Preface: Before 2018, Zhicheng Trading in Linquan County, Anhui, was a multi-brand, cross-category distributor. After 2018, it successfully transformed into a single-category snack food supplier. Although sales experienced short-term fluctuations, net profit grew rapidly. Now, Zhicheng Trading has over 2,000 terminal outlets, 11 salespeople, 1,500 SKUs, with annual sales growth exceeding 30% and self-operated category sales growth over 100%. The following is the 'distribution development history' of Zhicheng Trading, as told by its founder, Mr. Wang Lei, on how he stood out among local trading companies and grew better and bigger. -01- Entering Food Sales by Chance My distribution business started with selling Wrigley's gum. I entered this industry by accident when I came across the food sector. At that time, I switched from an IT background to food sales, knowing nothing about it. I first learned about Wrigley's from a supermarket owner who said Extra gum sold well, but it was delivered by outsiders, and there was no local agent. I saw an opportunity and immediately called the manufacturer's 400 number, found the local sales representative, and asked if I could wholesale Wrigley's gum. To my surprise, the rep agreed without much hassle. [Note: Many years later, when I got familiar with the manufacturer's staff, they told me that they had no other clients at the time and were trying anything. They had found a few clients before, but none lasted long because the market was chaotic, and those who took on the product basically couldn't make money, quitting after a few months.] As a newcomer, I was fearless and jumped in without knowing the risks. Fortunately, Wrigley's products weren't hard to sell; although they weren't very profitable, many stores wanted them. Without market experience or sales skills, I just took the manufacturer's suggested retail price list and started hitting the streets. Initially, I visited stores one by one, feeling that each visit was another opportunity. Some quick customers ordered immediately, but many experienced customers thought the prices were too high and refused to stock up. After a few months, I realized the market had big problems: Prices were too transparent. Several wholesalers from Fuyang city were making rounds more frequently than me, about once a week. They used Wrigley's products as loss leaders to sell other products, basically not marking up Wrigley's at all. Facing this, I analyzed my strengths and weaknesses compared to theirs, hoping to find a breakthrough. After some thought, I had some ideas: they were mostly wholesalers from Fuyang city, with better customer relationships and lower prices, but they were farther from customers and sold a limited range of Wrigley's products—only the bestsellers like Spearmint and Extra at low prices, not the full line. Based on their 'tactics,' I devised a new sales strategy:

1. They visited on a 7-day cycle; I visited on a 3-day cycle.

2. They could offer discounts; I could too. Although these two or three products weren't very profitable, I could push more other Wrigley's products to make up the profit.

3. Once customers recognized me and the cross-region sellers saw they couldn't sell Wrigley's here and stopped competing, I would find a chance to raise prices. First get the market, then make money. This approach helped my Wrigley's business gain a foothold quickly, and from zero, it maintained 30% annual market growth in Linquan County. In October 2009, starting with only 50,000 yuan in startup capital, I grew the Wrigley's business to over 1.5 million in one year. During this period, I often exchanged experiences with peers in the industry, downloaded sales-related knowledge from the internet, especially courses and books by Teacher Wei Qing. Through learning and communication, I studied what kind of business I was in and how to better increase sales. Gradually, I realized that with my limited capital and rookie experience, I lacked many conditions for significant future growth. As the old saying goes, 'A gentleman is not different from others; he is good at using things.' So, I thought about finding a partner with complementary resources. I was lucky to meet my second sister (a wholesale customer during my Wrigley's days). She and a relative ran a trading company mainly dealing in Pepsi-Cola, plus some instant noodles, candies, and other foods. They had been in business for a year, but due to poor management, they lost most of their 600,000+ investment. They had only some Pepsi-Cola left in stock (from January), about 200,000+ yuan worth in October, and two vehicles, with only one still running the market, barely making any sales daily. I saw an opportunity. She had warehouse, vehicles, and money; I had nothing but market strategy (two tricycles and a Wrigley's distribution right). When I proposed cooperation, she quickly agreed. Since she had her own wholesale store, the trading company was managed by her relatives, and she didn't have much time to oversee it. Continuing as is would only increase losses, so cooperating with me gave her another option. Maybe we could sustain the business, or even do better. So, I moved my products into her warehouse, took inventory, divided shares, and we started cooperating. She basically left the company's operations to me, and I managed everything. -02- Entering the Growth Phase: Switching from Vehicle Sales to Route Sales With two first-tier brands like Wrigley's and Pepsi, I couldn't handle it alone. I started hiring people, dividing territories, planning routes, and scheduling visits. From 2009 to 2013, the business was small, so there was little internal management. Sales followed the 'deep distribution + vivid display' approach. At that time, business was easy; all major brands sold well as long as you did good distribution and display. During this period, I also took on Oishi, Red Star Erguotou, Uni-President beverages, etc. Basically, every product I handled grew year by year using deep distribution. Sales increased annually, and the warehouse moved from a 600-square-meter old factory to a new 1,200-square-meter one. In early 2014, it rained for months, and even summer had bad weather. Beverages failed completely, making growth difficult. That year, I handled three categories: food (gum, Oishi, and some small brands), beverages (Uni-President, Pepsi, and some small water brands), and alcohol (Huadiao wine and Tsingtao beer). Based on past experience, deep distribution