---
title: "Grafting: The Fast Track for Distributor Upgrades"
description: "This article discusses how distributors can win in the fast-moving consumer goods (FMCG) industry by upgrading through 'grafting' mature operational and technical systems, using the example of RT-Mart's transformation into 'Super RT-Mart' with Hema's ERP system. It highlights the emergence of 380+ billion-yuan-level FMCG distributors in China and the competitive landscape."
author: "架构师- 周可夫"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-08-21"
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# Grafting: The Fast Track for Distributor Upgrades

> This article discusses how distributors can win in the fast-moving consumer goods (FMCG) industry by upgrading through 'grafting' mature operational and technical systems, using the example of RT-Mart's transformation into 'Super RT-Mart' with Hema's ERP system. It highlights the emergence of 380+ billion-yuan-level FMCG distributors in China and the competitive landscape.

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**How can distributors win? A race for speed!**
**Fact**: China will see 380+ FMCG distributors at the billion-yuan level.
**RT-Mart**: From a crouching tiger in B2B to a flying tiger.
**Reason**: A new species - Super RT-Mart is changing the FMCG distribution landscape.
**Grafting**: A positive strategy to enhance value and overtake on curves.
1**13 Years: The Aggressive Super RT-Mart**
In June 2018, the total market value of Gaoxin Retail on the Hong Kong Stock Exchange exceeded HK$100 billion. Retail columnist Wan Deqian described the scene at RT-Mart in his industry analysis article "How RT-Mart Became a Key Step in Alibaba's New Retail" and wrote:
"On June 12, the total market value of Gaoxin Retail on the Hong Kong Stock Exchange exceeded HK$100 billion. The capital market's endorsement came from the previous day when RT-Mart, during Tmall's 618 mid-year promotion, announced the completion of digital upgrades for 100 stores with Alibaba.
This was slightly ahead of the schedule announced by RT-Mart Chairman Huang Mingduan in April this year, who had said the transformation would be completed before July. The rush to complete 100 store upgrades was to 'play' 618 with Tmall during this year's 618 period.
Huang Mingduan himself, on the day the stock broke through the 100 billion mark, told media including 36Kr and 'Retail Boss Internal Reference': 'RT-Mart and Alibaba are together shaping a new retail era.'
The usually low-key Mr. Huang's exuberance was evident, with a 'dominant tone.' In today's global retail industry, such expressions of 'we are shaping the future with Alibaba' truly require depth and strength.
RT-Mart is the top brand in China's offline supermarket industry. On May 10, 2018, the China Chain Store & Franchise Association (CCFA) released the 2017 China FMCG Chain Top 100 list, with the top five being China Resources Vanguard, RT-Mart, Walmart, Yonghui, and Lianhua. RT-Mart ranked second, with sales of 95.4 billion yuan and 384 stores by the end of 2017, 85% of which were in third-, fourth-, and fifth-tier markets, covering over 12 million square meters. In 2016 and 2017, RT-Mart maintained the industry's top position in average sales per store and market share in the hypermarket sector, especially with average sales per store of 250 million yuan, significantly surpassing all competitors; the top three were 250 million (RT-Mart), 175 million (Walmart), and 158 million (Carrefour).
'At the end of the road,' was the situation for RT-Mart two years ago. Constrained by the modern retail model, RT-Mart's sales growth slowed, same-store sales declined, and the myth of not closing stores for 19 years ended. The ceiling was looming, causing anxiety. When Alibaba acquired RT-Mart, industry wits summarized it vividly: RT-Mart 'defeated all competitors but lost to the times,' a phrase widely circulated. Watching the lonely figure slowly descending from the altar marked the end of an era and a sigh of certainty.
'Beyond the mountains and rivers, another village appears,' today's RT-Mart is ambitious, forging ahead on the new retail path. RT-Mart boldly declares: 'RT-Mart and Alibaba are together shaping a new retail era...' Huang Mingduan himself is optimistic about the upcoming 2018 interim results. The Alibaba investment will bring a comprehensive explosive effect, and Huang even gave a specific timeline for the impressive data in the financial report: 2021. That's three years away. Victory is in hand, and success comes with effort. Where does this clear optimism come from?
The answer is a new retail species, 'Super RT-Mart.' Super RT-Mart is a regional large-scale comprehensive FMCG retail service provider. According to the plan, 380+ RT-Mart stores will complete upgrades in 2018.
What is Super RT-Mart?
Super RT-Mart = RT-Mart + (B2C) + E路发 (B2B) + Taobao Platform (traffic, platform, retail AI).
