Click to read the original article for details. In June, Zhengzhou temperatures exceeded 30 degrees, but Luo Leiming's heart was cold. This month, he focused on two things: dismissing employees and selling assets. The cause of this situation was the sudden revocation of his distribution rights for the 'Haidilao' hot pot brand, which he had painstakingly built for 13 years. What exactly happened? On June 18, 2019, a New Distribution reporter interviewed General Manager Luo of Zhengzhou Shaofen Food Sales Co., Ltd. (hereinafter referred to as Shaofen Company). (The following is the distributor's own account.) Luo told the New Distribution reporter that regarding the cancellation of Shaofen Company's distribution rights, Yihai (Shanghai) Food Co., Ltd. (hereinafter referred to as Yihai) officially cited cross-region selling (channel stuffing) as the reason. Conflict Arising from Cross-Region Selling For distributors, cross-region selling has become a common practice in their sales process. Except for a few distributors who engage in malicious cross-region selling, most do it merely to meet the manufacturer's targets. As distributors say, "Who hasn't engaged in cross-region selling?" In recent years, companies have intensified efforts to stabilize market prices and protect distributor interests, cracking down on cross-region selling. This is undoubtedly a positive development for the industry. Regarding the crackdown on cross-region selling, besides requiring distributors to pay deposits, manufacturers also impose penalties on those who violate. However, what Luo couldn't understand was that the contract previously signed with Yihai did not include a clause allowing for the cancellation of distribution rights due to cross-region selling. Therefore, Luo believes Yihai's action was an overreaction, with the real intention not to crack down on cross-region selling but to revoke Shaofen's agency. It is understood that in recent years, Yihai has developed many small and large distributors in Henan, adopting a partner mechanism for deep distribution in the region. Luo told the New Distribution reporter that since 2016, his market share has been continuously divided. If he did circulation, he couldn't do supermarkets. To cope with this, Luo registered multiple companies and signed contracts with Yihai separately, allowing him to continue operating in both supermarket and circulation channels. Of course, this approach required significant marketing costs for Luo, but he didn't regret it, as it was a brand he had nurtured himself. 13 Years of Hard Work, Sales Exceeding 10 Million In 2005, when 'Haidilao' hot pot seasoning first entered the market, customers accustomed to beef tallow base were not optimistic about the prospects of clear oil base. Even with the 'Haidilao' brand, many distributors dared not take it on. However, Shaofen Company, without any market support, resolutely took on the brand, becoming one of the first distributors of 'Haidilao' hot pot seasoning nationwide. In 2012, Luo took over the company with revenue of nearly 20 million yuan, but Haidilao's annual sales were only 700,000 yuan. At that time, Yihai's salesperson told Luo to implement manufacturer-distributor integration and give up other brands to focus solely on selling Haidilao hot pot seasoning. To achieve manufacturer-distributor integration and focus on one thing, Luo decisively concentrated the company's limited resources on 'Haidilao' hot pot seasoning. He gave up the distribution rights for Daqiao chicken essence, reduced sales of Angel yeast, abandoned 'Dezhuang' hot pot seasoning, and redirected most of the company's personnel and funds to market development for 'Haidilao' hot pot seasoning. After several years of effort, under Luo's leadership, annual sales of 'Haidilao' hot pot seasoning have reached approximately 50 million yuan, and the company has begun to generate profits. However, due to 'cross-region selling,' his distribution rights were revoked, and the city he painstakingly built collapsed overnight. Hoping for Investigation, but No One Responds Regarding the cross-region selling, Luo told the New Distribution reporter that he could prove this was a malicious report, and the quantity was small—only about 30 boxes. He had already applied for arbitration with Yihai, but Yihai did not conduct any investigation and simply determined it was cross-region selling, revoking his distribution rights based on that. Luo told the New Distribution reporter that he disputes the cross-region selling charge. First, the incident occurred in his circulation market. Even if distribution rights were to be revoked, it should only be for the circulation channel, not all channels. Second, Zhengzhou is a large wholesale market; anyone could buy goods shipped by Shaofen Company. Therefore, the manufacturer's