"The market is changing, and distributors must adapt. Facing current difficulties and challenges, if you remain stubborn and refuse to adapt to the times and market changes, it won't be your competitors that defeat you, but your own conservatism!" Recently, regarding the topic "2024 will be the last window for traditional distributors to transform to B2B," we specially invited Luo Kai, General Manager of Luoyang Hecai Trading Co., Ltd., to the Li Feng New Distribution live stream to discuss the development path of traditional distributors transforming to B2B. First, let's briefly introduce Luoyang Hecai Trading. Founded in 2006, it operates five major categories, over 70 brands, with a warehouse area of 6,000 square meters. Its B2B platform covers over 4,200 SKUs, and the B2B business team of 23 people achieved annual revenue exceeding 100 million yuan from zero to one in three years. Today, let's step into Luoyang Hecai to see how they achieved 100 million in sales with just 23 people. The "Whirlpool" Facing Traditional Distributors Facing the current difficult business environment, Luo Kai analyzed several key reasons. First, the impact of declining birth rates and the three-year "mask" period. Consumers' incomes have decreased, and they have become more rational in consumption, leading to weak consumer spending. Second, channels are overly fragmented. Whether it's traditional e-commerce, the currently popular interest e-commerce, live-stream e-commerce, or emerging formats (such as flash warehouses, hard discount stores, community group buying, etc.), they are all encroaching on the market of traditional distributors. Third, and the most headache and helplessness for traditional distributors: the supply chains of hypermarkets are actively connecting directly with brand owners. Since the beginning of 2023, from snack stores to discount stores to hypermarkets, they have bypassed distributors to cooperate directly with brands, further compressing the living space of traditional distributors, leaving fewer opportunities for them. As a result, distributors are forced to take on more brands, expand more channels, and develop more customers, which in turn places higher demands on the company's management, process standardization, and systemization. Fourth, traditional distributors lack the ability to expand boundaries. In such a harsh market environment, if your capabilities cannot match market development, you will eventually be abandoned and eliminated by the market! In addition, there are factors such as excessive performance pressure from some brands, excessive warehouse inventory, excessive turnover, and more capital occupation, which are also the most common feedback from traditional distributors. The market is changing, and distributors must adapt. Facing current difficulties and challenges, if you remain stubborn and refuse to adapt to the times and market changes, it won't be your competitors that defeat you, but your own conservatism! Where to change? How to change? How to implement changes in practice? The "Lifeboat" for Distributors During the period of rapid GDP growth, the market rewarded opportunities, while during the period of medium-speed growth, the market rewards competition. The supply chain revolution has had a significant impact on supermarkets and distributors, with snack hard discount stores being the most direct impact felt by distributors. In the past, one of the most profitable categories for distributors was snacks. However, with the emergence of a large number of snack discount stores, it has caused a huge impact on distributors' revenue and profits. Currently, transforming to B2B will be a rare opportunity for traditional distributors to adapt to market development! In the current stock market, future competition will intensify, and the direction to turn in competition is—service. Facing brand owners, the service that traditional distributors can provide is more likely distribution. This includes product placement, product shelving, product display, distribution rate, new product promotion, and sell-through, etc. Facing mom-and-pop stores, what are their pain points? They need better sources of goods and more convenient supply chains to solve their one-stop procurement problems. Providing good service here will be a blue ocean within the red ocean market. How to provide good service to small stores? Take Hecai Trading as an example: the platform has over 4,200 SKUs, serving over 4,000 small stores, with cash settlement and zero credit period. In the past, we sold whatever the brand had; now we sell whatever the customer needs. In the past, the manufacturer had the final say. Now, we have the final say—as long as you serve the small stores well. To do small store business well, Luo Kai summarized four points:
First, respect, regular visits, and zero loss for stores are the foundation of doing business. Second, have first-tier traffic brands so customers are willing to cooperate with you. Third, select profitable products to bring profits to yourself and customers. Fourth, user thinking: sell what small stores need. How to achieve this? Hecai Trading has three major centers: product, sales, and warehousing and distribution, with five major product categories. When they first started the platform, 40% of products were from distribution agency, and 60% were sourced from elsewhere; now it's the opposite. With a 5,000-square-meter warehouse and a 23-person B2B business team, the annual per capita output is 6 million yuan, with cash on delivery and excellent cash flow. Building a "Trading Version" B2B In the live stream, when discussing how they embarked on the path of B2B transformation, Luo Kai shared his personal journey. Why did they do this when the time wasn't mature? 1. Supply chain revolution This includes private brands, hard discount stores, BC-store chains, and platform distributors. The goal is to reduce operational links and lower operating costs through "de-distributorization." Retailers directly connect with manufacturers, with no intermediate costs, thereby reducing procurement costs. This greatly compresses the living space for traditional distributors, forcing them to find new ways to survive. 2. Growth in scale has peaked When our business volume approaches 100 million yuan, we find that there are very few major brands in the snack category. Even if you can take on a major brand each year, it only brings in about 10 million yuan, which is only a 10% growth in your company's scale. When the business volume is around 50 million yuan, you can definitely rely on taking on brands to increase business volume. But once the business exceeds 100 million, without crossing categories, it's difficult to achieve significant growth in company sales. 3. Low personnel efficiency When it comes to serving small stores, the biggest cost is labor. A salesperson is responsible for 200 stores, with monthly active visits to 70-80 stores, achieving sales of 50,000-100,000 yuan. In addition, staff turnover is high; you recruit all year round, but for every five hired, four leave. Taking over the market and providing service is thankless. Ultimately, when calculating personnel efficiency, labor costs alone account for 7-8 percentage points. 