The future service geographic areas are:
1. Ideal Living Circle: Within 3 km of stores, 30-minute delivery, brand: Taoxianda.
2. Same-City Express Circle: Within 10 km of stores, next-day delivery. Brand: E路发.
3. Resource Sharing Circle: Within 50 km of stores (service indicators and brand TBD).
The above map shows the national layout of RT-Mart, covering almost all second-, third-, and fourth-tier city business districts in China.
RT-Mart's store location strategy requires at least 100,000 households within a 3 km radius (with a minimum of three people per household, that's 300,000 potential consumers). These 100,000 households conservatively spend 2 billion yuan annually on FMCG. RT-Mart's single-store retail performance in 2018 is around 250 million yuan (12.5% share). Furthermore, within a 10 km radius, the number of households and consumption capacity await estimation. In today's big data era, it is believed to be clear.
RT-Mart+ will switch to Hema's ERP system in RT-Mart stores to ensure timely fulfillment and delivery for Taoxianda. Specific indicators are 2,000 orders daily, with peaks of 5,000. Wu Chunxiang, General Manager of RT-Mart's New Retail Division, said: 'Now RT-Mart stores handle thousands of online orders a day without adding staff, very easily.'
Allow me to reveal the evolution of thought, which may be vivid and powerful. The original expression was a report version, neat and effective, stable, with internal judgments and emotions well packaged.
The emergence of Super RT-Mart will comprehensively change the FMCG distribution and retail industry ecosystem. China's FMCG distribution has entered a zero-sum competitive state under saturation; the winner's increment in the business district is the loser's decrement. This pushes industry progress and competition to 'life-and-death speed,' especially in China's third-, fourth-, and fifth-tier city business districts. Super RT-Mart's national business layout and scale, comprehensive combat readiness, and systematic operational capabilities give it a clear first-mover advantage and winner-take-all attributes.
'Winner-take-all' is often expressed as: 'In the internet economy, winner-take-all is a natural attribute, such as WeChat and Amazon.' In physical retail, the case is Wal-Mart: when a store opens, small and medium physical stores within 5 km basically close, known as the '5 km death circle.' Opening a few stores doesn't matter; in the U.S., they open thousands. That's winner-take-all. As a result, many cities have laws prohibiting Wal-Mart stores.
After thinking for a long time, there was always conflict. I repeatedly asked myself, 'Winner-take-all, why did I write this word for Super RT-Mart?' Interesting.
Further asking myself, why over the years, when observing Eternal Asia, Alibaba Retail Link, JD New Path, Zhongshang Huimin, Hui Xiadan, etc., all excellent organizations, I didn't have the direct feeling of 'winner-take-all'?
Why for Hema Fresh, the highly praised new retail species and even the teacher of Super RT-Mart, I also didn't have the direct feeling of 'winner-take-all'?
Reason versus emotion, logic versus intuition, common sense versus inference. The conflict has reasons.
There is a fable about a cat and a tiger, known to all: the tiger roars in the forest, and it was the cat that taught the tiger all its skills. My feeling is that Hema Fresh taught Super RT-Mart, this big tiger!
By the end of 2018, with the upgrade of 380+ Super RT-Mart stores completed, from the perspective of E路发 alone:
1. National coverage of major business districts = 383 * 3.14 * 100 = 120,260 square kilometers (E路发). Directly covering over 100 million people.
2. Full-coverage FMCG supply chain product capability, with over a thousand FMCG brands directly supplied, including tens of thousands of FMCG SKUs.
3. Single-store daily fulfillment capability of over 1,000 orders with half-hour + next-day delivery.
4. Fully digitalized and intelligent operation process management + financial support under the Taobao new retail platform.
5. RT-Mart founder Huang Mingrui, the company's efficient wolf-like management culture, and the united mindset to create a new retail situation.
The driving force for 'rebuilding an RT-Mart' in three years lies in Super RT-Mart.
Super RT-Mart, this new retail species, will comprehensively and all-roundly change the ecosystem of China's FMCG distribution and retail industry. Super RT-Mart, competing with various types of regional FMCG distributors, inherently has all-round 'mismatch advantages.'
'Mismatch advantage' comes from the NBA. Golden State Warriors' No. 35 star player, Kevin Durant, nicknamed 'The Death.' Why is he 'The Death'? On the basketball court's five positions, he has a 'mismatch' advantage against any position, an unsolvable player. For example, against guards, he is taller and stronger, overpowering them for scores. Against centers, he is faster, with comprehensive offensive skills, passing defenders like walking, layups, and scoring. Whoever faces him is a mismatch.
