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Previously, we spent several days discussing sales systems applicable to traditional channels: exclusive distribution, wholesale collaboration, and regulated wholesale. We've covered three of the six major sales systems. The remaining three are direct delivery, consignment sales (we sell, they deliver), and traditional wholesale. Traditional wholesale is largely obsolete for Huiyuan's current market situation, so we'll set that aside. Today, let's talk about direct delivery and consignment sales.
When discussing various sales models earlier, I briefly touched on KA channels. However, we cannot overlook that after nearly 20 years of development in China, KA channels have become a critical sales channel for FMCG products. As society evolves, they will only grow in importance and sales share. That's why I've reserved a dedicated discussion for them.
KA stands for Key Account, referring to crucial, important customers. In FMCG, we typically use it as a synonym for modern retail channels. Based on operational scale, they are commonly divided into hypermarkets, supermarkets, standard supermarkets, and convenience stores. By procurement method, they are categorized as joint procurement or local procurement. By number of stores, they are chain or independent. By chain scale, they can be international, national, or regional chains. As I mentioned earlier, channel segmentation varies by standard, with sub-channels and sub-sub-channels constantly being refined. Compared to traditional retail terminals, modern retail stores have distinct characteristics: larger sales areas, stronger sales capabilities, higher purchase volumes, standardized pricing, more professional buyers, better brand visibility, and requirements for credit terms, fees, promotions, and more. Therefore, this channel requires a more professional approach.
Let's first look at how industry giants operate in this channel.
First, Coca-Cola, the American leader, is indeed powerful. In this channel, any store reaching a certain scale is typically direct-operated: their own salespeople take orders, deliver goods, and handle billing—what we call "direct delivery." Some smaller chains and independent stores are served by distributors, but the mainstream is direct delivery. Next, Pepsi, the American runner-up, typically does direct delivery in cities where it has factories or offices, while in other cities, distributors handle delivery, but all other business functions are completed by the company—that is, "we sell, they deliver." The two Taiwanese rivals and Wahaha mostly delegate this channel to regional distributors, but business operations are guided uniformly by the company. Some large chains even sign master contracts with the company's headquarters, then distribute delivery and service to regional customers.
You see, it's mostly headquarters-to-headquarters contract signing. Why? First, both parties are more professional. Second, both have scale advantages, strengthening bargaining power. Third, it reduces communication costs. What does such a contract include? SKUs, pricing, display, promotions, fees, rebates, sales volume, etc. Think about it: if these tasks were not handled uniformly by company-to-company but instead by distributors across systems and regions, wouldn't costs rise? Wouldn't management become more difficult?
Now, let's look at how Huiyuan operates this channel. There seems to be some headquarters-to-headquarters communication, but it's not comprehensive. Then we see contracts led by certain direct-operated companies with certain KA systems; contracts between distributors and systems in certain regions; contracts led by factories for certain systems in certain regions; contracts between distributors and individual stores. In short, it's chaotic and messy. When headquarters signs contracts, they aim for quantity, including 30 SKUs, but at the execution level, many SKUs are never sold or cannot be properly stocked, leading to frequent complaints about stockouts and barcode locks from KA systems. Pricing and fees are not carefully planned at contract signing, without considering whether distributors can operate profitably. Some single items are priced even lower than the distributor's purchase price. If you lose money on direct operations, that's your problem, but how can distributors do business? Some special prices, promotions, and fee investments negotiated between headquarters and headquarters cannot be executed at the distributor level. More absurdly, some direct-operated companies and factories, for short-term performance, run cost-insensitive promotions with some KA systems, ignoring channel balance and completely destroying the price system of traditional channels in many regions. Did Huiyuan's decision-makers consider these issues when designing channel operations? I think not. They're like a blind man on a blind horse, taking one step at a time, hoping for the best. How could it possibly work well?
