Lead: For distributors, besides brave transformation and victory, is there any other way out? No. Author | Chen Siting Review | Wang Qiang Layout | He Wen Editor's Note: In interviews by New Distribution, we have more than once discovered that trading was not the first career choice for most bosses, and often not even their active choice. Some stumbled into it, some were forced by circumstance, some went with the flow. Whatever the reason, they eventually chose to become distributors, and even became successful leaders among their peers. A distributor boss who once loved literature and art told us that to this day he cannot tell whether fate played a trick on him or blessed him. But we believe that behind every successful distributor, there is a unique and little-known entrepreneurial story. Today, we are honored to share a real case of "how to grow from a dead end in life to an excellent distributor." The case is long, but please believe your time is well spent. (Place names and brands in the article are pseudonyms.)
Successful entrepreneurship often begins when pushed to the brink "Ten years ago, I could never have dreamed that one day I would start a business and become a boss," He Shilu told me on May 6, just after the Labor Day beer peak season, in the office of Linsong Trading in H City. Before 2005, He Shilu had worked for nearly five years at Quanyuan Trading, the largest FMCG trading company in western Yunnan, as an accountant. She was a trained accountant from a transportation college, and her professional ability and integrity earned the deep trust of Quanyuan's boss. In 2004, with her financial acumen, He Shilu spotted a golden opportunity: speculating in white sugar futures. She noticed that from after the Spring Festival to June, sugar prices were low, while the second half of the year was the peak season. So, through an introduction, she bought a large amount of white sugar futures at a low cash price from a sugar business owner, planning to sell high before the Mid-Autumn Festival in August. Her market judgment was correct, and sugar prices soared before the Mid-Autumn Festival in 2004. But what she didn't anticipate was that although prices rose, the goods disappeared. The owner she traded with claimed he had been defrauded of over three million yuan. He Shilu's investment of over 300,000 yuan was lost, including money she had borrowed from relatives and friends. In 2004, 300,000 yuan was not a small sum; it could buy three apartments in H City. He Shilu was financially bankrupt, and her debts could not be repaid with a monthly salary of a few thousand yuan. At the time, she was pregnant with her first son, and her husband was on a long-term assignment in Chengdu. He Shilu had to face a dead end she had never imagined. After struggling in distress for several months, He Shilu went to the chairman of Quanyuan Trading and explained her situation. "Doing business might let me stand up again; not doing business, I can't survive. That's what I said to the chairman at the time," He Shilu recalled. On October 1, 2005, with 50,000 yuan scraped together, He Shilu started her business. She became the urban distributor for H City under Quanyuan Trading's agency, exclusively selling B Beer. B Beer was a local H City beer brand, fully acquired by foreign beer company K in 2003. Many distributors, like He Shilu, often start their trading business in a state of desperation and confusion.
Fifteen Years of Hard Work: The Path of Primitive Accumulation From 2005 to 2020, He Shilu sold B Beer for fifteen years, divided into two phases: the first phase until 2011, she was a distributor for Quanyuan Trading's B Beer; the second phase from 2011 to 2020, she was a first-tier distributor for the B Beer factory. From an accountant to a distributor boss, He Shilu's mindset changed almost overnight. She knew this was different from others' entrepreneurship: except for success, there was no retreat behind her. He Shilu had a talent for business. While working as an accountant at Quanyuan, she paid attention to whether the company's clients were doing well, which clients were straightforward, and which were particular. In her spare time, she was willing to visit clients with the sales team, so many clients were familiar with her. In the H market, foreign beers had never made a major push, and in 2005, B Beer dominated almost entirely. Leveraging the brand advantage, after becoming a distributor for Quanyuan, He Shilu quickly established cooperation with all key accounts in her area. But a monopolistic market had another problem: very low channel profits. According to He Shilu, at that time, the profit per case of beer was only one or two yuan. Eager to make money to repay debts, He Shilu was certainly not satisfied with this, so she created a new source of profit. At that time, beer packaging was mainly plastic returnable crates; the factory recycled plastic crates at 8 yuan each and bottles at 0.2 yuan each. "If I delivered the crates along with the beer, the recycling cost was high, and they might get lost, which was a big loss," He Shilu said. "So I bought cardboard boxes for one yuan each and packed the beer in them. Even with labor costs, I could still earn 6 yuan per case, and I bought back the bottles at the original price, not making a profit on the bottle difference." At that