Distributor transformation has become a hot topic in the FMCG distribution sector. But how to transform is a matter of much debate, like a thousand Hamlets in a thousand people's eyes. Is there a standard answer? No! In the view of New Distribution, distributors face different regional market environments, have accumulated different resources, and have different business philosophies. Even factors like outlet coverage, vehicle configuration, capital strength, product categories, and SKU count can affect the transformation path. If you combine these factors, there should be no fewer than a hundred possibilities. Therefore, when distributors practice transformation and upgrading, they must not be confused by transformation concepts or dizzy from B2B concepts. Knowing your starting point and determining your end point will make the transformation path targeted. Recently, New Distribution exclusively interviewed Zhang Hang, general manager of Meizhou Xiduoduo Supermarket Chain Co., Ltd. Zhang is a distributor in a fourth- or fifth-tier city, operating both distribution and retail, with annual sales in the hundreds of millions. He has been deeply cultivating the regional market for 20 years and has become a local powerhouse. To cope with changes in the market environment, in 2018 he proposed a 'full embrace of the internet' strategy. What is his starting point for transformation, and what does he think is the end point for Xiduoduo's transformation? 1 External market competition and internal management ceiling have stalled Xiduoduo Xiduoduo's predecessor was Minghua Trading, established in 1995. It started as a wholesale department, mainly dealing in daily chemicals and food categories. In 2000, local Guangdong chain supermarkets like Shenzhen Xinyijia and Renrenle emerged. Minghua Trading saw the opportunity in chain supermarkets and, leveraging the product resources accumulated from wholesale, extended downstream to retail, establishing Xiduoduo Supermarket. From 2000 to 2010 was Xiduoduo's 'golden decade,' with rapid development in both distribution and retail businesses. Zhang Hang recalls that by 2013, with the entry of international and domestic chain KA stores such as RT-Mart, Lotus, and Auchan into Meizhou, Xiduoduo Supermarket was severely impacted, especially with the loss of young consumers. At the same time, due to a lack of scientific management, retail business stagnated from 2013 onward. On the distribution side, at its peak, Xiduoduo represented 43 well-known first- and second-tier brands, but it was also constrained by operational management pressure and competition for brand resources, which once left Xiduoduo trapped in internal friction. Zhang Hang told New Distribution that starting in 2014, Xiduoduo carried out a series of 'slimming' actions to strengthen its operational management capabilities. Fortunately, despite the overall market downturn from 2014 to 2017, Xiduoduo did not fall behind. By 2017, Xiduoduo's distribution business achieved revenue of nearly 200 million yuan, and Xiduoduo Supermarket sales reached hundreds of millions, with 26 chain supermarkets under its umbrella. In 2018, to cope with B2B invasion, market competition, and changes in the market environment, Zhang Hang proposed the 'full embrace of the internet' strategy. 2 Full embrace of the internet, focusing on both distribution and retail Zhang Hang's 'full embrace of the internet' strategy specifically refers to the following aspects: 1. For the supermarket business: Integrate with third-party food delivery platforms such as Meituan Waimai and Ele.me to enable online ordering and one-hour delivery; build mini-programs and WeChat official accounts to publish daily promotional offers and increase interaction with consumers; add customer complaint channels via WeChat groups and official accounts to promptly grasp issues in the shopping experience; extend retail types by opening convenience stores. Currently, Xiduoduo has opened 4 directly operated convenience stores and plans to complete the layout of 60 convenience stores by the end of the year. 2. For the trading business: Build a B2B platform, introduce the Haiding system, and officially operate in May. Currently, there are 1,500 SKUs, basically meeting the daily needs of conventional small stores, with one-third of the products from its own distribution; in addition, continue to slim down the agency brands, especially first- and second-tier brands, and strengthen management of the product structure. Zhang Hang told New Distribution that Xiduoduo's B2B platform business has multiple meanings. First, the current channel structure of Xiduoduo's trading business is still multi-level distribution, with business only for large stores, leaving the rest to wholesalers. Now that the market is transparent, multi-level distribution can no longer effectively control the distribution system, and market cross-selling and price undercutting are serious. The B2B platform can allow distribution business to directly reach terminals, strengthening control over the original circulation system. Second, enrich the product structure. When the B2B platform can serve downstream outlets well, it will naturally be able to obtain more and better upstream brand resources, thereby continuously providing quality products to the supermarket business and downstream outlets. Third, accelerate the expansion of the convenience store business. The importance of the convenience store business is self-evident. If all are directly operated, it requires heavy asset investment and a long payback period. Overall, through a franchise model for small stores, it is the best way both from a profitability perspective and expansion speed. Use the B2B platform to establish stable supply relationships with local traditional small stores, and use transaction data to select quality stores for conversion to franchise. According to Zhang Hang, to date, the B2B project has covered 70% of the circulation outlets in Meizhou urban area, with 900 traditional mom-and-pop stores. In terms of store activity, 80% of small stores achieve monthly activity, and 45% achieve weekly activity. 