Because KA channels have large procurement volumes, professional buyers, and intense competition, KA customers typically demand more rebates, more promotions, and more fees. Additionally, because the company must provide more professional services and credit terms, operating costs and risks are far greater than traditional channels. Thus, the FMCG industry has a consensus: supply prices to this channel should generally be 10-15 percentage points higher than traditional channels, or even more, to leave room for operational margins. What about Huiyuan? They often set prices far below what traditional channel customers pay. Was such a plan thought out? Of course, when signing, the "reinforcement platoon" often cites clearing near-expiry inventory as a reason. But is that really the case? Could they consider more bundling or buy-one-get-one promotions that obscure pricing?
Another issue mentioned is the number of SKUs, which is even more absurd for Huiyuan. Huiyuan has dozens of factories nationwide, each with different product focuses. It's fine to have regional products, but when planning factory locations, did they consider laying out main products to serve customers in various regions? For example, if your 1L pulp product is produced in Hubei, what if a customer in a county in Jiangsu orders only 200 boxes? You might say the order is small, but that customer ordered 2,000 cases from Huiyuan in total, just not from one factory. With so many factories, you can't even build a logistics platform, yet you have the audacity to ask customers to bear long-distance freight? Shouldn't the juice leader and the reinforcement platoon step up and reflect? The correct approach is: when a customer places an order with Huiyuan, Huiyuan should organize the products and deliver them to the distributor's warehouse at an agreed time on a CIF basis. How to build that logistics platform is an internal management issue for Huiyuan.
For modern retail channels, according to my earlier model design, at least international and national chain systems should have annual contracts negotiated between Huiyuan headquarters and their headquarters. Direct-operated companies and factory locations should do direct delivery, while other regions should use the consignment sales system. But this only solves the product logistics platform issue if main products can be stocked normally nationwide. For locally procured chains and large independent stores, based on distributor willingness and capability, distributors could serve them directly, but they would bear the costs. If distributors lack capability or willingness, refer to the above method. When running promotions, first consider price balance across channels—aren't both sides your own flesh and blood?
I won't elaborate on how to conduct business in KA channels here. Just remember: "display, display, display" is your eternal theme. More and better display positions and larger display areas are your unbeatable magic for store output. Of course, how to achieve that varies by ingenuity.
Earlier, I discussed sales systems under various models. I hope you understand that I'm talking about model design and development direction, not a panacea. Don't simply map them to your region or market. Every market has its own characteristics; there's never a fixed development model. When I said direct operations need 20 million in scale, or that factory surroundings should adopt more aggressive sales systems, I meant generally, not absolutely. If you completely separate production and sales, you could treat factory surroundings like other regions with exclusive distribution. But if your factory is already involved in direct operations, you need to consider how to do it well and standardize it. To reduce misunderstandings, let me summarize the sales systems discussed earlier.
First, we must understand the purpose of adopting different sales systems: to deliver our products to customers in a practical and economical way. You see two keywords: practical and economical, meaning we must consider effectiveness and cost. A sales system is not necessarily more aggressive is better; rather, the best system is one that serves customers most economically. Therefore, when considering which sales system to use, we should generally consider the following:
- Consider cost and input-output ratio.
- Meet customer service needs.
- If adopting the consignment sales system, are there suitable third parties?
- Different sales systems can be used together.
- In any new market development, the regulated wholesale system should be prioritized.
Now, let's use a diagram to illustrate the principles for selecting a sales system:
[Image]
From the diagram, we can intuitively see that when selecting a sales system, we first hope to use aggressive systems because they offer strong market control. However, the first choices among aggressive systems are exclusive wholesale and wholesale collaboration due to lower costs—that is, we first avoid direct operations. If direct operations are necessary, we prioritize consignment sales to minimize fixed asset investment and reduce warehouse and logistics personnel management. So, a sales system is definitely not the more aggressive the better. Looking at this diagram, can we understand why the nationwide office openings by Uni-President in the past and Huiyuan in recent years were unsustainable? Input-output imbalance and unbearable costs.
By now, I believe you understand what "model" and "system" mean. A system is a practical and economical way to cover target channel customers. A model is a combination of sales systems. A single system can be a model, or a model can be a mix of multiple systems. But you must also understand the difference between model and system. Here's a rhyme: "Model is not system, system is not channel, channel is not model. Model includes systems, systems cover channels, channels determine models."