time, He Shilu's approach was feasible. Deep distribution was not yet widespread in the H market; most clients either picked up goods themselves or ordered by the truckload or half-truckload, so delivery costs, including bottle return costs, were not high. Moreover, He Shilu invested part of the extra gross profit into beer prices; for example, a case of beer that sold for 30 yuan, she sold for 28.5 yuan. As a result, more and more clients came to her for purchases. Price wars are almost an instinct for wholesalers, but not everyone can afford to fight one. Starting from October 1, 2005, He Shilu quickly made money and paid off all her debts. Relieved, He Shilu realized she truly enjoyed being a boss. By 2011, her distribution business was thriving, with monthly sales exceeding 15,000 cases, making her the largest distributor under Quanyuan. That year, foreign beer company K underwent organizational adjustments, and the new leader appreciated He Shilu's boldness and initiative, so he developed her into a first-tier distributor for the company. Over the next decade, He Shilu's beer sales scale grew larger, and by 2020, her annual sales exceeded 2 million cases. The beer capacity in H City was only about 20,000 tons, and she alone accounted for nearly three-quarters of it. But starting in 2018, with increasingly fierce competition in the beer market, the manufacturer's demands for profit growth, and management model issues, He Shilu and B Beer had many discordances. By 2019, the cooperation between He Shilu and B Beer finally became unsustainable. Most manufacturer-distributor partnerships, after a certain number of years, often end badly. Like He Shilu, many distributors find it painful but necessary to give up a brand they have worked with for many years.
Times Change: Forced to Switch from B Beer "Why give up B Beer, which you have operated for fifteen years?" Facing this question, He Shilu struggled for several years; she was reluctant to give it up, but the following reasons finally made her determined to bid a painful farewell to B Beer. First, doing B Beer was becoming less and less profitable. The entire B Beer channel model was very traditional, always a large distribution model, from factory to distributor, to sub-distributor, and then to the terminal. In the past fifteen years, although He Shilu made money, her company had only a few delivery vehicles, no team, no terminal network, and no ability to take on other brands. B Beer had always held an absolute dominant position locally, and foreign beer company K was a financially driven rather than market-goal-driven foreign enterprise, which meant that the profits that grew year after year could only be squeezed from the channel. In recent years, the gross profit per case had almost dropped to only 0.5 yuan. Second, B Beer had no clear channel transformation direction or plan. In recent years, other beer brands, led by A Beer, had been making increasingly bold moves in the H market. Although B Beer still held an absolute dominant position, without changing the large distribution channel model, distributors had no terminal capability and no profit space. On one hand, the market was being eroded; on the other hand, the manufacturer had no direction or plan for channel model transformation, nor the corresponding funds to support change. The stagnant status quo made He Shilu very anxious, and she had to seriously consider her company's future. Third, chaotic management made distributors extremely annoyed. B Beer's management model was relatively outdated, with company personnel far from the front line and out of touch. Distributors were increasingly unprofitable, and on top of that, they had to deal with the personal relationships at all levels of the manufacturer and solve the ever-increasing performance pressure. Based on the above reasons, He Shilu felt that her company was in a state of crisis, and it was time to "find her own way out." In 2019, a manager she knew who had left foreign beer company K became a distributor for A brand in another region. She paid close attention, proactively learned about his cooperation with A, and tried to get in touch with A brand through his introduction. After multiple contacts, He Shilu began to consider cooperating with A Beer brand. At that time, she thought there were three reasons: first, the endorsement of a state-owned enterprise made her more reassured; second, A Beer was a leader in many markets, and her husband, who had been stationed in Chengdu, was very supportive once he heard about doing A; third, after contacting the A team, she felt the team was down-to-earth, understood the business, and was a team that got things done. But the natural caution of a distributor, and the visible risks after switching, still made it hard for her to make the final decision. At the beginning of 2020, when the epidemic was raging, she learned that during the epidemic, A Beer brand had borne all the losses of distributors' near-expiry products and also supported distributors in resuming work and production from various aspects such as funds. She then made up her mind not to hesitate and cooperate with A Beer brand. Switching brands is a huge challenge that many distributors face in their development. The longer you operate a brand, the deeper the emotional attachment, and the greater the challenge.
