Navigating Channel Fragmentation: How FMCG Distributors Can Adapt to Supply Chain Transformation in China

  In 2023, it will be more difficult to operate than the dealer group in the fast moving consumer goods industry. We on the front line feel the same way, and manufacturers’ policies are difficult to communicate across channels.
  There are roughly three factors that affect dealers.
  One is the sequelae of the epidemic. At the beginning of 2023, manufacturers are highly active, and personnel and resources are concentrated, but the terminal is still not very prosperous. As a result, dealers have become a “barrier lake”, sandwiched between manufacturers and retailers. The manufacturers’ goods are pressing towards the dealers, but the dealers’ goods cannot be suppressed. Of course, although this problem is only a temporary phenomenon, it only needs one more straw to break the camel’s back.
  Second, Internet commerce has reached its end – the “channel transformation” stage, and channel digitization is affecting dealers. Internet commerce has produced a large number of new retail formats. New retail requires a one-stop supply chain that traditional dealers cannot meet.
  Third, the sudden outbreak of supply chain changes in 2023 is affecting dealers in an “undeclared war” manner. Including private brands, retail discount stores, platform dealers, and chain stores of BC type.
  Of these three factors, the sequelae of the epidemic are a temporary phenomenon, the end of Internet business is expected, and the supply chain changes are somewhat unexpected. As a result, dealers will become the most affected business group in 2023.
  At the same time, we also see other phenomena: first, the total retail sales of goods by the National Bureau of Statistics increased by 8.2% in the first half of the year; second, the first half reports of leading FMCG companies were generally good, with more revenue and profits increasing.
  On the one hand, the B-side (dealer) market has been cold, leaving many dealers lacking confidence.
  On the one hand, the C-side (consumer) market continues to be hot. Although there is also a downgrade in consumption, in the field of fast-moving consumer goods, the C-side is not cold overall, as evidenced by data from various industries.
  Why can’t the heat from terminal C be transferred to terminal B?
  This reflects the huge changes in China’s channels.
  To use a metaphor. In the past, there were 10 cakes on the C side and 2 B sides were supplied. Now there are 12 pies on the C side, but 5 or even 10 on the B side. So, does every B-side feel that there is not enough to eat?
  In the early days, there was only one kind of “big wholesale” channel in China, and all fast-moving consumer goods reached the terminal through this channel.
  Around 2000, KA (large supermarket chain) emerged strongly in China. It is equivalent to changing from 1 channel to 2 channels. At that time, distribution channels were also lamenting that “business is difficult.”
  Around 2010, when e-commerce took off, it also diverted traditional traffic. As a result, distribution channels and supermarkets lamented that “business is difficult to do.” Because the mainstream channels have changed from 2 to 3.
  Around 2020, there will be more distribution channels, such as community group buying (group stores), new retail discount stores, flash warehouses, “terminal dual stores” formed by full-chain digitization – offline stores + online stores, platform dealers (B2B+ dealers), convenience stores.
  Even B2C platform e-commerce has spawned graphic e-commerce, live broadcast e-commerce, interest e-commerce, short video e-commerce, community social e-commerce, and private domain e-commerce.
  The changes in the above channels are called channel fragmentation. Channel fragmentation is the inevitable result of diversification on the retail side. With so many new channels emerging at the same time, the result is that the traffic from each traditional channel must be diverted.
  If it’s just diversion to new channels, that’s easier to handle. Enter as many new channels as there are. The key issue is: some new channels require “one-stop supply.” This requires dealers to change from traditional channel business thinking to supply chain thinking.
  The characteristic of channel business thinking is that it starts from the manufacturer, and its main function is the extension of the manufacturer’s functions in the channel. Whatever manufacturers promote, dealers do the same thing in the channels.
  The characteristic of supply chain thinking is that it starts from the consumer or retailer and becomes the supply chain at the retail end. What consumers need, the supply chain will provide.
  When China’s C-side e-commerce was developing rapidly, we found that B-side e-commerce in the United States was very developed. Because American dealers are all supply chain thinkers. Even in the era before the Internet, platformization was achieved through other electronic means.
  Therefore, for dealers who are currently at the forefront, participating in supply chain changes and becoming a platform dealer may be the best way out.

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