“All business trends favor the leaders, and digitalization is no exception.” China's commercial circulation business has experienced several major dividends since the 1990s. The first was the product dividend. In early China, when materials were scarce, as long as you had a product, you had no trouble selling it. The second was the channel dividend. From supply and marketing cooperatives to individual businesses, many were given entrepreneurial opportunities. The third was the hypermarket dividend. With the entry of retail giants like Carrefour and Walmart, distributors saw that single-store output could be impressive. The fourth was the e-commerce dividend. With the rise of e-commerce platforms like Taobao and JD.com, many traditional distributors entered early and made significant profits. But these dividends are now a thing of the past. In the next 5 to 10 years, the trend of digitalization will become increasingly evident, and distributors will undergo a survival of the fittest. So, in a digitalized environment, what should distributors do?
With this question in mind, I had a conversation with Mr. Luo Kai, general manager of Luoyang Rongcheng Yigou, a digitalization benchmark distributor in the PepsiCo 'Ru Hu Tian E' project. Luo Kai started his business in 2006, establishing Hecai Trading, which represents nearly 70 brands including Lay's, Wrigley, Wuqiong, and Orion, with annual sales exceeding 100 million yuan. In December 2020, he founded Luoyang Rongcheng Yigou, embarking on the path of digital transformation. I hope his practical experience in distributor digitalization can provide some insights for distributors currently in transition.
Activating 4,000+ Small Stores in One Year Before establishing Luoyang Rongcheng Yigou, Luo Kai's trading company was already a model for local distributors. However, Luo Kai believes that the trading business is like going to war; if you don't keep up with the times, you risk total defeat at any moment. So in 2020, Luo Kai partnered with Chengdu Rongcheng Yigou to establish Luoyang Rongcheng Yigou, creating a one-stop supply chain platform for local mom-and-pop stores. In Luo Kai's view, the timing for establishing a B2b platform was ripe.
First, the market had already been educated. Small store owners were familiar with this operational model, so no secondary education was needed. Retail Tong, Jingxi Tong, Yijiupi, and even previous community group buying had large-scale ground promotion teams continuously educating small store owners on how to use online platforms. Some store owners had even become accustomed to ordering via mobile phones.
Second, when it comes to regional markets, traditional distributors have a natural advantage over national B2b platforms. Why do national B2b platforms fail? It's common knowledge that the profit margins in the commercial circulation industry are low. As capital investors, they can only capture traffic, but these profits are insufficient to support cross-regional operations. Moreover, such cross-province operations directly lead to channel conflict and price chaos, impacting the price system. From the brand's perspective, they are also unwilling to support such platforms. The establishment of Luoyang Rongcheng Yigou confirmed this. In one year, it covered over 4,000 stores in the urban area of Luoyang, basically achieving full coverage. Moreover, it had over 3,000 active annual users, indicating high customer engagement. Coverage is just the first step; retaining users and encouraging frequent orders is key to Luoyang Rongcheng Yigou's sustained success.
Competing with Distributors on Product and Efficiency, and with Platforms on Service “The more stores that embrace Luoyang Rongcheng Yigou, the better their business becomes,” said Mr. Luo jokingly, but it also shows his confidence in the company. Why do stores choose Luoyang Rongcheng Yigou? Traditional small stores have a major pain point: the risk of slow-moving inventory. Although most distributors have return and exchange policies, the process is cumbersome and requires back-and-forth communication with salespeople. Online platforms can reduce this risk to some extent, as stores can order small quantities frequently, thereby reducing the risk of dead stock. Moreover, Luoyang Rongcheng Yigou has a strong warehousing, picking, and distribution system, allowing customers to order in broken cases rather than full boxes. For example, in the soy sauce category, stores used to buy by the case, but now they can order 3 or 5 bottles, just enough for a few days' supply. Additionally, the minimum order threshold is very low, almost comparable to traditional e-commerce—free delivery for orders over 99 yuan. This is something that neither other distributors nor other platforms can easily match.
Because of this, Luoyang Rongcheng Yigou's customers are highly loyal, with most placing orders twice a week, and over 100 customers ordering almost daily. From a product perspective, stores have a huge demand for products; a single store typically needs 1,500 to 2,000 SKUs. Traditional distributors can only offer a limited range because of the sheer number of brands and products, making it difficult to expand staff or manage effectively. Luoyang Rongcheng Yigou covers an extremely wide range of products, and store owners can use a mini-program to shop one-stop, anytime, anywhere.