4. Dumping and cross-regional sales disrupt the market As agents for brand owners, traditional distributors need to maintain the price system of the city market. At the same time, we leave profit margins for secondary wholesalers. But they take the goods and sell them everywhere, and we still have to provide after-sales, promotional support, and maintain the market price system. In the end, it's the secondary wholesalers who benefit, and traditional distributors become the scapegoats. Facing the above dilemmas, Luo Kai couldn't solve them "internally," so he had to "learn externally." Through visits, learning, and exchanges with peers, he refined his business model and officially entered the B2B field in 2021. At the beginning of the B2B transformation, Luo Kai asserted: We are doing a "trading version" of B2B. Because in Luoyang, Hecai Trading is the agent for the entire city, with omni-channel coverage. Now with small stores added, it's equivalent to a city-level supply chain. On one hand, it serves brand owners with traditional trading business; on the other hand, it serves thousands of small stores with B2B business. Now, how to do the "trading version" of B2B well is a key research direction for Hecai Trading. "Wise Strategies" for Transformation During the transformation process, whether at the thinking level or the execution level, there are many points worth noting. The following are very instructive. First, transforming to B2B must be a top-priority project. One viewpoint to emphasize: the value of brand owners is the same as traditional offline business; it still determines your development speed (scale expansion) and depth (profitability). In the early stage, you can exist in the form of sourcing goods, but later you must obtain distribution rights for more brands. Second, only do cash flow business. Some distributors, in order to quickly develop the platform, allow a controllable credit period when expanding stores. This is obviously not feasible. First, profits cannot support it. The core of B2B is the rapid turnover of products, and the core of profitability is also cash flow. Second, it must be distinguished from traditional business models. It should be clearly prohibited from the beginning. Once the gap is opened, it will become increasingly troublesome in terms of team management and debt collection. Third, don't engage in unreasonable price wars. When two platforms start laying out B2B simultaneously, customer acquisition and increasing customer stickiness become particularly important. At this time, the simplest and most harmful method is the so-called strategic loss behavior, burning money recklessly to bring down the other party. Here's a reminder: anything that violates business logic will not last. If the other party is doing it, the best approach is to stay still and respond. Their three moves will soon be exhausted. Just think about the countermeasures after they are done. Many platform companies make similar mistakes; take warning from them. Fourth, position yourself well. Doing B2B is not simply moving offline products online. Although they are all FMCG, the business logic is quite different. For example, in terms of categories, food and beverages are high-coverage, high-turnover, high-attention products, while paper and hygiene products are high-coverage, low-turnover, low-attention products. Their operational requirements and logic are quite different. How to select products for B2B is a form of positioning. Without positioning, you'll grab everything at once. The business volume may look high, but due to a lack of core competitiveness, it's mostly inflated and cannot withstand storms. As soon as others attack, it collapses immediately. Results of the "Trading Version" B2B When talking about the changes after the B2B transformation, Luo Kai shared five points: 1. Feedback effect When doing traditional trading, some brands were not taken on because there were many choices. But after doing B2B, the mindset changed from traditional trading to supply chain thinking, considering more from the consumer's perspective what products to take on and sell. It also provided market information to our traditional trading business, feeding back to hypermarkets and supermarkets. 2. Significant increase in turnover rate Doing B2B means no debt and zero credit period. With a certain e-commerce mindset, there are procurement, operations, and sales teams. Traditional trading business turns over three to five times a year, but now B2B can achieve twenty turns or even higher in a year. 3. Surge in customer numbers Currently, the monthly active stores on Hecai Trading's B2B platform exceed 3,200. As a distributor, there are many promotional and operational actions you can take, which also enhances our competitiveness with brand owners. 4. High personnel efficiency In traditional trading, a salesperson's stable output is typically in the range of 50,000-100,000 yuan, with labor costs accounting for 7-8 percentage points. But in B2B, the baseline for Luoyang Hecai is 500,000 yuan per person per month, which is 6 million yuan per year. 5. Focus on customer experience and improve service quality Only by truly doing B2B can you understand what a supply chain is and truly become a service provider. How to quickly meet the survival needs of these thousands of small stores, how to achieve "more, faster, better, and more economical," how to ensure that customers order today and receive tomorrow, and bring improvements in store efficiency and personnel efficiency. This is the way to do your own business, and it's where your value lies. It's also the basic capability for the survival and development of distributors today. Final Thoughts Due to space limitations, Luo Kai's practical experience and insightful thinking cannot be detailed one by one. Currently, many distributor bosses are actively exploring B2B transformation. Some have been transforming for one to two years or even three years, but their business growth has stalled or they have fallen into losses. Blind exploration does not bring good results; it may only cause you to step into more pitfalls. Lacking professional knowledge and a learning attitude, and being trapped in traditional ways of thinking, you can only sink deeper. Instead of working behind closed doors, it's better to learn to "borrow strength." To help more distributors successfully achieve B2B transformation and achieve rapid growth in sales and profits. Teacher Li Feng, Dean of the Distributor Academy, will organize an in-depth study tour on February 27, visiting Luoyang Hecai Trading to have in-depth exchanges with Mr. Luo Kai and experience the changes brought by digital transformation—the B2B platform—to distributors. At the same time, Yuan Lai, Chief Content Officer of New Distribution, will share his insights and conduct in-depth interviews with distributor friends from various regions. In addition, Teacher Li Feng, Dean of the Distributor Academy, will hold an additional salary and performance landing growth course in Luoyang, Henan on February 28. Main topic: How to scientifically design salary and performance? (Including salespeople, department managers, and logistics drivers) Salary and performance are the key to profit growth. How to activate personnel and make employees work for themselves? How to distribute money well and use people well? How to align employees and bosses on the same side? How to solve the problem of logistics drivers not putting in effort? Hands-on teaching, focusing on sharing specific implementation methods for salary and performance design. Let you come with questions, leave with solutions, and use them immediately upon return.