For distributors, the arrival of a new era, with the emergence of a winner-take-all entity like Super RT-Mart, is another notice that 'the wolf is coming.'
This time it's real, the wolf is coming!'
'Feels like salt on a wound,' right? How distributors act and respond is what they need to know.
The explosive development process of Super RT-Mart provides a relatively clear framework path for distributor upgrades.
At the beginning of 2017, RT-Mart's situation was summed up in one word: 'trapped.' RT-Mart's physical retail store development stagnated; same-store sales growth over the past three years was -3.4%, -0.34%, and -0.98%, continuously declining. How to develop and improve was unclear.
RT-Mart's e-commerce segment, Feiniu.com, '... In 2013, we did Feiniu.com, not believing or understanding, and the money burned like water. In the first year, we did over 100 million in business and lost over 100 million; the second year, over 1 billion, lost 400 million; the third year, lost over 500 million.
Actually, after the third year, we decided to transform. The board was very dissatisfied... Then in the fourth year (2017), we cut advertising, did 4 billion, and lost less than 300 million.'
If it continued, would RT-Mart still exist in two years?
The most imaginative people, including the three 'creators' - Mr. Huang Mingrui, Mr. Zhang Yong, and later instructor Mr. Hou Yi - could imagine or fantasize such a dramatic reversal: from November 20, 2017, to June 12, 2018, just over half a year after Alibaba invested in RT-Mart, 'Mr. Huang Mingduan is very optimistic about the upcoming 2018 interim results.' On that very day, RT-Mart's parent company, Gaoxin Retail Group, saw its total market value on the Hong Kong Stock Exchange exceed HK$100 billion.
Why is this?
2**Grafting Superior Technology**
RT-Mart's huge change comes from upgrading, from a physical retailer to an omni-channel comprehensive retail service provider.
In 2016, RT-Mart was in a predicament even worse than today's distributors.
In half a year, it stepped into a vast situation, thanks to digital upgrades, introducing Hema Fresh's ERP system and the Taobao retail platform.
In the new era, new retail brings new distribution, new supply chain, and new marketing.
Enterprise upgrading is a transition between business models. Upgrades include three supporting pillars: strategy, operations, and systems. It starts with strategy and succeeds with systems + operations. A tripod stands firm; if one leg is weak, it's unbalanced.
Because this era is not one where you can build an atomic bomb with handwriting, hand-cranking, and an abacus.
A mature business model has its corresponding strategy, operations, and digital information system platform as a unified whole.
A typical case is the chain hypermarket. After Wal-Mart created the chain hypermarket business model in the 1970s, Chinese chain hypermarket companies, including RT-Mart, succeeded by copying and continuously improving the model.
In 2013, RT-Mart management realized the chain hypermarket model was declining and had to enter e-commerce to explore new business areas. They established Feiniu.com, leveraging physical store advantages to enter B2C e-commerce. At that time, industry leaders like Taobao, Suning Cloud Commerce, and JD had already established winner-take-all trends, leaving little room for followers.
In 2017, RT-Mart changed strategy and entered B2B e-commerce. Feiniu.com was renamed E路发, with mediocre performance. At that time, New Distribution's 2017 China B2B Industry White Paper gave a polite 'worth watching' evaluation of RT-Mart's entry into the annual B2B top 20.
In 2017, RT-Mart's B2B strategic direction was clear, as evidenced by a PPT.
Beijing, November 14, 2017, China Business Innovation Conference Summit. RT-Mart Feiniu.com Co-CEO Yuan Bin announced:
'RT-Mart E路发' is a full-category B2B ordering platform launched by RT-Mart Feiniu.com for small and medium retailers, launched nationwide in January 2017. Categories include beverages, snacks, grains and oils, fruits and vegetables, low-temperature foods, cleaning and care, maternal and infant products, seasonings and dry goods, imported foods, daily necessities, stationery and sports, and small and large appliances, with over 12,000 SKUs. Customers include enterprises, retail, maternal and infant, wholesale, entertainment, and catering.
In terms of operation mode, 'RT-Mart E路发' adopts a self-operated model. Platform products are purchased and sold by RT-Mart, relying on RT-Mart's 400 stores nationwide, using stores as warehouses, covering 200 cities. Leveraging RT-Mart's strong supply chain advantages, it delivers quality, low-priced goods to third- and fourth-tier cities, building bridges for brand channel sinking, helping small stores purchase accurately and efficiently, and assisting their upgrades and transformation.