I've also basically explained the smallest business unit—the county-level region—and the sales models it should adopt at different development stages. Now it's simple: even a huge organization is composed of such business units. It's just a matter of how many county regions form a larger region, and how many larger regions form a sales area. I mentioned earlier that I'd use Jiangsu as an example. Suppose Huiyuan's Jiangsu market is a larger region. Let me draw another diagram to illustrate the organizational structure of a larger region.
[Image]
First, I strongly oppose headquarters setting up a sales center that issues policies and plans nationwide. China is vast, with north-south and regional differences. If you sit in a mountain valley in Beijing and issue a policy, how could it be effective? If a competitor makes a small move in a city in Sichuan, you'd have to report it level by level to the reinforcement platoon in Beijing, then hold meetings and research. By the time you come up with a targeted plan, it's too late. One reason is that the region is too large, so the plan's targeting is poor. Another is that too many management levels slow your response. I suggest placing business operation authority at the larger region level. Normal monthly sales policies should be set by the larger region. Headquarters can also create policy plans for key national chain customers during major holidays, but they should minimize interference in local operations because they're not close to the market. Also, production and sales must be separated. Factories should focus on production, but the sales budget should come from the larger region. Ideally, factories within the region should be managed by the larger region's general manager. The two factories in Jiangsu should be able to meet the sales needs of Jiangsu customers. If a distributor gives you an order that fills a truck, you should deliver it to the distributor within the agreed time. Only CIF terms matter. As for product allocation or long delivery distances, those are your own problems. You need to figure out how to build a logistics platform. It's unreasonable to make customers bear the burden of your shortcomings. In other words, the larger region must plan what products to buy, what pricing policies to implement, and how to do it. As a general manager, you're responsible for regional profit. If you can't make money for the boss, you don't deserve the seat. It's not about growing sales while losing the boss's pants.
First, the larger region is divided into four sub-regions. Jiangsu currently has two factories and two direct-operated companies, which is basically reasonable. Each sub-region covers several cities. At the sub-region level, the model is simple, as I've discussed: direct delivery covers KA in cities where the company/office is located, wholesale collaboration covers urban retail terminals, regulated wholesale covers wholesale and townships, and exclusive distribution covers outlying counties. I've drawn dashed lines for all "business supervisors"—what does that mean? It means they should be allocated based on sales volume. Some expert supposedly said that one person directly managing 4-6 people is most efficient and effective. So I've cut your Jiangsu market into four pieces. Those familiar with Huiyuan Jiangsu might know that Xuzhou is the best-performing market. This way, the Suqian office's sales volume will far exceed other regions, but that's okay—other regions have more space. Each region also has different focuses. For example, the Sunan region of the direct-operated company has particularly developed modern retail, offering more opportunities in that channel. Of course, if you pay bonuses to larger region and regional managers based on performance, I'd say your brain is broken. For larger regions, you can consider total salary, but in daily operations, you should only assess completion rates. That's relative fairness. At the larger region level, I only suggest setting up two support departments: marketing and operations. Of course, finance and HR are outside my business scope. The marketing department is mainly responsible for regional policy formulation, communication with key KA headquarters, and control of market expenses—in short, sales support. The operations department is responsible for standardizing business processes, checking policy execution, monitoring customer and pricing system health, and training business systems—in short, business standardization. I don't advocate many functional departments at the larger region level. The more departments, the messier the business. Each department issues orders to the business team, and managers and supervisors can earn their salaries just by filling out their forms. Moreover, these departments must position themselves correctly: they support the business team, not lead it. The marketing department head should be tied to modern (special) channel performance, and the operations department head to traditional channel performance. Their income assessments should be linked to the business team, making them truly accountable. That's the prototype of a larger region's management structure. N larger regions form Huiyuan's national market. That's the model design I'm talking about. Of course, I'm only discussing model and organizational design from a sales perspective. Huiyuan's problems today are certainly not just about the sales team.
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