In recent years, as market conditions have changed, distributors' businesses have become increasingly difficult, and to survive, many distributors have begun exploring new paths for transformation and upgrading. New Distribution has published multiple articles on this topic, with transformation cases emerging one after another, such as B2B, opening snack stores, and so on. In fact, trading has never been an easy business; each era has its own difficulties. Twenty years ago, many distributors were already struggling with limited growth and sought transformation, but few succeeded. This article brings you the successful story of a veteran who has spanned the FMCG industry for over 20 years, transitioning from distributor to retailer.
"I started as a distributor in 1999, representing beer, beverages, condiments, and other categories. By 2004, I realized that the distributor model was unsustainable for growth and began exploring transformation," recalled Li Xinmin, Chairman of Youtong Convenience Store. "Should distributors transform into retail? Why convenience stores?" These questions still trouble many distributors, but Li Xinmin provided a brilliant answer years ago.
Since the transformation, Li Xinmin has experimented with community stores and convenience stores. To date, Youtong Convenience has over 500 stores covering multiple regions in East China. With an intelligent warehousing and logistics system, it has warehouses in Jinan, Qingdao, and Huai'an, achieving integrated warehousing and distribution with an annual distribution capacity exceeding 500 million yuan.
Li Xinmin has had novel ideas and judgments at every stage, and his thinking will surely inspire distributors and retailers. He took the initiative to revolutionize himself and proactively seek change.
After the era of department stores, mom-and-pop shops prevailed in Qingdao. Li Xinmin's distributor business started with orders from these shops and later cooperated with local hypermarkets, and business was good. In 2003, the first Carrefour opened in Qingdao, bringing a new shift to the market. "What impressed me deeply was that Carrefour opened a hypermarket on Hong Kong Road, and business was booming. When I visited, I saw over 20 cash registers, each with a queue of 20-30 people," Li Xinmin shared. The mom-and-pop shops, which had no competitive pressure before, felt an unprecedented crisis, and soon those within a kilometer of Carrefour struggled to survive. If mom-and-pop shops were affected, the distributors supplying them would also be impacted. Li Xinmin began to sense that it might be difficult to sustain and grow the distributor business.
In the following years, the hypermarket format exploded, confirming Li Xinmin's thoughts. Today, in Qingdao, there is almost a hypermarket every 15 minutes' drive. However, the rise of a new format alone was not enough to solidify Li Xinmin's decision to switch; what was frightening was the chain reaction it triggered. With the entry of foreign hypermarkets like Carrefour, local hypermarkets and supermarkets followed their model, introducing fees such as entry fees, display fees, and promotion fees.
The inherent drawbacks of the distributor business model were obvious: they paid cash for goods from manufacturers, supplied to supermarkets, and supermarkets settled accounts only after 2-3 months. To expand scale, strong capital support was needed, and with the various fees demanded by supermarkets, the distributor business became increasingly difficult. Charging fees by hypermarkets is now common practice, but for distributors at that time, it was a huge change. Most distributors chose to adapt to the new rules, but Li Xinmin had his own judgment: the distributor business was unsustainable, and he needed to proactively change!
Staying true to his original intention, he stumbled through the transformation. After clarifying his thoughts, Li Xinmin started to set up warehouses and transform into retail. In 2004, he opened his first community supermarket, focusing on fresh produce. With a 200-square-meter store, daily revenue could reach over 10,000 yuan, and annual profit exceeded 100,000 yuan, a small success. When Li Xinmin wanted to expand and realize his ambitions, he discovered new problems: the community store model was not sustainable or replicable.
First, it was difficult to manage. At that time, community supermarkets often had rented stalls for fresh produce vendors, and Li Xinmin's supermarket was no exception. The rented stalls were hard to manage and develop together, such as hygiene issues. The store's salesclerks were mostly young women who couldn't manage the older vendors, and they even had to clean up after them. When business was good, the vendors were too busy to clean; when business was bad, they didn't clean either.
Second, there were uncontrollable risks. A community supermarket owner only needed to rent a 300-square-meter space, and if the rent was 150,000-200,000 yuan, the subleased stalls could cover the rent, effectively allowing them to open a supermarket for free. If the location was good and business thrived, everyone would compete for stalls; if business was poor, everyone would leave, and the owner bore all the risks.
For better development, Li Xinmin began trying convenience stores, with the first one operated by a relative. At that time, the domestic convenience store format was not yet mature, and the first year was loss-making. The initial failure did not discourage Li Xinmin; he firmly believed that convenience stores were a sunrise industry.