judgment without investigation and evidence is unacceptable. In recent years, as companies have intensified crackdowns on cross-region selling, not only are distributors rewarded for reporting, but sales staff are also assessed. This may lead to malicious reports among distributors. Determining cross-region selling requires detailed investigation by the company. However, some regional sales staff, to meet assessment targets, do not conduct in-depth investigations into malicious reports, leading to unfair outcomes. Revoking distribution rights under the guise of cross-region selling is unacceptable to Luo. It not only means losing a brand he spent 13 years cultivating but also plunges the company into crisis. Luo told the New Distribution reporter that the revocation resulted in losses of approximately 40-50 million yuan, a huge blow for a company with annual sales of over 60 million yuan. Layoffs: A Helpless Measure To save the company, Luo had to resort to layoffs to stop losses. More than 30 employees lost their jobs, and these employees, who had dedicated years of effort to the company, had to find new employment. Luo told the New Distribution reporter that in recent years, Haidilao hot pot seasoning has grown rapidly. Distributors have no time to train new teams and can only allocate from existing staff, which inevitably means reducing investment in other brands. According to New Distribution reporter, the sudden revocation of distribution rights by Yihai also happened to another distributor, Liang, in Shanghai, who was also a veteran distributor of 'Haidilao' hot pot seasoning. The reporter learned that this company was also revoked without any reason. As one of the first national distributors of 'Haidilao' hot pot seasoning, Liang had contributed a lot. In November 2018, Yihai terminated cooperation with him. Liang told the reporter that without any reason, he was notified that they would not cooperate next year. As a distributor for the RT-Mart channel in East China, Liang felt helpless. At the end of the interview, Luo told the reporter that as a veteran distributor of over ten years, he was puzzled by Yihai's actions. He hoped Yihai would come forward to communicate, first investigating his cross-region selling incident. If it was indeed malicious cross-region selling, he would accept the company's punishment or even stop doing circulation, but he wanted to retain his supermarket channel distribution rights. After all, the problem occurred in the circulation channel, and the contracts with Yihai were signed separately for circulation and supermarkets. Subsequently, the reporter called Yihai's relevant personnel but the call was not answered. Rapidly Developing Yihai International Yihai International is a company primarily engaged in hot pot base and hot pot seasoning. Its predecessor was a subsidiary of the group that supplied hot pot base to Haidilao restaurants. It was spun off in 2013 and listed in Hong Kong in 2016. The company's revenue is divided into two major segments: 2B and 2C, each accounting for 50%. The 2B segment mainly cooperates with related party Haidilao, while the 2C segment mainly sells hot pot base and dipping sauces, Chinese compound seasonings, and self-heating hot pot under the 'Haidilao' brand. According to its 2018 annual report, hot pot seasoning is its core business, accounting for 72.9% of revenue. Currently, the company is focusing on the 2C market. Relying on the 'Haidilao' brand and strong sales channels, in 2018, 2C business revenue exceeded related party transaction revenue for the first time. In 2018, hot pot seasoning revenue was 1.96 billion yuan, accounting for 72.9% of total revenue. It is understood that in the past six years, Yihai International has mainly adopted a small distributor system, increasing the number of distributors to 1,500, covering all first- and second-tier cities, and continuously expanding into third- and fourth-tier cities and township markets. In 2018, the company's distributor channel achieved 1.263 billion yuan, a year-on-year increase of 115.2%. After analysis, it is clear that Yihai currently mainly uses a small distributor system. Therefore, it is not surprising that they dismantle and cancel large distributors. Through the small distributor system, Yihai can deeply cultivate the market and expand into blank areas. In the 2018 annual report, Yihai stated that in 2019, it will further deepen channel construction, improve channel penetration, expand product categories, develop new retail channels suitable for different product categories, and expand new sales channels. In the 2018 annual report review, regarding distributors, the group continued to promote channel下沉 and innovation. Through close cooperation with distributors, the number of distributors, density of sales terminals, and coverage of cities