01 Yijiupi strategically acquires Huijinhuo Recently, Yijiupi, a well-known domestic FMCG B2B platform, announced a strategic merger with Huijinhuo, a Chengdu-based leisure food B2B platform. After the merger, Beijing Yijiupi E-commerce Co., Ltd. will hold 100% equity of Chengdu Huijinhuo Network Technology Co., Ltd. It is understood that this is Yijiupi's first external acquisition since its establishment. Wang Chaocheng, founder of Yijiupi, said: "The Huijinhuo team is excellent and very professional in food B2B. Their joining will inject the best food genes into Yijiupi and help Yijiupi, on the basis of its leading position in alcohol and beverages, to quickly occupy a leading position in China's food distribution. Acquiring Huijinhuo is an important step in Yijiupi's steady advancement of its platform strategy." Gong Tao, founder of Huijinhuo, also highly praised the acquisition cooperation, saying that in the future, "with Yijiupi's warehousing and distribution facilities and customer base in nearly a hundred first- and second-tier self-operated cities nationwide, we can realize the dream of quickly replicating the Huijinhuo model across the country!" He said, "Internet competition is a competition of speed and scale. The infrastructure and huge user resources formed by Yijiupi's layout in over a hundred self-operated cities have extremely high barriers. Even for giants, this is a huge advantage that cannot be easily caught up with money in the short term. At the same time, Yijiupi's support in technology, capital, and internal control management will also greatly accelerate our development. I just attended Yijiupi's annual meeting. The clear corporate strategy, the pragmatic style of the management, and the high morale of the employees give us full confidence in joining Yijiupi and also find the future direction for Huijinhuo." In Wang Chaocheng's view, food, especially leisure food, is the most valuable category in FMCG B2B: high gross margins, low brand concentration, fragmented upstream and downstream, many SKUs, and prone to nearing expiry. Traditional distribution without digital operations cannot scale, making this category a paradise for data-driven B2B models! "In this situation, Yijiupi's distributed platform and highly information-based operations will have great advantages in food distribution and can quickly replace its traditional backward distribution model." Public data shows that Huijinhuo was established in April 2016, headquartered in Chengdu, Sichuan, and is a B2B company focused on leisure food sales. According to the New Distribution database, by the end of 2017, Huijinhuo had covered 16,000 merchants in the Chengdu area, with over 5,000 active customers and a daily order volume of over 300 orders. Yijiupi was established in September 2014, starting from alcohol B2B and quickly becoming a leading alcohol B2B platform. In the second half of 2016, it entered the beverage category, and in 2018 it is expected to complete tens of billions of yuan in transaction volume for a single category, becoming a leader in China's beverage B2B. The brand "Yijiupi" was quietly renamed "Yijiupi" (note: the characters changed from alcohol-specific to a broader name), beginning expansion to full-category FMCG B2B. By the end of 2017, Yijiupi had covered 81 cities nationwide, with annual GMV of about 7.4 billion yuan. New Distribution believes that in this strategic partnership, Yijiupi is not only interested in Huijinhuo's mature and complete terminal resources in the Chengdu area, but more importantly, Huijinhuo's successful industry experience in the leisure food field. Yijiupi and Huijinhuo entered the market with alcohol and leisure food respectively. Although the categories are different, both have the characteristics of low brand concentration and high product gross margins. After the acquisition, Yijiupi can not only quickly replicate Huijinhuo's successful leisure food category operation experience in Chengdu, gradually enrich the platform's SKU count, and move towards a one-stop procurement B2B platform for all categories; it can also help form new profit growth points nationwide beyond the alcohol category, improving the platform's overall profitability. 02 Opportunities for regional platforms In the traditional FMCG distribution field, after decades of development, the deep distribution system has taken shape and is quite complete. However, with the development of internet and information technology, problems such as too many levels, high costs, and low efficiency in the traditional distribution system have gradually been exposed. In this situation, many distributors have put internet transformation on the agenda. So, what insights does the case of Yijiupi strategically merging Huijinhuo bring to distributor friends? 1. Channel digitalization is irreversible New Distribution has always insisted that the digital transformation of channels is irreversible. Although some B2B platforms have encountered problems during development, this is precisely the pain that the industry must experience in the process of development. Even if all B2B platforms eventually fail, the internet's transformation of traditional distribution channels will never stop. For the distributor group, digital upgrading is an inevitable trend. In this era, the internet will not kill distributors, but inefficient distributors will definitely be eliminated. For brand owners, although FMCG B2B was criticized in its early stages for issues like channel stuffing and price chaos, with the further cooperation between national B2B platforms and regional distributors with strong coverage density, B2B has increasingly become a force that cannot be ignored. 