New Model, New Market: The Painful Transformation of a Traditional Distributor "Starting A Beer from scratch in H City, I thought it would be difficult, but I didn't expect it to be this difficult." Looking back on the first year of doing A Beer in 2020, He Shilu commented. Before 2020, He Shilu estimated that B Beer's market share was over 95%, and foreign beer brands had almost no presence in H City. She thought simply, "A Beer is, after all, the number one selling brand in China, and my channel relationships in H City are not bad. Sales might start small, but it should still sell." In fact, before launching the market, A Company and He Shilu had already made relatively sufficient estimates and preparations for the difficulties. Lu Fei, the regional general manager of A Beer, brought a mature marketing team from Lijiang to help He Shilu fire the first shot in direct retail terminals. At the same time, Lu Fei moved A Beer's regional office from Lijiang to H City, showing determination not to return without breaking the H market. He Shilu also, under A's guidance, formed a localized terminal business team. But it turned out that He Shilu still underestimated the difficulty of starting the A Beer market from zero in H City. Her relationships were mainly with sub-distributors, but B Beer blocked the distribution channel with a policy: "As long as you exclusively sell B Beer, a sub-distributor gets a subsidy of 50 cases of beer." With no sub-distributors, they tried direct retail terminals, but it was equally ineffective. In the early stages of market launch, after painstakingly covering a street, the beer was quickly replaced and taken away by competitors as soon as they turned around, and the taken beer was diverted to other regions and frequently complained about. Later, under the coordination of relevant market supervision departments, the practice of taking beer was stopped. But even for the terminals that were stocked, because the main product chosen was a 6-yuan product, directly competing with a major B Beer product, sales were minimal, and they lost battle after battle, unable to hold their ground. Unable to hold terminals, no performance, the newly formed team fell apart at the first blow, and the costs of the direct retail model soared. He Shilu felt the immense pain of the distributor model transformation. In 2020, which suffered a huge blow, He Shilu once doubted whether her choice to cooperate with A and the model transformation were correct, and she was also very unaccustomed to and unable to understand A Beer's market operation model. Under high pressure and seeing no hope, she began to have many conflicts with the A management team. "Today, in my eyes, Lu Fei is my mentor, but in 2020, I complained about him a lot and often argued with him. In recent years, his hair has turned a little gray; thinking about it, I feel a bit sorry for him," He Shilu said when recalling the running-in period with the A team.
Repositioning Products, Competing Differently: Achieving No. 1 in Premium in Two Years Lu Fei is the general manager of A Beer's Lijiang region and a battle-hardened marketing veteran in the beer industry. He knew that the battle for A Beer in H City would be a tough and protracted war, and he considered all the difficulties encountered in 2020 as normal. But he did not tell He Shilu all the difficulties in advance: "If I explained all the difficulties at once, even the best distributor might not have the courage to try." But Lu Fei prepared for the worst-case scenario. He set the sales target for the H market at the lowest, moved the regional office to H City, and even for a period, he went to He Shilu's company every day to work. He Shilu thought 2020 was the hardest, but Lu Fei considered it a trial year. It was impossible for a market with zero foundation to suddenly take off, and the opponent was not to be underestimated. The main goals of the first year were: first, to familiarize with the H market and consumers to determine the correct market strategy and methods; second, to test market reactions and the defensive actions competitors might take; third, to train the distributor and build a solid team foundation for the distributor. After the Spring Festival in 2021, the A Beer team and He Shilu held an important meeting. At this meeting, Cao Zhimin, who had just been promoted to A Beer brand headquarters from the former general manager of Yunnan Marketing Center, also participated. The meeting reviewed and analyzed the experiences and lessons since the launch of the H market, identified several key characteristics of competitors, and redefined the new core market strategy. The characteristics of B Beer were: first, the company paid too much attention to short-term financial returns and would likely not make resolute, sustained market investments; second, sales relied mainly on distribution channels for volume, and despite high share, it lacked strong terminal operation capabilities; third, the product line was single, with core large single products at lower prices, unable to meet consumers' more diverse and higher-end needs; fourth, because of the single product line and multiple channel levels, channel gross margins were extremely thin, making the channel value chain very fragile. Based on these characteristics, A Company and He Shilu jointly determined the new core strategy after May 1, 2021: First, a differentiated, premium product strategy, forming a "you fight yours, I fight mine" off-position competition. The core products to operate were determined as: an 8-yuan product, a 10-yuan product, and a 12-yuan and above product. Second, focus on core dining terminals, i.e., the 'high ground', fully leveraging A Beer's 'channel marketing' capability in terminals, letting local H City consumers taste beer different from the past, and letting tourists visiting H City taste familiar A Beer products. Third, operate products by channel, separating on-premise and off-premise terminal