMCG industry maintains such a profit structure and profit distribution method, it will be difficult for third parties to have much motivation to achieve professional division of labor."
In addition, many current FMCG B2B platforms are also building their own warehousing and logistics distribution systems, which also makes it difficult for a large number of urban distribution companies to truly enter the logistics distribution of the FMCG industry.
- The Reform of FMCG Channels Has a Long Way to Go
The development of urban distribution enterprises is accompanied by the reform of FMCG circulation channels, and the reform of China's FMCG circulation field has undergone a long evolution process:
- From the 1980s to the 1990s, the traditional supply and marketing cooperatives were gradually replaced by wholesale markets;
- From the 1990s to around 2000, the circulation of FMCG goods gradually shifted from wholesale markets to wholesalers, and at this time, wholesalers included provincial, municipal, county-level dealers and second-level wholesalers;
- From 2000 to around 2010, the distribution levels became more refined, provincial and municipal dealers were gradually marginalized, and county-level dealers with smaller granularity became the mainstream distribution channels, forming and gradually improving the deep distribution system.
From 2013 to the present, B2B platforms such as Zhongshang Huimin began to appear, and the digital transformation of channels officially began.
From the evolution of FMCG circulation channels above, the reform of FMCG channels basically changes every 10 years. Moreover, the participants in the channel also have a certain lag in responding to trend changes. So even though the channel evolution has changed to today, wholesale markets still have huge living space, such as Changsha's Gaogiao Large Market and Jinan's Seafood Large Market.
With the gradual expansion of the younger generation of user groups, new commodity circulation channels and distribution methods will inevitably become mainstream.
From the current development status of the industry, in addition to native B2B platforms such as Zhongshang Huimin, Best Dianjia, and Yijiupi, internet giants like Alibaba and JD.com have also participated in the channel reform of the FMCG industry. In addition, traditional retail enterprises such as RT-Mart, Dongguan Meiyijia, and Xi'an Every Day, and even many traditional dealers have begun to try B2B, unified warehousing and distribution, and other businesses.
Therefore, New Distribution has always believed that the trend of channel digitalization is inevitable. In the process of channel evolution, although there will be some setbacks and detours, the FMCG industry's pursuit of efficiency will never stop.
- Where Are the Opportunities for Urban Distribution Companies?
1. The irreversible trend of professional division of labor
The characteristic of the FMCG industry is that products are infinitely close to consumers, which requires the supply chain to be as close to the market as possible. Although currently, brand owners can only meet the granularity of the distribution system through the existing dealer system, with the acceleration of FMCG circulation channel reform, the demand for professional services will inevitably become stronger. Because only third-party social logistics can ensure the quality of service.
2. Standardized services are relatively easy to form monopolies
In non-standard product services, a large number of personalized services are generally required, which determines that large platforms are difficult to form absolute monopolies. The strategic acquisition of Huijinhuo by Yijiupi is a very typical example. Yijiupi has great advantages in the alcohol field, but has significant shortcomings in the snack food category, so the real significance of Yijiupi's acquisition of Huijinhuo lies in the latter's professional team. This also proves that in the B2B platform field where commercial flows converge, it is difficult to form a complete monopoly.
But standardized services can be quickly replicated, thereby forming scale advantages. Urban distribution logistics is a very typical standardized service.
3. The expansion of retail enterprises creates conditions for the development of urban distribution companies
At present, many dealers have gradually separated warehousing and logistics distribution through unified warehousing and distribution, which creates a more favorable development environment for urban distribution companies.
In addition, many offline retail enterprises such as Qian Dama and Baiguoyuan are expanding across regions, and these enterprises themselves are not very willing to get involved in urban distribution logistics. If urban distribution companies can grow together with such enterprises, it is also a good development opportunity.
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