2. Regional distributors transforming into B2B platforms still have opportunities From a capital perspective, although it is difficult for distributors transforming into B2B platforms to attract capital market attention, especially when the entire industry is already cold in the capital market, investors' attitudes towards B2B have become more rational and conservative. On the other hand, due to funding constraints, regional B2B platforms' national expansion is highly unsustainable. However, as competition among leading B2B platforms intensifies in the market, platforms with density advantages in regions are increasingly attracting the attention of national B2B platforms. Regional B2B platforms cooperating with leading B2B platforms through mutual capital holding or acquisition is also a good choice and destination. 3. Build high walls, stock up, root in categories, and do deep and thorough work New Distribution believes that the biggest advantage of distributors lies in the density of coverage in regional outlets and the ability to serve terminals. To maximize their advantages, distributors must base themselves in the region, root in categories, increase outlet coverage density, do deep and thorough work in the served area, and enhance their competitiveness, so as not to give outsiders an opportunity. Currently, most B2B platforms in the early stages of development mostly start with high-turnover, low-margin products such as beverages and alcohol, which makes it difficult for operating profits to cover platform operating costs. Adjusting product structure and increasing service categories has become a problem that many B2B platforms have to face. However, large supply chains find it difficult to achieve national density; they can only achieve national coverage density by acquiring regional platforms. In this situation, distributors in categories such as leisure food, grain and oil, daily chemicals, maternal and child products, and stationery still have great potential in their regions. 03 The industry's future is promising From the perspective of industry development, New Distribution believes that only informatization can truly empower the industry. In this process, the development of FMCG B2B must go through three stages: 1. A large number of platforms appear, investment and financing events continue, and the industry is in a state of contention and fragmentation According to incomplete statistics from New Distribution, by the end of 2017, the number of FMCG B2B platforms in China had reached 254, including both original internet platforms like Zhongshang Huimin and Yijiupi, and regional distributor-transformed B2B platforms like Huijinhuo, Sanxing Lianggou, and Rongcheng Yigou. The rapid development of the industry has also attracted increasing capital attention. According to Kantar Retail reports, in 2016 alone, dozens of B2B platforms received total investment and financing of over 5 billion yuan. Among them, Zhongshang Huimin received 1.3 billion yuan in Series B financing, and Yijiupi received 100 million US dollars in Series C financing. 2. The Matthew effect begins to show within the industry, and some B2B platforms start to fall behind With the entry of chain retail enterprises such as RT-Mart, Every Day, and Dongguan Meiyijia, the boundaries between upstream and downstream enterprises in the entire supply chain have gradually become blurred, and competition has become increasingly fierce. In this situation, some platforms with sufficient capital reserves, such as JD New Channel and Yijiupi, have completed their national market layout. Some B2B platforms lacking continuous capital supply, such as Bang Xiaodian, Jinhuobao, and Dianshang Hulian, have gradually fallen behind and stopped operations. At this stage, refined operations and precise marketing capabilities constitute the core competitiveness of each platform, and whether it has the ability to generate cash flow has become the only indicator for whether a B2B platform can survive. 3. The industry is highly merged, and a multi-oligopoly situation emerges The development of the industry has gradually expanded the scope of competition, extending from B2B to the entire industrial chain. In this situation, alliances and mergers between platforms have appeared, and the industry has begun to merge and integrate highly. In the end, only a few platforms will remain, forming a multi-oligopoly pattern. New Distribution believes that the combination of national giants and regional platforms is an inevitable trend. Only with national supply chain centralized procurement + regional density services can the advantages of large supply chain integration be achieved. From this acquisition event, regional platforms that build density are still valuable because large supply chains find it difficult to achieve national density; they can only achieve national coverage density by acquiring regional platforms. Even if capital does not recognize this, national B2B platforms still cannot bypass regional platforms when they want to build density. And Yijiupi's acquisition of Huijinhuo is only the beginning of industry integration. In the future, more regional platforms will be acquired, which is also a positive for the FMCG B2B industry itself.