From an order perspective, Luoyang Rongcheng Yigou is far more efficient than traditional distributors. Over 30% of its orders are placed between 6 PM and midnight. Many stores are busy during the day, and when salespeople visit, it can be annoying. At night, when the owner rests and notices missing items on the shelves, they think about restocking and simply place an order on their phone. After ordering, the system immediately uploads the order to the backend. While other distributors are still having their morning meetings, Luoyang Rongcheng Yigou has already started picking and packing, and stores may receive their goods by morning.
So, what advantages does Luoyang Rongcheng Yigou have over national platforms? National platforms like Retail Tong and Yijiupi basically end their service once the sale is made. B2b serves store owners, not the final retail link, so they also need help with the sell-through to consumers, such as visual merchandising and returns. For national B2B platforms, these are difficult to achieve; their only advantage is price. But Luoyang Rongcheng Yigou can not only do these things but do them well. It has a complete business team and investment funds to help stores with sell-through, which wholesalers and national platforms cannot do. In simple terms, Luoyang Rongcheng Yigou's advantage essentially lies in its digital distribution model, integrating online and offline, competing with traditional distributors on product and efficiency, and with cross-regional platforms on service.
The More Stores Think About Their Business, the Stronger Their Loyalty The salespeople at Luoyang Rongcheng Yigou are internally positioned as supermarket consultants. Helping stores with sell-through, such as visual merchandising and after-sales, or assisting with orders, are the most basic tasks. The most important job of a salesperson is to use data to guide store operations, ensuring that the most suitable products are placed in each store, rather than pushing any product onto them. All products sold by Luoyang Rongcheng Yigou are recorded in the backend. How much each store sells per month, which products, and how frequently—all can be retrieved from the system in real time. Additionally, there is a dedicated operations department in the backend that periodically conducts professional analysis of the data.
Based on this, salespeople can make precise visits, knowing what types of products suit each store or if there are anomalies in store data. Luoyang Rongcheng Yigou also creates customer profiles for stores based on historical data, considering multiple dimensions such as monthly order amount, order frequency, and average order value. For example, A-class stores spend 10,000 yuan per month, order twice a week, with an average order of 1,000-1,500 yuan; B-class stores spend 5,000 yuan per month, order once a week, with an average order of 1,000-1,200 yuan; there are also high-frequency stores that order 20-30 times a month. All have customer profiles. When visiting, salespeople use these profiles to diagnose the store's business, telling customers what products to buy and how to sell them. By using data to make decisions and guide store operations, when store sales improve, they form the perception that cooperating with Rongcheng Yigou leads to better business. Hence, the phenomenon emerges: the more stores think about their business, the stronger their loyalty to Rongcheng Yigou.
At the same time, with this data, brand owners are more willing to cooperate with Luoyang Rongcheng Yigou. For example, when launching new products, they have data support on which stores to distribute to for maximum efficiency.
B-end Livestreaming: Making Store Owners More Product-Savvy When salespeople promote products to terminals, they usually tell stores, “This is a good product.” But why is it good? Most salespeople don't understand the logic behind the product and can't explain it clearly. Don't underestimate the importance of the logic behind a product; it's key to getting stores to recognize its value. Only when stores believe a product is good will they help spread the word. Luoyang Rongcheng Yigou's livestreaming for stores effectively solves this problem. They schedule two livestreams per month, preparing promotional materials in advance and warming up on social groups and Moments daily. It's important to note that the hosts must be from the brand manufacturers, as they know the products best.
The core content of the livestreams is to help store owners understand products better. For example, for Lay's potato chips, they might cover the brand story, how the chips are made, how long potatoes are sun-dried, how many chips one potato can make, etc. This precise approach deepens stores' understanding of the brand, enabling them to explain products more clearly during interactions with consumers. At the same time, while watching the livestreams, stores unconsciously trust Luoyang Rongcheng Yigou more, because so many brand owners are endorsing Rongcheng Yigou. Luo Kai told New Distribution that Luoyang Rongcheng Yigou's livestreams are very popular with brand owners; the two monthly sessions are booked out more than ten days in advance, and the results are excellent.
In Conclusion: From traditional e-commerce to new retail, the internet's penetration into the retail world is deepening. Traditional retail models are being disrupted step by step. Changes that used to take over a decade now happen rapidly, often with “the battle begins and ends in one move,” leaving only the top players. This is true for community group buying, B2B, and digitalization will be no exception. Digitalization is a war without gunpowder. In the past, distributors competed on capital, people, and vehicles, but now that's not enough. They also need higher efficiency, lower costs, and better service. The essence of digitalization is to reduce costs and increase efficiency. For distributors, it's better to start digitalization sooner rather than later. Whoever does it first can establish a better user experience and stay ahead of competitors.
Are you “watching” me?