products to ensure a higher value chain for each channel type. At the same time, closely cooperate with local life service platforms such as O2O to directly penetrate more consumers. Fourth, make resolute and sustained market investments, leveraging H City's tourism city characteristics to carry out various opportunistic marketing and consumer promotion activities to enhance A brand and product status in local consumers' minds. He Shilu's subsequent story is relatively simple, but the market results are exciting. In 2021, A Beer's sales in the H market exceeded 400,000 cases, with market share expected to exceed 15%; in 2022, A Beer's sales in the H market exceeded 800,000 cases, with share expected to exceed 30%; and the proportion of mid-range and above products exceeded 80%. Moreover, A Beer achieved high coverage across all channels in the H market, especially in the nightlife channel, where market share exceeded 60%. At this point, He Shilu achieved her goal of being the No. 1 in premium beer sales in the H market. Three years ago, although her sales volume was 2 million cases, He Shilu was still a traditional distributor without a team, without market operation capabilities, and completely dependent on a single brand. Three years later, He Shilu believes her company has undergone earth-shaking changes: the company has transformed from a traditional large distributor to a professional distributor with direct retail terminal capabilities; from having no market team to building a professional marketing team of 10 people; the company has shifted from a low-cost, low-profit, low-quality operation to a standardized, high-margin, high-quality operation; and He Shilu herself has successfully transformed from a strong-willed, autocratic individual boss to a manager who relies on team collaboration. "Actually, since 2022, because I directly control thousands of terminals in the H market, many first-line FMCG brands have started to proactively approach me for cooperation. In the past, my business seemed large, but no first-line brand ever came to me. My market value is completely different from before, and I feel more secure. This feeling is quite wonderful," He Shilu commented on her three-year transformation. "Looking back at the past three years, first, I want to thank A Company for the opportunity that brought such huge changes to my career and life; second, I want to thank the A team and myself for not giving up on each other during the hardest times." At the end of the interview, He Shilu sincerely expressed her gratitude to A Company and her three-year transformation insights to New Distribution. In the entire Chinese beer distributor community, He Shilu's sales scale is certainly not large, but the speed at which she grew from zero is commendable. Her experience and insights in transforming from a traditional large distribution model to a direct retail terminal model, as well as her mental journey, are worth learning from for distributor friends.
Every Transformation Pain for Distributors Is Like the Rebirth of an Eagle In communicating with He Shilu, her strong H City local accent created some obstacles for us to deeply understand her transformation battle. But we firmly believe that the operational pressure she faced during the transformation, and the anxiety of facing a future that seemed hopeful but uncertain, must have been much greater than what she expressed. This immense pressure is also what the New Distribution team has felt most frequently in our visits to distributors this year. Among the over a hundred distributors we visited this year, the polarization is more severe than ever, with only a few doing well and the majority under pressure. As Hou Xiaohai, chairman of China Resources Beer, has been saying in recent years about the "New World," all our distributors today face an extremely complex new "FMCG New World." In the new world, new consumption, new channels, and new demographics bring new competition, but besides brave transformation and victory, is there any other way out for our distributors? No. The eagle is the longest-lived bird, living up to seventy years. But at forty, it must strike its beak against rocks on a cliff top until it knocks it off and grows a new one; then use the new beak to pull out its heavy, thick feathers to grow light new ones; and use the beak to pull off its bent, dull, unusable talons until new sharp claws grow. The rebirth of the eagle is a bloody, painful process, a process that requires enduring hunger and thirst for over 100 days to be reborn. The transformation of distributors is as difficult and painful as the rebirth of the eagle. Management transformation, business transformation, digital transformation, new model transformation—which one is not difficult, which one is not painful, which one is not agonizing? He Shilu's transformation was painful, but she was also lucky; at the critical moment of transformation, she chose the right partner. But many of our distributor friends often do not have a companion when transforming. Only distributors understand distributors best; only distributors understand distributors most. To provide some assistance to Chinese FMCG distributors in transformation, New Distribution officially established the "China FMCG Distributor Club" on June 1. This is a partner platform for distributors. We welcome distributor friends to actively join, exchange trends, embrace transformation, and progress together. Author Bio: Chen Siting, CEO of New Distribution, senior FMCG media professional, and consultant. Former editor-in-chief of "Sales & Marketing" magazine, marketing consultant for Tanmuzhu, and founder of the internet supply chain project "Wanchaobang." He has conducted in-depth research and practice in consumer brand planning and communication, distributor model transformation and upgrading, and supply chain innovation and change, studying the Chinese market with a professional perspective and on-the-ground experience.