3 What are the differences between traditional distribution business and B2B business? Many distributors, when transforming and upgrading, mostly do so within the original distribution system. But in Zhang Hang's view, such transformation often carries risks and takes a long time to integrate, and the integration of people, goods, and warehouses in the short term can cause pain to the original business. Zhang Hang told New Distribution that currently Xiduoduo implements B2B business and traditional business with 'two teams, one warehouse, and two sets of inventory' to practice transformation. In the past, Xiduoduo's business mainly targeted supermarket stores, distribution wholesale, government and enterprise group purchases, and large retail stores, while B2B business targets mom-and-pop stores. The work content of the two types of channels is different. For the B2B platform to achieve steady and rapid development and expansion, it must be given room for independent development. Although early costs will increase, it will not affect the original business. Later, when the B2B platform develops stably, a merger can be implemented. Currently, Xiduoduo's B2B project has 26 people, with 14 responsible for warehousing and distribution and 12 responsible for business visits. Zhang Hang told New Distribution, 'Many people tell me that 12 people responsible for 900 outlets, with an average of 70-80 stores per person, is too inefficient and costly. But in my view, in traditional business visits, one person serves 200-300 outlets, with 25-30 outlets visited per day, and the salesperson is responsible for only 3-4 items, generally no more than 10. That is reasonable. But in B2B, the salesperson is responsible for more than 10 items. If a salesperson seriously does a good job serving 1,500 products, they absolutely cannot serve more than 10 stores a day. We are doing supply chain services. If the service is not in place, we cannot control the market.' Although B2B business is essentially the same as traditional distribution, earning product price differences, the logic of distribution is different. Key indicators such as coverage density, visit frequency, depth of customer relationships, items purchased, and average order value per customer all need to be restructured. Zhang Hang told New Distribution, 'Currently, we have covered 70% of the circulation outlets in Meizhou urban area. Next, we will not continue to expand but will solidly and deeply serve these small stores.' Final Thoughts Xiduoduo's B2B business is an exception among the cases previously reported by New Distribution: it did not add to the original business but took a different path, independently developing the market. Although costs increased, the benefits are obvious: accelerating the business expansion process, shortening time, not disrupting the original business system, and reducing the pressure of upstream brand owners' tasks. Based on the above and previous cases reported by New Distribution, here are some insights on distributor transformation to B2B:

  1. Don't be confused by transformation, don't be dizzy from B2B. When a distributor transforms to B2B, first clarify: What is your purpose? Do you want to use internet tools to optimize the distribution business and continue as a distributor, or do you want to extend downstream to convert small stores and become a retailer? Different purposes lead to different business logic. Optimizing the distribution business focuses on using technology and tools to reduce warehousing and distribution costs, improve operational efficiency, and make the business bigger; extending downstream to retail focuses on using the B2B platform, through supply transactions, to build trust with small stores, understand their business needs, and use distribution data to understand their operating conditions, accelerating the speed of store conversion. Different purposes also lead to different operational levels. Currently, most distributors still hope to use B2B and internet tools to defend their existing regional market share. But in practice, they are often led astray by internet B2B, thinking that if others are converting small stores, they should also convert a few stores; if they don't convert small stores, it doesn't count as B2B. In fact, this logic is wrong. Even if internet B2B goes offline and completes its layout, as long as distributors are rooted in the regional market and do it deeply and thoroughly, they will always have a place. There is no need to convert a few small stores or open two convenience stores. Retail business and distribution business are really two different things. Don't just look at the surface. Know your starting point and also position where you should go.
  2. On the path selection for B2B transformation. In the view of New Distribution, for regional distributors with annual sales over 200 million yuan in prefecture-level cities, a more stable B2B transformation path is to walk on two legs. Although early costs are high, it is less likely to affect the original business development, especially for distributors with first- and second-tier brand agency or those who only do large stores and KA stores. For those below 200 million, considering operational cost pressure, they can upgrade and transform on the basis of the original business, gradually and progressively.
  3. People, people, people. Never reduce investment in frontline staff because of the B2B platform. The platform is just a tool for information transmission and order aggregation. Don't learn from giants who only invest a few people in a region. Whether or not you do a B2B platform, frontline ground promotion staff are the core competitiveness of offline distributors rooted in the regional market. Extended Reading: Review the exciting reports of 'New Distribution 100 People' [Click to view] -END-