"This year's sales are expected to exceed 500 million yuan," Fan Xiaocai said calmly over the phone. There are many distributors with annual sales of 500 million yuan, mostly in first- and second-tier cities, controlling tens of thousands of outlets, with access to various channels and representing dozens of brands. But Fan Xiaocai is in Tongren, Guizhou, a 5th-tier city with a population of only 4.3 million. His trading company, established 8 years ago, has 12,000 retail outlets, yet sales have grown year after year. How did he do it? -01- Using Betel Nut to Pry Open the Door to Retail Outlets People in Tongren love betel nut almost as much as those in Hunan. In his early entrepreneurial days, Fan Xiaocai saw this market and became an agent for Kouweiwang betel nut, a brand launched in 2001 that has become a bestseller. Leveraging the brand's strength, he quickly got Kouweiwang betel nut into various outlets across Tongren. A human-wave tactic was the main reason Fan Xiaocai quickly acquired retail outlets. He told New Distribution that salespeople responsible for betel nut visit 50 stores daily. This high-frequency visiting maintains good relationships between outlets and the company, laying the foundation for future FMCG distribution. Within three years, his Kouweiwang betel nut covered 12,000 outlets in Tongren's urban and rural areas, with a sales team of 150 people just for betel nut. This human-wave tactic gave him a 70% market share for Kouweiwang betel nut in the Tongren region. -02- Establishing a Trading Company, Rapidly Expanding Staff and Products With 12,000 outlets in hand, he felt it was wasteful to sell only betel nut, so he decided to venture into FMCG. In 2012, he established a trading company and started a new entrepreneurial phase, leveraging the channels opened by betel nut to introduce FMCG products into outlets. In terms of product selection, he aims to add 1-2 first-tier brands each year to ensure competitiveness at the retail level, while also representing second- and third-tier brands as a source of profit. Currently, he represents over 80 brands, including C'estbon mineral water, Tsingtao Beer, Dongpeng Special Drink, Haoyiduo lactic acid bacteria drink, Beijing Erguotou, Master Kong, Wuqiong, Oreo, and Uni-President. His selection strategy is to choose only one first-tier product per category, with the rest being second- and third-tier products. Choosing only one first-tier product not only reduces capital occupation but also allows the manufacturer to provide more support. With products and channels in place, the remaining task is to connect them through salespeople. In 5th-tier cities, the eight-step visit process remains the standard procedure for every salesperson. In these cities, where customer relationships are paramount, a large number of salespeople are needed to maintain them. As the company's business grew, so did its staff. By 2019, the company had 200 FMCG salespeople, plus a 150-person betel nut team, totaling a massive 350-person workforce. Its business network has penetrated every corner of the Tongren region. How to ensure that hundreds of people move toward a common goal and that salespeople are proactive? He thought of equity incentives. -03- Establishing Employee Dividend Shares, Dividends Based on Sales, Not Profits Traditional distributor compensation systems mainly include base salary + commission and partner equity dividends. Base salary + commission is the most common method, where salespeople earn commissions by meeting KPIs. However, sales may decline as the market becomes saturated and distributor channels reach capacity, leading to reduced commissions and a higher likelihood of salespeople jumping ship. Partner equity dividends are typically incentives for partners in the trading company, benefiting mainly management, with little impact on salespeople. To better drive company development and give employees a sense of belonging, he designed employee dividend shares. The company calculates dividends based on annual sales, dividing the total annual sales by 0.2% (i.e., 2/1000) and then dividing by 40 shares to determine the dividend per share. Each employee can purchase up to 1 share. In 2018, each employee share paid out over 20,000 yuan. For management, Fan Xiaocai also set up corresponding dividend measures. First, managers at the department head level and above do not participate in employee shares; instead, they receive dividends based on their position allowances.
