Click the image for details On July 15-16, the second China "Internet + FMCG" Summit Forum was held in Hangzhou, guided by the B2B Industry Branch of China Electronic Commerce Association, hosted by Tobian, and co-organized by Best Store Plus, Ping An Bank, Yunniao Technology, Yi Order, and eSign. The forum, themed "Openness, Collaboration, Empowerment," aimed to discuss with B2B industry peers and bring clarity to new retail. Industry leaders such as Yang Wei, Head of Management Consulting for Accenture Greater China; Zhang Chi, Director of Kantar Retail E-commerce Consulting; Liu Bo, General Manager of Best Store Plus; Yun Tong, General Manager of Alibaba Retail Connect Marketing Center; and Su Xiaoxin, Executive President of Zhongshang Huimin, attended and delivered speeches.
The following is the transcript of Wang Chaocheng's speech:
Thank you, Brother Er, for your efforts in this industry. I pay close attention to this B2B FMCG forum. On my way here today, I kept refreshing his Moments to see what everyone was saying. Here, I'd like to share my feelings since starting YiJiuPi. 1 First, let me talk about the current landscape of FMCG B2B as I see it. In my understanding, looking at the national picture this year, in our database comparing mainstream FMCG B2B e-commerce platforms, our volume (YiJiuPi) and that of Best Store Plus might be relatively large. Although Alibaba is the greatest e-commerce company in China, honestly, in the current B2B space, I haven't felt its power yet. That's our feeling, and maybe it's wrong. We also have a lot of data, collecting purchase orders from many stores to know where they buy goods, both online and offline. In different regions, there are also many e-commerce platforms doing well, and we seriously learn from them. But given the national situation this year, the FMCG B2B landscape I see makes me can't help but correct this obviously inaccurate data. I think we shouldn't unhesitatingly say Alibaba and JD are first and second just because they are big. In fact, they are not first and second, and might even be far behind. Of course, I also believe that in the future, Alibaba and JD will pose huge pressure on all B2B companies, because history has proven they can grab things from others in almost every track. In the future, they might also take away our business in this track, but today's landscape is indeed not as described in the article, not in Suzhou, and not nationwide. 2 Second, I want to talk about our understanding and views on B2B. I'll mainly talk about models and technology. B2B has developed to this point with so many companies. If mainstream B2B thinks of directly turning the original offline chain into an internet chain, I think it's very difficult. The usual approach is to get goods at the first-tier price and sell to terminals at a lower price than the second-tier, but this is hard to profit from. You get the same price as the second-tier, and you still have large warehouse and management costs, so this is extremely difficult. The traditional distribution system has existed for many years, so our understanding of the model might differ from other e-commerce platforms. I believe there are only three channels for B2B:
The first channel is the distribution model. This currently has the largest volume in the market. The distribution model is a bit like taxis. Every place has taxi companies, and the government issues licenses to you, giving you the qualification to operate. Our traditional distribution is like the factory issuing a license, saying you can sell in this area, and others cannot, just like taxi companies.
The second channel is the wholesale market. This market has a large volume but is an off-system market, like the black car market before Didi appeared. The government doesn't allow you to do it, but the market objectively exists and has a large volume.
The third is the chain model. For example, in the home appliance industry, there are many stores, which are actually chain stores. In our country, chains have franchise and direct-operated. Direct-operated chains are essentially B2B, and their stores are the small B in B2B. If we also understand the FMCG channels as three types: the first is the official distribution channel, the second is the unofficial wholesale channel, and the third is the chain channel, then the entire B2B business model is these three. Why can wholesale markets make money? The wholesale market owners make money, and the merchants in the market also make money. I basically think that e-commerce, if it didn't have a prototype before the internet, is very difficult in transactional e-commerce, except for social. What is JD's prototype? It's actually offline Walmart, Carrefour, and department stores. In the past, they used stores to sell; JD uses the internet. What was the earliest Taobao? Taobao is actually a 2C wholesale market, and Tmall is a bit like a pedestrian street. These all existed offline before. This is our view on e-commerce: it must follow the offline prototype. So what we are doing now is using mobile internet methods to transform wholesale. We focus more on price advantage. We supply small stores, and they don't care whether the goods come from local or remote sources. The developers of wholesale markets also don't care where the shop owners get their goods. There is huge transaction volume in this place. What is YiJiuPi doing? APP + Warehouse = Wholesale Market. That's what we are doing. Wholesale markets require urban planning. The city government says this area will be developed into a trade city, and other places won't be allowed. So wholesale markets are monopolistic, and the best real estate developers in China can't have good relationships with all mayors nationwide, so the overall scale of wholesale markets in China is large, but no one can achieve nationalization. This is like taxi companies not being able to chain. Every local taxi company has a government-issued license, so how could they become a chain? Why did Didi become a big company? Because it doesn't need a license; private cars + APP is enough. What is YiJiuPi? It's turning warehouses into trade cities. Warehouses don't need licenses, don't need city government planning, and don't need to do real estate. We just rent warehouses, and APP (traffic) plus warehouse equals a wholesale market. That's what we are doing. We are China's super online wholesale market for FMCG. Currently, our volume is definitely larger than any wholesale market. The scale of wholesale markets is enormous, and we have many points. We are in 80 cities