Target customers are mainly community convenience stores. Merchants can order on the platform 24/7, with delivery to stores within 24 hours.'
The PPT, like all PPTs, was just a PPT: strategic expression, preparation, and plans.
At the beginning of 2018, RT-Mart had not yet realized, or vaguely sensed, that in the B2B field, RT-Mart was actually a 'crouching tiger.' Supply chain, product capability, one-stop supply capability, price advantage - all the advantages expressed in the PPT were real facts.
But RT-Mart was just a 'big tiger,' the crouching tiger in 'Crouching Tiger, Hidden Dragon'!
'Because the tiger can't run and can't hunt!' Simply put, RT-Mart's B2B development had only one leg: an upgrade strategy, lacking operations and a digital information system platform.
Mr. Huang Mingrui's intuition was very direct: 'What RT-Mart lacks is traffic and technology.' That was the root of change. Where was the opportunity for transformation? At that time, RT-Mart's e-commerce B2B development strategy was 'crossing the river by feeling the stones,' step by step, extending gradually. Following this direction, this tiger would lie there 'worth watching' for a long time.
The reason is now clear: traditional thinking from 30 years ago. Although recognizing that RT-Mart's store cluster layout and scale were its biggest advantages, online transactions (B2C, B2B) were the breakthrough for development.
But where was the integration point of online and offline? Stores or headquarters?
The traditional mindset was that at the store level, online and offline businesses were two separate business groups.
RT-Mart needed a mature and smart 'cat' to teach it how to hunt in the jungle.
History is magical. This cat was already knocking on RT-Mart's door: the famous Hema Fresh.
From top-level design, Hema Fresh was designed with online-offline integration at the store level from the blueprint stage.
In an interview in 'Business Review' May/June 2018 issue, Hema Fresh's Mr. Hou Yi reviewed the company's top-level design process. Mr. Hou believes there is a thinking paradigm called 'top-level design':
'All big businesses are not achieved through small steps, fast iteration. All big businesses need top-level design from day one, to understand the essence of the business.
Hou Yi said that when he communicated this idea with Alibaba CEO Zhang Yong (Xiaoyaozi), Zhang was very excited. They further refined the idea and established four principles:
1. Online revenue greater than offline revenue. This defines Hema Fresh as an online-offline integrated e-commerce, not just offline retail, with the goal of online revenue accounting for the majority.
2. Online daily orders must exceed 5,000. This defines that e-commerce must have scale effects; e-commerce has basic operating costs, and operations are valuable only after achieving scale.
3. Within a 3 km radius, achieve 30-minute delivery. A 3 km radius covers about 28 square kilometers and 300,000 households. Within this radius, no cold chain transport is needed, and timely response helps build customer loyalty at reasonable cost.
4. Online and offline as one chess game, meeting different scenario needs. Online and offline are not separate but one chess game. User needs have online and offline scenarios; Hema Fresh must meet different consumption scenarios, and enlarging the traffic pool is the key.
Through these requirements, we can clearly understand that Hema Fresh is essentially an online-offline integrated fresh e-commerce, a fresh e-commerce armed with stores.'
Listening to Hou Yi share this, I was deeply shocked. Before the name 'Hema Fresh' was even decided, the top-level design based on underlying logic was already so clear, almost exactly the operating state we see today.
Now, we can understand the phrase 'introducing Hema Fresh's ERP system' in RT-Mart's digital design.
Hema Fresh's ERP provides the dimension for RT-Mart's upgrade: stores gain access to Alibaba's new retail platform traffic and support capabilities, as well as Hema Fresh's scale rapid delivery service capability around stores.
Supported by strong procurement supply chain and nearly full-category FMCG product supply, this business combination will provide core operational support and development capabilities for RT-Mart's future, integrated online and offline, and provide comprehensive 'mismatch competitive advantages.'
Super RT-Mart's blueprint has landed. RT-Mart 'grafted' Hema Fresh's ERP. Hema Fresh's ERP provides the complete system technology and mature operational management system that Super RT-Mart needs.
'Grafting' is the keyword of this chapter. In economics, 'grafting' belongs to the category of increasing marginal revenue of knowledge or technology.
Increasing marginal revenue means that in a knowledge-dependent economy, as knowledge and technology inputs increase, output increases, and producers' returns show an increasing trend.
The core production factors in a knowledge-dependent economy are knowledge and technology inputs. Returns mainly come from knowledge and technology, while other material factors have become secondary, with material fixed inputs accounting for a very low proportion.