After reflection, Li Xinmin realized that his store's high prices and business hours from 9 am to 10 pm were the reasons for few customers, with no profit advantage. The second year, he took over operations himself and adopted a 24-hour model, and sales gradually improved. The brief success did not make Li Xinmin complacent; instead, he persistently learned from others, such as studying 7-Eleven and Lawson's models in Japan and seeking advice from peers. Li Xinmin believes that each convenience store has a different positioning; although they sell similar products, they offer different experiences to target consumers. Convenience stores seem to compete with each other, but in fact, they develop in parallel.
Therefore, one should not view peers as competitors but learn to coexist, learn from each other, and progress together. For example, 7-Eleven's entry into Qingdao provided an excellent reference for Youtong Convenience. Soon, during exchanges with peers, he discovered that fresh food products with short shelf life could drive higher customer frequency, but the fresh food supply chain was a major challenge. For regional local convenience stores, manufacturers are too far away, and fresh food has a short shelf life, making the supply chain inadequate. To improve the supply chain, Li Xinmin's team worked backward from the end to push suppliers. For example, the shelf life of store bento boxes is only 4 days, and they worked backward to control production and transportation times. To date, Youtong Convenience's fresh food generally takes no more than 12 hours from production to store entry.
Besides the supply chain, fresh food, as a high-frequency product, also requires attention to taste and quality. Therefore, Youtong Convenience places special emphasis on fresh food selection. All fresh food products are carefully chosen. For instance, the rice in bento boxes was selected after trying multiple production areas and suppliers, finally settling on a rice from Northeast China that is crystal clear and chewier. Consumers are increasingly hard to fool; only with thoughtful products will they continue to buy.
New rival—snack stores—are making a strong entrance. How does Youtong Convenience respond?
After the initial stage, Youtong Convenience caught up with the industry's peak period, with almost no competitive pressure. As the incremental market shifted to a stock market, competition among convenience stores intensified, but no matter the competition, they never engaged in price wars. In recent years, snack stores have broken through with low prices and unique features, disrupting the market ecology. Originally, a 2-yuan bottle of water dropped to 1.2 yuan, and a 6-yuan bag of chips dropped to 4 yuan... The novel store decoration and low prices contrasted sharply with high-priced convenience stores. Wherever snack stores appeared, convenience store sales declined severely, forcing them to face price wars, and Youtong Convenience was no exception.
In response, Li Xinmin has been optimizing the company while actively fighting against snack stores, maintaining an optimistic attitude toward the future. In terms of optimizing the enterprise, Youtong Convenience adopts cost reduction and efficiency enhancement. By continuously promoting direct sourcing of best-selling brands to reduce costs, it has shifted from 100% distributor supply to 40% direct sourcing. By differentiating fresh food categories to increase customer visit frequency, it achieves efficiency gains.
In directly confronting snack stores, some of Youtong Convenience's highly competitive stores have tried adjusting price bands to benefit consumers. However, selling water that should cost 2 yuan for 1.2 yuan cannot support the terminal operating costs of convenience stores. Youtong Convenience chooses to negotiate with popular big brands that also cooperate with snack stores, while accelerating the development and launch of private-label products to improve the product mix and ensure operating profits. A senior executive at Youtong Convenience stated that the era of high gross margins for convenience stores is over, and changes must be made.
In the future of the retail industry, which path will work is still being explored. The future retail format will only become more brutal and intense! Li Xinmin has a clear understanding of this. From distributor to retailer, he has encountered many difficulties and obstacles along the way. He never hesitates and always combines his own situation with industry trends to identify problems and solve them ahead of time. This time, facing the challenge of snack stores, he also has his own judgment and choices. The process of survival of the fittest must be experienced. No matter how external competition changes, one must solidly manage the enterprise, such as how to deliver valuable products to consumers. In the future, Youtong Convenience will continue to expand its territory.
The blue ocean market for convenience stores is still vast. Currently, convenience stores in third- and fourth-tier cities are just emerging. Youtong Convenience has laid out its presence in Shandong and Jiangsu markets, entering nearly 20 cities with over 500 stores. Youtong Convenience is still on the road, continuing to strive, and the future is promising.
Final words: Is it feasible for distributors to transform into retail? The current market environment is gradually declining, and anxiety is spreading. Some distributors are just waking up, entangled and confused about whether to change and how to change. Whether optimizing existing business or directly switching industries, many distributors are unwilling to bear the cost of "change" and have too high expectations for the success cycle of "change."
In fact, there has never been a magic bullet that works immediately. Whether all "changes" succeed or are effective depends on whether the person can maintain keen thinking, discover opportunities in time, find the right direction, and continuously work toward it.
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