Introduction: "I am now in my 50s, just starting to embrace the internet and cooperate with the post-90s generation. I may not be a success, but I can be called an inspirational example." Di Xinzhong, founder of Huitengda, said with a smile. "We chose to embrace the internet and changed our previous business model. Although this path is painful, I will continue to walk it unswervingly."

Hengsheng Department Store is a trading company in Xinyi City, under Xuzhou, specializing in general merchandise. In 2016, Hengsheng established a subsidiary, Huitengda Network Technology, focusing on a localized B2B platform for general merchandise. Recently, New Distribution interviewed Di Xinzhong, founder of Huitengda, to see how this traditional businessman with nearly 25 years of experience has transformed step by step to where he is today.

Hengsheng Department Store's Differentiation Strategy

Di Xinzhong started with stationery in 1993 and spent nearly 10 years to become the local market leader in stationery, with annual sales reaching 3-4 million yuan. However, due to the limited category scale, sales hit the ceiling of market capacity.

By 2005, Di Xinzhong began to enter the general merchandise sector. Unlike other general merchandise distributors at the time, he chose to represent well-known brands such as Paradise and Grace. Di Xinzhong recalled, "In that environment, there were products without brands everywhere, with low prices and counterfeit goods rampant. As a new entrant, we had to adopt a differentiation strategy, starting with branded products."

Di Xinzhong's differentiation strategy was also reflected in his business operations. After entering the general merchandise sector, he found the market to be vast, with every supermarket needing general merchandise. However, all distributors were "sitting merchants," waiting for business to come to them. At that point, he changed his approach: he offered free delivery to supermarket owners. "You pick the goods, and I deliver for free." Later, when other distributors "learned" to deliver, Di Xinzhong decided to take the initiative and go door-to-door, doing vehicle sales.

Soon after vehicle sales began, new competition emerged. More and more distributors adopted vehicle sales, especially family-run operations. Di Xinzhong told New Distribution that these family-run distributors had a significant impact on his business. He gave an example of selling gloves: the purchase price was 6.5 yuan per 12 pairs, and he supplied small shops at 7 yuan per set. A distributor (family-run) supplied at 6 yuan per set, with the same glove quality. The shop owner would compare and think the other's goods were cheaper, so they would buy from him, but the distributor would limit sales to only 5 sets. Through such loss-making sales, he would then promote "Nanfu batteries": purchase price 0.8 yuan per piece, wholesale 1.6 yuan per piece, 60 pieces per box, earning 48 yuan per box (genuine price: purchase 1.6 yuan per piece, wholesale 1.7 yuan).

Facing chaotic competition from peers, Di Xinzhong did not choose a head-on price war but further changed his business model, moving from vehicle sales to order-taking visits. At this time, the internet was also sweeping across the country, the era of huge profits in general merchandise had passed, and channel layers had been compressed to the bottom. Coinciding with these two points, Hengsheng Department Store transformed to adopt an order-taking plus platform ordering model.

Hengsheng expanded its product categories and implemented business order-taking, starting with WeChat ordering, then a brief PC attempt, and now mobile real-time ordering. Di Xinzhong lamented that from 2005 to 2016, Hengsheng had been changing its business model over these 10 years, from sitting merchant to traveling merchant, then to vehicle sales, and finally to order-taking and platform building. Along the way, seeing shop owners ordering from our platform at 9 p.m., and seeing JD.com and Alibaba promoting online platforms, we became confident that our path was correct.

Building a General Merchandise Procurement Platform

Currently, Huitengda has over 6,000 general merchandise SKUs online, meeting the one-stop procurement needs of small and medium supermarkets. It has a warehouse area of 3,000 square meters, 6 business staff, 9 vehicles, covering nearly 2,000 outlets, and achieved sales of 30 million yuan in 2017.

Due to the relatively longer turnover cycle of general merchandise compared to FMCG, Huitengda adopts centralized regional delivery rather than route-based delivery. Currently, it achieves one delivery per day in urban areas and one delivery every two days in townships.

Sales staff have changed roles to become store procurement specialists. In the past, what a store owner sold depended entirely on the owner's experience or what the salesperson pushed. Di Xinzhong gave an example: once a newly opened store ordered Paradise umbrellas. The salesperson, to meet sales targets, ordered every grade, but after half a year, the mid-to-high-end umbrellas couldn't be sold and had to be returned. Now, Huitengda classifies stores into A, B, C, and D categories based on historical sales data, using the price range of washing and care products as the standard. For different types of stores, salespeople provide targeted procurement suggestions to store owners.

Di Xinzhong stated that regarding the order quantity for outlets, we implement a zero-inventory strategy: goods are directly placed on shelves upon arrival. Even when supplying mid-to-high-end products, we control the order quantity, and owners are willing to try because high prices mean high gross margins.