It's worth repeating: RT-Mart New Retail Division General Manager Wu Chunxiang said: 'Now RT-Mart stores (after grafting Hema Fresh's ERP) handle thousands of online orders a day without adding staff, very easily.'
'Without adding staff' is a bit emotional but apt! Thumbs up.
3**Distributor Upgrade: Grafting vs. Lagging Behind**
What is the core element of RT-Mart's upgrade? RT-Mart 'grafted' Hema Fresh's ERP, driven by the power of knowledge and technology.
The 'crouching tiger' became a 'flying tiger,' a starting point with vast horizons - Super RT-Mart.
Chinese distributors face comprehensive upgrades. What is the core element? Is it systems - knowledge and technology? Is it model innovation? Is it capital? Or other material resources? That is a question.
The RT-Mart case provides a reasonable choice: the unity of knowledge and technology - a digital operation information system platform.
System grafting can drive rapid and continuous enterprise progress. In today's increasingly fierce market, being a few steps ahead is a matter of life and death for enterprises!
In China's distributor industry, at the system technology level, there are only two major categories that have reached maturity for 'grafting':
1. Integrated Intelligent Distributor Management System Platform (IDS System): Large distributor + regional logistics + B2B + new retail + new marketing
Representative enterprise: Guangdong Zhongshan Wanrong Marketing Co., Ltd. (a regional comprehensive brand-scale distributor mainly operating major brands like P&G)
2. Hema Fresh ERP Management System: Traditional large retail + new retail + new distribution + 10 km logistics
Representative enterprise: RT-Mart
(Hema Fresh's customers are only in the tens of millions.)
Note: Platforms like Retail Link and New Path are not graftable.
The IDS system was developed under the leadership of FMCG giants like P&G and Unilever, starting from top-level design as a channel distributor management system. After more than 20 years of continuous effort, it embodies the collective wisdom and management experience of China's channel-scale distributors.
1. Scale comprehensive distributor: Defines the system's subject as a scale comprehensive distributor, not a brand manufacturer. Service targets include modern retail channels, regional markets, small and medium supermarkets, and new channels. Service brands are multi-brand, not just a single manufacturer's brand. The goal is to improve regional one-stop direct coverage, reduce distribution layers, and achieve regional economies of scale.
2. Distributor's average inventory turnover gradually reduced to 7 days: Defines the distributor's product circulation capability, which must be improved through continuous management efforts to increase inventory turnover. Only then is distributor operations valuable.
3. 'Next-day delivery' is the service standard for direct coverage: The distributor's single-point service radius is 60-80 km. Within this radius, the direct coverage service standard is next-day delivery. Timely response and standardized service.
4. Branch - forward warehouse - regional direct coverage: Distributors have multi-point service capabilities through branches, with forward warehouses and direct regional customer coverage.
5. All distributor business systems must be integrated: For efficient operations, this is necessary. From store visits - scenario marketing - orders - collection - outbound - logistics - bookkeeping - service, the entire business process. Integrated configuration ensures overall business efficiency and optimal cost.
6. Supply chain financial service capability: Simply put, originally 10 million yuan in working capital for 100 million yuan annual business, how to achieve 100 million yuan annual business with 5 million yuan working capital.
7. Supply chain collaboration capability: Distributors are an intermediate link in the supply chain, connecting upstream suppliers and downstream channel terminals. Distributors need synchronized supply chain development.
In 2003, 15 years ago, these top-level design concepts, basic concept definitions, and system implementations profoundly influenced the development of many areas in China's supply chain management and new retail. Next-day delivery, forward warehouses, X km coverage, supply chain finance. Does it feel familiar?
From an operational and system capability perspective, the IDS system supports efficient operations for regional distributors with annual sales from 50 million to over 5 billion yuan.
Distributors need a clear development strategy.
The enterprise upgrade strategy is to enhance market value. Improve efficiency, become bigger and stronger, and gain competitive advantage. The 'Integrated Intelligent Distributor Management System Platform' like Zhongshan Wanrong is a good choice, providing comprehensive mature operational and system capabilities.
'Grafting' mature operations and technology is the fast track for distributor upgrades. It is the crystallization of over a decade of business processes and management experience of scale distributors; all the pits have been jumped, and all the mines have been stepped on.
This is a built highway. Distributors can quickly establish their competitive position, stand firm, and achieve curve overtaking. It directly saves several years. Just stride forward.
In 'A Bite of China,' when discussing Sichuan cuisine seasoning, it first expresses, 'There is an expectation when Sichuan pepper meets chili...'
Source: Wuhan Songxing Bainian Technology Co., Ltd.
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