now, and next year will reach 200 cities. Our transaction scale will grow rapidly. People say you do well in alcohol but not in other categories. I won't give specific numbers, but currently, alcohol accounts for about 15%-20% of YiJiuPi's total volume, while other FMCG (non-alcohol) accounts for 80%-85%. Theoretically, we can no longer be called "YiJiuPi" (Easy Alcohol Batch). This name can no longer accurately describe our business. Just now, Lao Liu said you should change your name, but I'm too lazy to change it. JD used to be called "JD Electronics," doing 3C, and later did many things, and only after a long time was it called "JD Mall." So I think it doesn't matter whether we change the name. What matters most is that users see real products and prices. That's our view on the model. Now let's talk about the role technology plays here. Anyway, today I won't talk about macro topics. We are in B2B, selling goods, so I want to talk about some specific operational aspects. I've always thought about e-commerce. Why can using the internet defeat traditional commerce? An important reason is that it solves the problem of scale and breaks regional limitations. Alibaba and JD have become so big. The number and quantity of things I buy at the small store in my community are definitely greater than what I buy on Alibaba and JD combined. But is the small store downstairs better than JD and Alibaba? Of course not! So it's not about penetration rate; e-commerce penetration is very low. Today, many people say that B2B companies like us have much lower penetration in each place compared to traditional distributors. You don't need to worry. The reason e-commerce worldwide defeated traditional is not penetration but scale. Why compete with them at one point? I don't need to. With such a large scale, won't manufacturers talk to me? This is asymmetric competition. So the first technological revolution of the internet is that it packages demand, turning demand from a small geographic point into a surface, triggering a series of revolutions, such as logistics revolution. What Lao Han just said is also this. Don't worry about penetration; it's a gradual evolution and won't be the reason B2B companies fail. Now about gross margin. This is not a big problem for B2C e-commerce, but it's a big problem for B2B because traditional wholesale margins are only a few points. At this time, if you start a price war, you have no margin. What do you do? So the B2C logic is that I don't care about supply chain. Initially, Alibaba and JD had poor supply chains, especially JD, which had no supply chain and bought goods from various places to sell. The overall B2C logic is to first give users low prices because margins are still okay, and even with low prices, there is still a gross margin. After accumulating a large number of users, you then solve the supply chain problem upstream. This is actually the basic logic of B2C e-commerce. What is the logic of B2B e-commerce? That logic doesn't exist! You use low prices to attract all the small B nationwide, then go upstream to get goods, and ask upstream to give you discounts? Most B2B companies can't do this at all. Because you get goods locally, you can only get them from them; you can't go to others because you don't have distribution qualifications. They say this area is all mine, why should I give you a discount? You help bring the entire city's stores to you. The bigger you get, the higher the price I give you. Isn't that right? So this is the biggest difference between B2B and B2C. What is my understanding? This year, Best Store Plus has invested heavily in B2B, definitely burning money. But my model in FMCG is different from theirs, so our FMCG business is doing well. Currently, we basically break even every month, and we will definitely make money for the whole year. Achieving this, I believe, is very difficult in B2B. As Su said this morning, most can't do it. Trying to package downstream users to deal with upstream is hard to achieve. Now, if you supply small B and start a price war, the upstream supplier will stop supplying you, and you'll have no goods to sell. So what do you do? Our model is actually packaging upstream, not downstream. My logic and technological innovation revolve around bringing all suppliers in China to this platform. I compare their prices, and I use their mutual bidding to provide value to downstream. Today, many people talk about empowerment. But empowerment is a distant thing. If the most important transaction between you and the terminal hasn't happened, what are you empowering them with? Opening up the procurement platform, collecting a few thousand yuan deposit, giving back a little on monthly purchases, plus a POS cash register system—everyone knows what that means. But I tell you, it's not as easy as you think. Many people have tried and failed, losing money without effect. This store is my own; I'm the boss. Inventory management doesn't mean much to me. Using a barcode scanner is troublesome; you have to enter and scan every time. If you don't record inventory, the management is useless. Even for pure cashiering, I have to press keys, open the drawer, scan—it's too troublesome. So many cashier computers in small stores are just dead machines, which is common. Of course, I'm not saying this kind of thing isn't important. It's not as important as we think yet. I think the most important thing is to have a high-frequency transaction relationship with him. That's the most realistic business. If transactions can't be done, changing your approach might not work either. Without 3.5 trillion in transactions, all of Alibaba's efforts today would be in vain. That's the most basic. Alibaba and JD once grew by selling things. Only after they completed payments can they talk about these things. One day, all the data of Chinese retail stores will be in the hands of Alibaba and Tencent. It doesn't matter. You can still continue e-commerce with strong product prices and good service. Do Mogujie and Vipshop have their own payment systems? WeChat has all your payment data, but can Tencent do e-commerce itself? So don't panic too much about the so-called future digital world. At this stage, YiJiuPi is committed to doing only one thing, nothing else, and that is offline. All our technology R&D is aimed at this. If supplying goods to terminals becomes our only most important job, how should our technology be done? My experience: First, you must have your own data system. Don't fantasize about relying on third-party ERP, parasitizing on others. Have you noticed that