have been effectively improved. In addition, through strict inventory control and distributor screening, the management channel has expanded healthily. From Yihai's 2018 annual report, it is clear that in 2019, Yihai will further deepen its sales channels, and increasing the number of distributors is an important part of that. In the process of enterprise development, the survival of the fittest among distributors is a basic law of market development, but Yihai's treatment of veteran distributors in this manner is debatable. Should Distributors Put All Eggs in One Basket? For small and medium-sized distributors, betting on a growth brand is a double-edged sword. On one hand, they can use the product to open channels and accumulate secondary distributors and end customers. On the other hand, facing rapid enterprise growth, distributors must invest more manpower and resources. If they are eventually kicked out by the manufacturer, it would be like drawing water with a bamboo basket—all in vain. Of course, there are many successful cases of distributors focusing on one brand, such as Yili, Arawana, and Mengniu. Those distributors who grew with the brand have also gained a lot. So, should developing distributors specialize in one brand? First, distributors need to judge whether the brand has growth potential. This is difficult for growth-stage distributors, but it can be seen from the following points: 1. Whether the manufacturer provides certain policy support. 2. Whether the manufacturer has corresponding promotional expenses. 3. Whether the manufacturer's sales staff help distributors do market together. 4. Whether the manufacturer forces distributors to stock up heavily. 5. Whether the manufacturer gives distributors excessive sales pressure. In addition, for growth-stage distributors specializing in one brand, it can save capital investment but also bear corresponding risks. Distributors can learn advanced marketing plans from the manufacturer. Of course, if the manufacturer is indifferent, distributors must be cautious. Manufacturers and Distributors: Love-Hate Relationship The relationship between manufacturers and distributors has always been delicate. How many can withstand the test of integrity and morality? History is always surprisingly similar. In 2016, the 'Donggu throat-cutting' incident, also in the condiment industry, saw a 13-year provincial agent in Henan lose its distribution rights, with similar results: the company's operations and personal feelings were deeply hurt. Flattening operations and channel下沉 are inevitable results of enterprise development. In a business market full of interests, 'throat-cutting' is also a means for enterprises, but distributors are hurt more deeply. The manufacturer-distributor relationship is both cooperative and competitive. Large manufacturers bully distributors, and strong distributors demand more from manufacturers. Of course, such incidents are not common among the many manufacturers and millions of distributors, but they still undermine trust between manufacturers and distributors. For growth-stage distributors and growth brands, the flashpoints are undoubtedly the following: 1. Interests When a product enters the market, manufacturers delegate power to distributors to seize market share, striving for distributors to help increase sales. When the product is established, manufacturers want to control distributors to gain control over the market. 2. Expenses Many manufacturers provide expense support to distributors, but most do not clearly define the division of expenses, which is a focal point of conflict. 3. Commitments Whether manufacturers can fulfill their commitments to distributors in a timely manner is the foundation of trust, whether it's promotional expenses, profit rebates, or maintaining market price stability. If manufacturers fail to do so, it will be a flashpoint for future conflicts. Now, Luo has been labeled as a 'cross-region seller,' and his company faces a crisis. Yihai has also been labeled as 'unjust,' negatively impacting its brand. Perhaps many wonder why the brand owner would be so decisive. In fact, professional teams aim to achieve current performance as their highest goal and seek business security. They would not easily 'cut the throat' of distributors. Only in a few situations would they make such a decision: first, if the distributor fails to meet performance targets; second, if the distributor is disobedient and offends certain leaders; third, if this 'meat' is coveted by someone who wants to grab the distribution rights through private connections. As of the time of writing, the reporter has not been able to contact Yihai's responsible person. However, we still hope both parties can sit down and communicate, as they have both invested efforts in the 'Haidilao' hot pot seasoning brand.