Di Xinzhong frankly told New Distribution that as Huitengda continuously optimizes customer experience, costs rise correspondingly. Although sales growth is obvious, the cost increase is also significant. It is understood that Huitengda's basic backend system and outlet pipeline have been initially completed. The main source of cost increase is the delivery cost per vehicle. The low turnover of general merchandise leads to limited order density per vehicle, coupled with low product value, resulting in higher fulfillment costs per vehicle.

Currently, Huitengda is actively contacting other distributors, piloting in surrounding townships, inviting other distributors to join the platform, and unifying delivery for township orders to share costs.

Value-Added Services: From First Cooperation to Monthly Orders of 70,000 Yuan

In addition to inviting other distributors to join the platform to reduce costs, Huitengda has launched special services for township and village supermarkets to strengthen cooperation stickiness and increase the share of general merchandise procurement. These services include professional assistance in product display, product assortment, and product selection.

According to the project manager, Mr. Chen, township and rural small supermarkets currently have no concept of product display; they don't know what products should be placed in what positions, what golden display is, let alone aesthetic displays or special displays. In terms of promotions, a township supermarket of 400-500 square meters may have been open for over a decade without ever having a special price or a promotional event. They rely on business from relatives and friends; a product priced at 5.5 yuan might be sold for 5 yuan to acquaintances, and there are no price tags. In terms of product selection, taking Head & Shoulders as an example, from 200ml to 700ml, with different specifications and fragrances, they don't know which one sells well. The owner only knows Head & Shoulders sells well, and when the salesperson replenishes, they don't pay attention, easily leading to slow-moving inventory.

To address these issues, Huitengda has provided corresponding solutions, offering a series of services for stores. Mr. Chen told New Distribution that Huitengda uses a combination of low- and mid-range products to place corresponding high-margin products in golden display positions to enhance store profits. Mr. Chen gave an example: a month ago, a store learned that Huitengda could provide free shelf-stocking services and contacted us. On the first day, we helped organize the washing and care product shelves, greatly improving the visual display. The next day, the owner contacted us again to help organize the general merchandise category. Through these two services, this store, which had no cooperation before, ordered 70,000 yuan worth of goods in April alone.

It is reported that this value-added service project for supermarkets has been piloted in five township stores, with positive overall feedback. The word-of-mouth effect among township and village supermarkets can help Huitengda accelerate the depth of service to township supermarkets. The project manager told New Distribution that in the future, such services will be standardized, making salespeople not only salespersons but also product managers. Through this approach, the depth of cooperation between stores and Huitengda will be enhanced, further increasing the proportion of orders placed on the platform.

Final Thoughts

The above is a real transformation case of Xinyi Huitengda. Huitengda is still in the early stage of transformation. The basic online ordering platform has been completed, and they are now focusing on warehouse expansion. Huitengda uses its self-operated general merchandise category as an entry point, moving its existing business volume online, and running through the front-end and back-end business and operational models. Although delivery costs remain high, with the entry of other distributors and the pilot of unified distribution for township outlets, delivery costs will be further optimized.

In the past, New Distribution has always advocated that distributors transform into unified warehousing and distribution, with warehousing and business independent, and if you do services, don't touch transactions. However, looking at the current situation of distributors doing unified warehousing and distribution, most distributors are "unwilling" to completely separate their business, still hoping to continue their own business while expecting other distributors to join their warehousing and unified distribution.

Distributors have been in the product agency business for many years, and it is difficult to immediately end the agency business and switch to warehousing and distribution services. In this context, New Distribution suggests that if distributors retain their own business at the current stage, they should avoid their own operating categories during the recruitment process and implement differentiated recruitment to dispel the concerns of "interception" by potential partners. For example, Huitengda currently operates in the general merchandise category, so when recruiting, it can prioritize distributors of snack foods and beverages. At the same time, in terms of cooperation fees, do not cooperate in the form of commissions to avoid falling into the trap of becoming a secondary wholesaler. Instead, start by reducing warehousing and distribution costs, and first help potential partners calculate their warehousing and distribution costs.

In reality, no matter which transformation method a distributor chooses, the first step is to complete their own infrastructure. Before recruiting others, they must first run their own business smoothly within the operational system. If their own business is a mess, how can other distributors be willing to follow them? Huitengda, through nearly a year of constant negation, adjustment, and optimization, has finally formed a self-operating system that works well. In the process, they promoted the platform by selling their own products, gradually forming ordering habits among terminal owners, and then turning the outlets that distribute their products into platform outlets. Only by perfecting the product distribution pipeline can they convince other distributors to share outlets while saving distribution costs and increasing sales opportunities.

If distributor friends are interested in the transformation case of Xinyi Huitengda, you are welcome to add the author's WeChat for communication.

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