you spend a lot of money buying ERP, but the management interfaces behind are all dead or expensive? Your business can't connect, your drivers can't connect, and everything is hard to connect. We've suffered from this, so you must build your own data center. Data is one aspect; without your own data nerve, everything else is nonsense. Second, you must believe in data-driven operations management. An important reason Amazon can defeat Walmart is data application. I know which stores are habitual buyers and which are promotional buyers; I also know when to use what coupons. If you infinitely lower the price of goods, your sales will be huge. If you lower it below the general agent's price, it will be snapped up as soon as it's listed. So prices can't be infinitely low; if they are, gross margin becomes negative. If prices are too high, no one will buy. There is an optimal point between price and sales volume. But if each place has 2,000 SKUs, and in 80 cities we have 50,000 SKUs, how do we find the optimal point for these two lines? It's impossible with manpower. What do we rely on? Computers. For overly complex information, humans can't handle it. So data-based pricing is an extremely competitive behavior. Gross margin can be derived from this. With tens of thousands of products' prices fluctuating daily, how to price correctly? I think manpower can't do it; no one can. Amazon's AI technology today, including China's JD and Alibaba, has done push recommendations called "thousand people, thousand faces." Different people see different products, but the pricing is the same. Of course, 2C is more difficult with more products. 2B is actually easier. This is a technological direction. First, you need a data hub. Only with a data hub can you do pricing. Second, optimize promotions. For B2B e-commerce promotions, experts can see at a glance that they are just a few types: bundles, coupons, red packets. The methods are similar. We've studied them all, and they're all the same. But the essence is a question of investment intensity. How to reduce investment intensity while making users feel your intensity is high—that's very clever. Third is personnel management. We have a large number of ground promotion staff, and our drivers compete on our platform. Everyone in FMCG knows how difficult it is to achieve accurate logistics delivery. Without good service, customers will definitely abandon you. That's logistics. You must believe in technology-driven. How many stores did the ground promotion visit in a day, how many were installed, how many purchased, what's the repurchase rate, which are high-frequency, which are high-value-added, which are price-sensitive... Without data and algorithms, it's hard to manage. Our ground promotion staff manage customers very efficiently because if efficiency is low, the machine will find out and immediately tell him his metrics are low, and also tell the company. Then he's caught. This is what we call technology-driven. Why do I emphasize this today? Because most people in B2B come from traditional industries, and not many come from the computer industry. People from the computer industry are completely technology-oriented and don't understand the industry, so they quickly lose money and quit. If people from traditional industries only treat B2B as an ordering tool, have no digital thinking, and don't believe in the internet, saying it's just moving offline orders online—if you hear that, you know they don't understand the internet. The core of internet companies is digitalization. They drive all management and decisions through data. They see every inefficient place through data and optimize it themselves. Simply moving offline to online might be a distorted transaction, not the real internet. You must believe in digital thinking and understand the pitfalls of the industry, and you'll be in your element in the B2B world. FMCG is actually a difficult B2B because the amounts are low, customers are many, service is hard, and you're squeezed by traditional commercial distributors everywhere. It's not easy. But I want to share a conceptual understanding: you must believe that in any industry, the business landscape of relying on one place and one business will definitely be broken. In the past, real estate companies thrived by having good relations with local governments in their regions. Today, China's real estate industry has changed. Wanda goes everywhere for commercial real estate, Vanke goes everywhere for residential real estate, and Country Garden goes everywhere for villa real estate. Every local real estate developer has been defeated by them. Now distributors are the same. In the future, circulation will definitely be B2B, and future stores will definitely be national specialized stores. China's channels and models are shifting from regional segmentation to model segmentation. The country says every day that regional distributors are not allowed to block and monopolize operations, that the free flow of goods cannot be restricted, that the efficiency of the circulation industry should be improved, and that the rights of manufacturers and distributors should be reasonably protected. I think a market economy is the free flow of goods. Before the British Industrial Revolution, there were 62 checkpoints from London to Manchester, so the British national economy was a mess. All capitalist systems are built on the most basic commercial condition: the free flow of people, information, and goods. Without free flow, there is no market economy, no commodity economy. So restricting goods to one place and not allowing goods from other places to sell there—many people have been harmed by this, especially those who don't understand the history of market economies. It's actually very, very bad. If a merchant can only do one brand and only in one place, how can you grow? This seriously violates the laws of China's economic development! But because we've been brainwashed by the traditional distributor system, we think this system is reasonable. Think about it: isn't B2C e-commerce openly cross-regional selling? Because they can't stop it, they set up a special channel called the e-commerce channel, and e-commerce can sell nationwide. For us B2B people, when our scale gets bigger, they'll set up a department called B2B circulation, and they can also sell nationwide. I believe that with this concept, all B2B e-commerce people should value technology-driven thinking, focus on their core areas, and scale up. Maybe one day Alibaba and JD will look at you with new respect. Thank you! -END-