plus vivid display should have brought good sales. But managing these products left me exhausted daily. With more products and higher sales, I was stretched thin, and managing brands became unbalanced. Fortunately, the snack food brands I had were still growing fast, requiring less attention, so I spent most time on Pepsi, Uni-President, and alcohol. However, despite the effort, sales and profits from beverages and alcohol were unsatisfactory. The vehicle sales model meant adding brands required adding vehicles and people, significantly increasing operating and management costs, and sales growth wasn't easy. Around that time, I saw a peer in Taihe County who had switched to route sales, which inspired me greatly. At first, I just saw it as a new idea. Although I didn't fully understand the fundamental advantages of route sales, I thought it could consolidate delivery vehicles across categories, reducing vehicle costs. Separating sales and delivery roles would allow each to focus on their job, improving professionalism and proficiency. I vaguely felt it was a good direction. In 2015, I spent the year evaluating new models while sticking with the old one. Although I dropped Pepsi to reduce distraction, After 2014 and 2015, I felt that continuing with vehicle sales had no future. Even if I got another big brand, I'd be overwhelmed. Vehicle sales increased sales by adding brands, but also brought more vehicles, personnel, and costs. Managing multiple brands and training new hires were problematic. I felt vehicle sales was no longer a model that could take the company further. In March 2016, after the reality of 2015 and repeated deliberation, plus seeing the Taihe peer's successful year of route sales in 2015, and learning about B2B companies through 'New Distribution,' I made up my mind to change. Initially, I switched from vehicle sales to route sales all at once. Except for urban KA and wholesale handled by one person, all other urban and surrounding township channels switched to route sales. The first three months of reform were critical, with new problems daily. Besides instilling the benefits and prospects of route sales in all employees, I also monitored issues daily. The biggest problems after switching were: 1. Conflict over sales commissions between sales and delivery staff. Salespeople complained that delivery staff just delivered goods without sales pressure and got half the commission without much effort, feeling it was unfair. Delivery staff thought salespeople just talked and didn't do physical work, didn't risk taking counterfeit money, yet also got half the commission, which was unfair. Both sides blamed each other, feeling the split was unjust. At this point, giving either side more would only increase the other's sense of unfairness. My solution: Since the conflict wasn't about the amount but the ratio, I changed the assessment method. The conflict was over the commission split because they had the same reference. I renamed the sales commission to performance-based assessment (bonus based on task completion rate, essentially still sales commission), while delivery staff kept their percentage of sales. Without the same reference, the conflict resolved. You wouldn't compare meters and kilograms, would you? 2. Payment collection issues after switching. Previously, with vehicle sales, two people per vehicle (a salesperson and a driver), unpaid debts affected both their wages. Now with route sales, salespeople were no longer linked to delivery drivers on the same route. After delivery, if customers made excuses not to pay (some genuinely couldn't), delivery staff would have them sign an IOU and hand it to accounting. Salespeople didn't know if payment was collected. After a month, I found debts had increased tenfold compared to before. I investigated and learned the problem. My solution: If a customer refuses to pay upon delivery, the delivery person must immediately call the area salesperson. After the salesperson communicates with the store, they decide whether to allow credit. If the salesperson agrees to credit, the delivery person brings back the IOU, and the finance department transfers responsibility to the salesperson, who must collect per company policy. If the salesperson deems credit risky, they can refuse, and the delivery person brings the goods back. 3. Merchandising issues after switching. In larger cities, delivery and sales are separate, and store owners or salespeople handle stocking and display. In smaller cities, especially small shops, owners are lazy and expect suppliers to do it. With two people handling one store, it led to shirking responsibilities. My solution: Company policy requires both sales and delivery staff to handle restocking and display. The company sends market inspectors for random checks, and those who didn't merchandise on the previous day's route are fined per store. For those frequently having issues in checks, they get more frequent inspections. For those reported by both sales and delivery as not stocking or merchandising, they are checked often. For those reported by customers, they receive serious criticism and heavier fines. These were just some of the issues from switching. Changing sales models, even with clear division of labor, theoretically should produce 1+1>2. In reality, if internal conflicts aren't handled well and mechanisms don't function smoothly, most cooperation results in 1+1<2. 'One monk carries water, two monks share the load, three monks have no water' is the common reality. Many models we think of look good, but when actually implemented, most people can't stick with it. It's not that the path is wrong, but that you haven't solved the problems along the way. After two years of adjustment (2016-2017), route sales went from being opposed by everyone (including manufacturers) to praised by all. Sales growth, better control over multiple brands and SKUs, and lower expense-to-sales ratio proved its benefits. The advantage of route sales is that after a critical point, the larger the scale, the lower the expense-to-sales ratio. -03- Shifting from Multi-Brand Distribution to Single Snack Food Category Distribution From 2015 to 2017, I attended many courses with New Distribution, saw many excellent distributor examples, learned about the new B2B sales channel, and made many mentors and friends in the industry. Several things in 2017 made me decide to change again, from a route sales distributor to a route sales category supplier.

