A viewpoint recently caught our attention: in the next 5-10 years, 70%-80% of small and medium-sized enterprises will be cleared out. Reflecting on New Distribution's coverage and observations of distributors over the past year, we are convinced of this. From a macro perspective, the market has entered a phase of 'grabbing the pie,' where sales growth is not made but fought for. In the existing market, there will inevitably be winners and losers, and the most direct manifestation is the exit of distributors in the middle. Liu Run, founder of Runmi Consulting, once said: 'During the dividend period, there is no difficult business; once the dividend period is over, there is no good business.' This logic fits the distributor industry perfectly. In the past, distributors followed a good manufacturer; when the brand rose, the distributor naturally rose with it. That was the dividend. Now, although some brands are rising, few can lead distributors to 'get rich.' Facing the dilemma of 'no good business,' what should distributors do? Recently, New Distribution had a dialogue with Mr. Yu Xianjin, founder of Yangzhou Quehuoma Supply Chain Management Co., Ltd., a grain, oil, and seasoning distributor with annual sales of nearly 400 million yuan. How does he think about the distribution business? Besides seizing brand dividends, what else did he do behind the rise of his trading business? -01- Entering the Trading Business by Chance, 16 Years in the Industry Looking back at his distribution business, Mr. Yu told New Distribution, 'After graduating from university in 1998, I entered the chain store sector during its golden period, eventually becoming a store manager. Due to frequent business trips and a career ceiling, I chose to return home and start a business. My initial idea was to do something small; becoming a distributor was purely accidental.' Mr. Yu recalled that the first brand he took on was 'COFCO Fortune' (中粮福临门). Because the business was too small, he also took on 'Haitian' (海天). At that time, Haitian's business in Yangzhou was only a few million yuan. From 2003 to 2009, it was the initial stage of the trading company, reaching 30 million yuan in 6 years. After that, the company entered a fast track, with sales exceeding 100 million yuan in 2012. In 2015 and 2017, Mr. Yu spent 10 million yuan to acquire two local seasoning distributors, complementing his own channels and brands. Now, his distribution agency covers almost 80% of first-tier seasoning brands. Of course, besides following brand rises, he did another thing: splitting the company. -02- Splitting the Company: Let Professionals Do Professional Work Since 2012, Mr. Yu has been gradually stepping back from daily frontline business management by splitting the company. Note: the split here does not mean 'branch company,' but 'joint-stock company,' where he becomes a shareholder. Core employees who started the business with him become legal representatives and shareholders of the new companies. Currently, Mr. Yu holds shares in 4 trading companies: one mainly for grain and oil distribution, one for seasoning distribution, one for KA store channel distribution, and one for foodservice channel distribution. These four companies operate independently and are responsible for their own profits and losses. When asked why he split the company, Mr. Yu told New Distribution, Many distributors do not see it clearly, thinking that the business is all done by themselves, doing everything themselves, and having the final say in everything, which is exhausting. But in fact, many distributors overestimate their abilities. From another perspective, the more capable a boss is, the harder it is to grow. Realizing this, since I cannot do it, I use people. Let excellent employees come in, invest and take shares, let them do it, and make them the responsible entities. I only need to design the profit distribution mechanism in advance. Many distributors start as a husband-and-wife business. But once the initial stage is over, with employees and resources, they enter the stage of corporate governance. Due to the lack of effective coordination and division of labor between the couple, conflicts in business philosophy and inconsistent thinking lead to wavering in company operations, and growth is hindered. Whether it is profit distribution or family management, the essence is a management problem in the trading company. Distributors are good at business, but when they reach a certain scale, internal management often becomes a 'hurdle' for them. Many distributors do not realize this, thinking they are omnipotent: 'I can handle hundreds of store owners; how can I not manage a few dozen salespeople?' Mr. Yu gave an example: In 2016, we took on the distribution agency for 'Haitian' in the East China region for Walmart. As we all know, in recent years, affected by new retail and online e-commerce, KA store business has suffered a Waterloo. In the East China market alone, Walmart has closed stores from 89 in 2016 to fewer than 60 now. Even in such an environment, our business still maintains 15%-20% growth annually. This achievement is not natural growth, but by seizing others' business. In terms of category share, Haitian has increased from 37% to about 55%. This is the result of the business, but behind it, besides the resources given by the brand, execution is the key. Who executes and who coordinates? This is definitely not something a distributor can do alone; it requires teamwork. The core of teamwork is full authorization + profit distribution mechanism. -03- Layout of Warehousing and Delivery Business, Results in 6 Years While the trading companies were split off, Mr. Yu was not idle. In 2013, he separated the warehousing and delivery services from the trading business, making it independent and establishing a joint-stock company. Crossing from trading to urban distribution was undoubtedly starting from zero, a new venture. Mr. Yu said that from its establishment in 2013 to 2017, a period of 5 years, they continuously adjusted and iterated, changing the software system 5 times. By the end of 2018, through process reengineering, hardware and software replacement, and mechanism redesign, the urban distribution business gradually entered the right track. Mr. Yu told New Distribution, The 5-year adjustment period, from warehouse planning to hardware and software selection, was almost a round after round. To improve warehousing and delivery efficiency, we did not dare to be vague in our investment in hardware and software, such as 'Jungheinrich' electric pallet trucks and 'Chengpu Henghe' systems. Previously, logistics dragged down the trading business. The distribution business was growing rapidly, but logistics services did not keep up, especially during Spring Festival and Mid-Autumn Festival. A normal order took 48-72 hours to complete; during Spring Festival, it might take about 5 days. But now it is done in 12 hours, at most 24 hours, completely unaffected. Since 2018, besides serving the warehousing and delivery needs of other joint-stock companies, Quehuoma Supply Chain has gradually been integrating external socialized warehousing and delivery business. As the urban distribution business gradually enters the right track, Mr. Yu told New Distribution, 'Now we have not made money yet. Once it starts to be profitable, I will split it out and let more excellent people participate.' Mr. Yu's 'partnership' approach is not only limited to splitting the company; in the delivery link, Quehuoma Supply Chain cooperates with professional third-party 'contractors,' where one contractor manages 10 vehicles and drivers. Know what you can do and what you will do. Leave things you do not understand or are not professional in to others. -Conclusion- Regarding the company's positioning, Mr. Yu told New Distribution that the future company will focus on three business areas: First, focus on the circulation trading business of the seasoning category. Through company splitting, introduce 3-5 more companies, and through incubation and competition mechanisms, continuously increase the distribution share of the seasoning category in the local market. One company cannot 'swallow' the entire circulation seasoning market; Second, focus on seasoning distribution in the foodservice market. Seasoning distribution in the foodservice channel is more certain than in the circulation channel. Sichuan restaurants need Sichuan-style seasonings, Cantonese restaurants need Cantonese-style seasonings. In each sub-segment of seasoning, although the capacity is limited, when aggregated, they can create scale effects and thus establish market barriers; Third, focus on localized FMCG urban distribution business. Currently, Quehuoma has 3 warehouses with nearly 20,000 square meters. Besides serving its own seasoning trading business, by integrating resources and focusing locally, it will access more socialized orders, allowing more local distributors of other categories to settle in and providing them with integrated warehousing and delivery services. In Mr. Yu's view, in the future, in a regional market, there cannot be so many 'small and beautiful' trading companies. There will definitely be category distributors based on vertical categories, deeply cultivating terminal markets, providing terminal services for upstream quality brands, and obtaining more profits through the product structure under the category.