General Manager: Upon achieving the company's annual profit target, receives a 1.5% dividend;
Vice General Manager, Director: Upon achieving the company's annual profit target, receives a 1% dividend;
Department Head: Upon achieving the company's annual profit target, receives a 0.5% dividend;
Branch General Manager: Upon achieving the branch's annual profit target, receives a 10% dividend of the branch's profits; In terms of shareholding, the parent company's shares are held by the original investors. For branch companies, the parent company holds 51%, and the branch management team holds 49%. In this way, Fan Xiaocai's employees, on top of base salary and commission, receive year-end dividends by holding company shares. As sales continue to grow, the year-end dividends for each employee who invests also increase. Moreover, employees can also purchase shares in branch companies, with the share ratio based on the amount invested, and they also enjoy year-end dividends. This incentive mechanism fully mobilizes employee enthusiasm and aligns employee goals with the company's, which is the main reason for the company's sustained rapid growth over the years. -04- Reducing Costs and Increasing Efficiency: Building a B2B Platform in the Urban Area, Setting Up Forward Warehouses in Counties In addition to equity incentives, he also introduced a B2B platform from first-tier cities to Tongren, establishing a one-stop supply platform. He told New Distribution that to fully cover the urban market, the company set up six branch companies by region. While these six branches generated sales, they also incurred significant operational costs. Each of the six branches represents one product category, meaning a single retail store might be visited by more than six salespeople on the same day, all from the same company. This leads to duplication of resources and wasted manpower. To reverse this trend, in January 2019, he decided to build his own B2B platform, separating personnel and logistics. In the future, salespeople from the six branches will be responsible for retail customers in their respective areas, handling product display and after-sales service, while goods will be uniformly delivered by the B2B platform. With the launch of the B2B platform, sales in 2019 exceeded 50 million yuan, and operational costs significantly decreased. However, Fan Xiaocai told New Distribution that the success of a B2B ordering platform depends not only on the distributor's supply chain capabilities but also, more importantly, on the number of outlets the distributor has. In 5th-tier cities, the number of retail outlets is limited. If a distributor does not have enough outlets, it is difficult for the B2B platform to be profitable. It is precisely because of the 12,000 outlets in Tongren that Fan Xiaocai's B2B platform can be sustained. He views the B2B platform as a digital supply chain, rather than abandoning the traditional sales model. In the counties, he set up three branch companies and four offices to cover surrounding villages. Each branch or office has a warehouse. Some products are delivered from the urban company to the counties, while the rest are shipped directly from partner manufacturers to the branch warehouses. Then, through vehicles of each county company or office, products are delivered to village outlets using a mobile sales model. This reduces the company's distribution and operational costs. New Distribution Insights: The human-wave tactic and seizing retail outlets are the main models adopted by distributors in 5th-tier cities. Through high-frequency visits by a large number of salespeople, they increase customer relationships with retail clients. At the same time, to quickly seize outlets, distributors need to continuously increase sales staff based on outlet coverage. Distributors not only need people but also need to retain them, which requires a scientific and reasonable compensation system. In addition to the traditional base salary + commission, equity dividends might be a good approach. A large sales team and tens of thousands of outlets require distributors to invest high labor and operational costs. If labor costs can be offset by stimulating sales through a compensation system, then operational costs can be addressed by building an efficient supply chain model. For example, Fan Xiaocai uses B2B to build an efficient supply chain, allowing small stores to order through an app in one stop. However, for distributors in 5th-tier cities, to do B2B, they need to meet two conditions: whether they have a large number of retail outlets and whether they have a rich product portfolio. These are the considerations for distributors in 5th-tier cities. In addition to urban areas, rural regions are also key markets for distributors in 5th-tier cities. However, because sales outlets in villages are scattered, mobile sales remain the main model for product penetration. This requires higher operational costs, but rural sales are stable. If distributors have a reasonable product mix, they can still achieve certain profits. It is believed that with the development of the logistics industry and the continuous improvement of rural roads, perhaps in the future, the B2B model can cover villages. This is also a key area for Fan Xiaocai to explore in the future.