  1. In 2017, some brands' 'new policies' required distributors to prepay all market expenses, increase deposits, cancel rebates, and cut staff, making me feel distribution risks were rising and profits falling sharply.
  2. In 2017, I went to Chengdu, Chongqing, etc., for learning. I saw Chongqing's Zhong's Jie Cang Wang Gou (focused on snack food distribution), Chengdu's Qin's Rong Cheng Yi Gou, and Jiang's Xing Ren Xing Trading, making me feel that the trading industry in the inland (north of Huai River) was approaching a major transformation.
  3. At the end of 2017, I attended Teacher Wei Qing's offline course, which deeply moved me. One sentence from Teacher Wei stuck with me: For distributors to make money, you must give up what you should give up. Clear out those brands and products in your warehouse that hurt profits, sales, and capital. Travel light. Besides these three things, learning with New Distribution broadened my horizons. I saw many innovative and growing FMCG trading companies, but also many distributors with rising costs and shrinking profits. These phenomena and cases convinced me that traditional FMCG distributors face another change. In December 2017, I made up my mind to give up all brands except snack foods, keeping only a few first-tier snack food agencies. I transformed from a multi-brand, cross-category distributor to a single-category supplier, starting this transition. I'm someone who likes to summarize the past when facing problems. Only by summarizing past strengths and weaknesses can I find the best path forward. Change isn't trivial; it affects everything, and a slight misstep could ruin the business. I've also seen many distributors who became martyrs for change. I'm a cautious person, so I don't touch things unless I'm 80% sure. Thoughts before the change: From 2009 to 2017, I'd been a distributor for many years, dealing with many customers and manufacturers, and meeting industry elites. I'd accumulated some successful experiences, but the future isn't the same as the past. Before choosing a new path, I counted my assets.
  4. Although not an expert, I've gained experience along the way;
  5. The company's current food category is one that doesn't require much effort and has stable sales growth (Mondelez, Oishi, Lay's, etc., growing over 20%, Wrigley's stable), while beverages and alcohol are sluggish;
  6. For a business that profits from buying and selling, beverages are riskier (large capital in and out, many expenses, delayed manufacturer payments, significant seasonal differences), while most snack foods (except chocolate, gift boxes) have stable monthly sales, less volatility, and lower capital risk;
  7. High-volume beverage products have transparent prices, and alcohol is hard to operate. Snack foods, relatively, are a category with fast turnover, many SKUs, and less transparent prices;
  8. Based on company sales, food is 18 million (Wrigley's + Mondelez + Oishi + Lay's + Perfetti Van Melle), beverages and others (about 10 million). Food contributes most of the gross profit, uses less capital, requires less effort, and manufacturer accounting and expenses are simpler and more transparent;
  9. I hold distribution rights for most first-tier snack food brands like Wrigley's, Dove, Hershey's, Oishi, Lay's, Bugles, Mondelez (Trident, Oreo, etc.), Perfetti Van Melle (Alpenliebe), giving me a strong channel advantage in snack foods. In summary, snack foods are a category where my company has advantages, experience, lower risk, and higher profits. Here are some experiences from my 2018-2019 as a snack food category supplier: The distribution structure has three parts: 1) First-tier brands under agency 2) Snack food brands consigned by local distributors 3) Self-operated, externally sourced brands Among these, agency for first-tier brands ensures sales and profits, and helps build deep customer relationships and service stickiness with terminal stores; Consignment for local distributors supplements category richness, earning a small margin; Self-operated external sourcing, from large markets like Hefei or Zhengzhou, brings in products without local agents, supplementing category richness and earning higher margins. As of January 2020, based on current sales:
  1. Agency first-tier brands are growing steadily (growth rate not exceeding 30%, accounting for 70% of sales and 50% of profits);
  2. Consigned snack food brands from local distributors are declining, and some consignments have been canceled. The core reason is that other distributors fear I'll take their market share, and their salespeople oppose it, affecting their wages and market sales (sales and profit share negligible);
  3. Self-operated external brands are doubling every two years (growth rate over 100%, accounting for 30% of sales and nearly 50% of profits). Reasons for rapid growth:
  1. Focus on developing VIP and expansion customers;
  2. Trial 2,000-3,000 SKUs, keeping 700-800 fast-moving products;
  3. Assess by category (ensuring each category has sales and growth);
  4. Plan visit routes reasonably, do deep distribution and vivid display for key products;
  5. Use WeChat groups, official accounts, and online ordering systems to support sales. Note: The above is the 'entrepreneurial development history' of Linquan Zhicheng Trading. New Distribution will later publish a detailed article on Zhicheng Trading's transformation into a single snack food category distributor, with practical cases. Interested friends, please stay tuned.