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The "horizontal" here refers to horizontal expansion and development, meaning distributors should continuously enrich their brand portfolio and expand distribution business, engaging in multi-category and multi-platform agency distribution. Extending distribution business on the existing foundation, compared to cross-industry or cross-sector diversification or extension, not only reduces operational risks but also cultivates more business growth points.
The Chinese market is different from mature markets in developed countries; it has many, many opportunity points. These opportunities provide a huge platform for our distributors and dealers to expand horizontally. This not only cultivates more business growth points and achieves business scale effects but also increases the company's size and opportunities for independent corporate operations.
Digital China has consistently ranked first in China's IT distribution business for nine consecutive years. If you go online and look at their products, Digital China represents over 1,200 products, involving more than 50 brands including laptops, projectors, PCs, servers, consumer electronics, and accessories, both domestic and international well-known brands. This is how they utilize their backend platform to achieve diversification in distribution business, thereby ensuring the continuous development of their distribution business. So looking at their reports, in March 2006, revenue from the distribution segment alone reached over HK$10 billion, a 30% increase from the previous year.
For horizontally diversified enterprises, they must continuously improve their distribution business level based on channel integration, enhance their distribution capabilities and standards through professional distribution functions, and thus further expand the enterprise.
To this end, the author has summarized that horizontally diversified enterprises can enhance their distribution professional capabilities from 10 aspects to achieve distribution business upgrades.
The first is the relationship with existing manufacturers and partners; The second is the ability to develop manufacturers; The third is product operation capability; The fourth is financial capability; The fifth is logistics capability; The sixth is IT informatization capability; The seventh is after-sales service capability; The eighth is market promotion capability; The ninth is operational management capability; The tenth is cost and efficiency control capability.
Case Sharing: [Beijing Chaopi Trading Co., Ltd.'s Horizontal Expansion Path]
Speaking of Chaopi, a distributor friend in Beijing said: If Chaopi withdrew their distributed products from the market, the retail terminals in the Beijing market would have 60% of their shelves empty—regardless of the actual situation, this shows Chaopi's influence on the Beijing market. Beijing Chaopi Trading Co., Ltd. is the largest FMCG wholesale agency company in North China, mainly dealing in food, beverages, daily cosmetics, washing products, etc.
Currently, Chaopi has established cooperative relationships with over 300 well-known domestic and international manufacturers, including Nestlé, Moutai, Wuliangye, Jiannanchun, Arawana, Lotte, Wahaha, and Nivea, and has become the general distributor, general agent, or largest distributor for over 70 of them in the Beijing area. Its network covers large and medium-sized retail chains in Beijing and over 6,000 small shops in densely populated communities, and it has established a sales network centered on Beijing, covering the Bohai Rim region.
Compared to Chaopi's dominance in North China, other distributors often complain that their businesses cannot grow. Their reasons are simple: first, the enterprise scale is small, unable to bear market risks and capital pressure, so they prefer short-term, quick-return markets, focusing on products with fast capital turnover and higher profits, neglecting network building, making it impossible to grow; second, during development, their business philosophy lacks overall consideration, personnel quality is low, they cannot make targeted adjustments based on manufacturer conditions, and channel maintenance capability is poor.
Let's see how Chaopi, with annual sales of over 6 billion yuan, grew big.
Compared to other wholesale enterprises, Chaopi has obvious channel advantages and a relatively complete channel structure. This is mainly reflected in the following aspects:
First, supermarkets, which are Chaopi's foundation, with about 90% of sales coming from supermarkets and hypermarkets. Second, secondary wholesalers. As the general distributor, Chaopi covers restaurants, suburban counties, and untouched markets through over 100 secondary wholesalers, meeting manufacturers' distribution requirements. Third, mom-and-pop shops and convenience stores. As a comprehensive agency distributor, Chaopi's idea is simple: I set up the stage, and manufacturers perform. Chaopi has built four distribution transfer stations in the east, south, west, and north of Beijing, and willing manufacturers can share the resources of 4,000-5,000 mom-and-pop shops and convenience stores. In these three networks, Chaopi can find suitable sales channels for manufacturers based on their product characteristics and needs. However, with the rapid changes in channels, it also brings pressure to the developing Chaopi. With increasing categories and intensifying competition, they have begun to adapt to changes and continuously adjust their business strategies.
This is mainly reflected in the following five aspects:
- Independent Operation of Strong Brands
For years, Chaopi has implemented a divisional system, forming divisions based on major product categories such as alcohol, non-staple food, daily chemicals, beverages, and food. However, as competition intensified, more brands wanted to enter Chaopi's marketing channels, and strong competing products were unwilling to be placed under the same department. Chaopi did not want to offend customers, so they handed them to another department to operate, gradually giving rise to many subsidiaries under different brands.
The most representative is Nestlé. Nestlé continuously improved its brands, causing great inconvenience to Chaopi's category management. Chaopi simply spun off several of its products and established a subsidiary to operate Nestlé products independently.
Some independent subsidiaries were established at the manufacturer's request, such as Nivea. When this department was first established, its business volume was only a few million yuan. The manufacturer hoped Chaopi would form an independent team, with the manufacturer providing certain investments such as basic employee wages, field rewards, market promotions, and expense support. After evaluation, Chaopi felt this was a brand with potential and thus established a dedicated Nivea department. After two years of operation, the department's sales reached nearly 40 million yuan.
Independence benefits both manufacturers and distributors, but operating any independent brand requires high costs, and wishful thinking won't work. For a wholesaler to independently operate a brand, they must ensure that market growth is sufficient to support the department's development. Therefore, Chaopi mainly examines three aspects: whether the manufacturer has sufficient market share; whether the product has certain sales volume; and whether it can receive the manufacturer's attention and support.
To date, Chaopi has 11 subsidiaries and 6 operating departments. Rapid brand fission not only allows for more detailed brand management and more professional field staff but also gains more manufacturer support.
- Refined Management
Chaopi's rapid development is well known, as can be seen from the market performance of its agency brands: Erguotou over 200 million yuan, Jin Liufu over 100 million, Huaxia dry red nearly 100 million, Luhua oil and Arawana oil with over 90% market share in Beijing, 7 international infant formula brands, famous chocolate brands (Cadbury, Nestlé, Ferrero)... It can be said that Chaopi controls its market with enormous brand pull.
The sales pull of big brands on Chaopi is increasingly evident, mainly from two aspects: first, tapping the existing market of well-known brands, such as newly opened stores, making the market finer and deeper to drive sales; second, new product varieties derived from well-known brands, greatly boosting market share. However, market development costs are increasing, and it is increasingly difficult for new brands and varieties to develop rapidly in local markets. Therefore, refining management of key brands has gradually been put on Chaopi's management agenda. The original divisional management has begun to shift toward flat management, with the goal of making business more refined. Under the original system, salespeople had to handle settlement, promotion, shelf restocking, and market maintenance—multiple tasks for one person.
But everyone's energy is limited, and often they can't attend to everything, resulting in rough work. Performance evaluation for sales staff was based on settlement; no payment meant no income. So they focused most of their energy on settlement, neglecting store tracking, making sales processes difficult to control. Therefore, Chaopi began to further clarify frontline division of labor: settlement staff only handle settlement; salespeople are responsible for promotion and in-store negotiations, coordinating promotional activities with retailers; salespeople have restocking staff under them to execute specific promotions, orders, and check for stockouts. This detailed division of labor greatly improved in-store terminal service capability. Additionally, Chaopi also made professional divisions for brands.
Previously, "only results at year-end, not the process" had greatly affected category management efficiency. Now, they estimate the annual target for a certain brand, and based on product characteristics and different seasons, break down sales targets into monthly and then per-store targets.
Each store has different sizes and different demands for individual SKUs. For example, Nestlé's 300 SKUs may not be suitable for every store, so Chaopi sets standards, and salespeople list display standards and SKU stocking standards for their assigned stores. Then, salespeople know how much to sell this month, what their business targets are, which stores help break down their targets, and what products each store should stock. Every quarter, salespeople also review sales performance with manufacturers and retailers.
- Distribution Chainization
Following the old approach, wholesalers only needed to obtain agency rights for the Beijing area. Starting in 2004, for three reasons, Chaopi began to look beyond Beijing.
Chaopi is affiliated with Hong Kong-listed Jingkelong Group, which imposes higher performance requirements—it must consolidate the Beijing market and expand to surrounding areas.
Following the rapid expansion of major hypermarkets, Chaopi needs to radiate to regional markets.
The company's rapid development also requires more network support. From the agent's perspective, the longer the tentacles, the firmer the foundation.
But can regional agents expanding to other regions get manufacturer support? Because manufacturers have already divided operating regions, selling Beijing goods to Tianjin will inevitably create conflicts. Therefore, Chaopi's current strategy is to strive for the North China general agency rights for a product, avoiding future market clashes and frictions.
In recent years, they have successively established branch companies in Tianjin, Shijiazhuang, Tangshan, Jinan, Qingdao, and other Bohai Rim economic circle cities, basically replicating the Beijing market business model. Chaopi's ideal is to create a new wholesale chain business format in the future.
- Advanced Information Management
Fully utilizing advanced information technology to improve the entire supply chain management level is one of the key factors in Chaopi's success. As early as 2001, Chaopi cooperated with Beijing University of Technology to develop an enterprise management information system, achieving internal information exchange and unified procurement settlement and warehousing distribution. As the system developed further, Chaopi realized that information technology could further deepen the entire supply chain process, so they upgraded the system to an ERP-based e-commerce platform and took the lead in developing a "3G" mobile marketing management system, achieving "electronic document exchange with major suppliers and customers, integrating internal business with external transactions, and gradually realizing modernized operation of the entire supply chain process." The application of electronic labels enabled Chaopi to successfully meet the requirement of 7-11 convenience stores for delivering assorted goods to stores.
Chaopi leverages its strong information collection and processing capabilities, through analysis of various data on products and their marketing, from product selection, purchase analysis, promotions, and even product display, to vigorously cooperate with production suppliers to complete detailed marketing models, collaboratively carrying out multiple marketing strategies around manufacturers and stores. It must be able to tell suppliers what market demand looks like and also tell retail terminals and even public consumers which products are most suitable.
- Strong Logistics Service Capability
It is reported that Chaopi has a modern logistics distribution center integrating warehousing, processing, sorting, picking, and transportation. While meeting its own logistics distribution needs, it has established third-party logistics service cooperation relationships with multiple manufacturers, with distribution coverage including Beijing, Tianjin, Hebei, Shanxi, Shandong, Inner Mongolia, and other regions.
Chaopi's warehousing area is nearly 200,000 square meters, with 160,000 storage positions, a daily maximum throughput of 600,000 cases, storage capacity of 8 million standard cases, and an annual throughput of 90 million cases. The two automated sorting lines, rare in China, are a Chaopi specialty, enabling automatic sorting of 9,000 cases per hour, maximizing distribution and sorting speed, reducing labor costs and outbound error rates, and reducing product damage from manual handling.
Over the past 25 years, Chaopi has formed a three-in-one enterprise form integrating wholesaler, distributor, and logistics provider, mutually supporting and integrating, creating a Chaopi-featured industry development model, and introducing a large number of well-known brands familiar to the public to Beijing's sales terminals.
(Source: China Marketing Communication Network)
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