The following is the keynote speech delivered by Mr. Su Xiaoxin, Vice President of Zhongshang Huimin, at the 'New Food Era · New Distribution 2016 FMCG + Internet Summit' held on October 16. New Distribution has organized the core content of his speech as follows:

Distinguished friends, respected seniors, and our organizers today, good afternoon! Just now in the salon, Huimin was mentioned, so Huimin is here. I'll take about a minute to share some of Huimin's views on one of the questions from the salon. First, logistics is something Huimin must do ourselves. Whether it's B2B or F2R, the downstream stores are not ours; the products belong to brand owners and manufacturers. We create value in the process of product circulation, so the logistics part must be controlled by Huimin itself. That's our basic idea. Second, regarding Internet+ or traditional+, we believe that whether it's distributors, brand owners, or today's B2B e-commerce, the Internet should be a tool for us to deliver an excellent product to the terminal and to consumers in the shortest time, at the most reasonable price. So Huimin defines itself as community e-commerce. In our entire B2B operation model, we try to adopt industry-standard, professional practices, and we try to reach consensus with manufacturers to form strategic cooperation. That's the basic state of Huimin's B2B business. Today we have manufacturers, our peers, and our distributors. I mainly want to represent Huimin in sharing with you some of our developments and small achievements in the entire 2B business over the past three years. In fact, regarding the upgrade of distributors and the downward expansion of e-commerce, I think we need to do our basic work well. Whether we encounter a cold winter or product upgrades, everyone should survive well.

Huimin was registered and established in May 2013, with the first branch company in Beijing. Zhongshang Huimin has always been engaged in the community livelihood industry of basic living supplies. We are optimistic about the huge market share of living supplies and the commercial opportunities of community livelihood.

In Huimin's overall strategy, we implement the 'One Foundation, Two Wings' strategy. We aim to deliver FMCG products, regardless of category, to community terminal stores in the shortest time. On this basis, we will help terminal stores upgrade, which is the convenience store franchise business that we started promoting in the second half of this year. On the basis of B2B, we will introduce B2B2C business, which is also a community need, and it is precisely community convenience stores that can meet this need. Based on demand, we establish a B2B foundational platform. On this 'One Foundation,' we position ourselves as community e-commerce, and we add two wings: one is community finance, and the other is community livelihood, which is convenience services. From these three points, we are basically still consolidating the B2B business foundation, which has been our core focus over the past three years.

In three years, we have covered about 22 cities nationwide. Currently, we serve about 450,000 sales points, and by year-end we expect to exceed 500,000. We adopt a heavy-asset, direct-operation model with self-built warehouses. We now have over 50 modern warehousing centers nationwide. The highest SKU count in a branch exceeds 5,000. Regarding financing, we just completed a B-round financing of 1.3 billion yuan, and an A-round of 600 million yuan. Today, there are industry colleagues, distributor friends, and manufacturer friends. I think whether you are in traditional distributor business or 2B e-commerce, including some brand owners who are building their own B2B systems, our paths may differ, but the results we pursue are nothing more than four things. First, broaden your service scope; second, increase your circulation efficiency; third, enhance distribution capability—whether it's for fast-moving products or new products, it's not only a concern for brand owners but also for channel players. New products contribute more to my gross profit than bestsellers. Finally, we all say we cover street-side stores, but the Internet is everywhere; as long as there is a network, there are customers and business. We have done some unique terminal coverage, such as government and military.

Regarding service scope, as shown in the first national layout map, we currently have 22 branches covering 22 cities. Of course, some cities are newly opened and not yet fully covered, only about one-third or one-half of the city. On the product line, we have nine major categories and hundreds of subcategories, including pilot operations in some branches, such as cold chain, refrigeration, and frozen business in Xi'an. Basically, we have achieved one-stop service for small stores' product sales.

In terms of circulation efficiency, we adopt self-built methods, including our own vehicles and logistics staff. Nationwide, the ratio is about 8:2, with 20% outsourced or third-party vehicles. In newly established companies, it's not that fast, basically around 4:6, with a high proportion of external vehicles. In response to the salon question, we believe that our drivers and driver assistants are Huimin employees. In terms of cultural construction, professional training, and after-sales service, we have confidence. So we insist on doing this ourselves. Currently, our supply chain logistics fleet uses a method of designated routes, designated stops, and designated vehicles. When terminal store owners see this vehicle delivering, it's basically inspection-free; they can sign and leave immediately after the logistics box arrives. The receiving time per store ranges from 20 to 30 minutes, but for vehicles and customers with sufficient credit ratings, it's 5-10 minutes, greatly shortening the receiving and dispatching efficiency by more than half.

During the B-round financing, we launched the third bulk sorting center in Beijing, which supports over 7,000 SKUs. This is part of our expansion of the product line. With the robust growth of B2C imported food, we want to nurture and cultivate downstream small B customers. We created a sub-brand called Zhongshang Huimin Import Pavilion, which has been launched gradually since this quarter. Regarding specific terminals, this is a characteristic of all e-commerce: even if people can't reach, the network can, our platform can, and ordering opportunities exist. We are also very honored to have participated in a bidding project for the Chinese military procurement. In the entire FMCG industry, we are currently the only supplier to the military. Especially in Beijing, our headquarters, we have taken on some government procurement projects. These have greatly helped both our manufacturers' brands and overall sales.

Over the past three years, we have done many good things and also made some mistakes, so we have been summarizing as we go. Our chairman proposed that in the next three years, we should grow healthily and conduct a one-time divestiture of problems that have emerged during rapid organizational development. Just now I was thinking that whether it's distributor friends, e-commerce partners, or brand owners, healthy development is something everyone should pursue. As Mr. Liu Chunxiong said, subsidies in this industry are meaningless. We strongly agree with that. I am a businessman; if you subsidize businessmen, you have to subsidize them for life. We manage circulation order for brand owners, downstream customers, and subsidiaries. We impose price constraints and gross profit requirements on subsidiaries, and require branch companies to pay deposits for cross-regional channel stuffing. If they violate brand owners' or upstream suppliers' pricing regulations, we have very strict internal penalties. We hope the entire company becomes healthier. When dealing with upstream brand owners, their biggest concern is that e-commerce will undercut their prices. We have always told them that price is the least competitive aspect of e-commerce compared to distributors. Distributors have more channel activities. E-commerce should compete with distributors on efficiency because our professional operations are more efficient. So maintaining circulation order is our first very important indicator. The second is ensuring food safety, which is why we have built so many warehouses and manage product shelf life very strictly. The third, for upstream, is precision in marketing investment. When manufacturers invest in expenses, besides advertising costs where the effectiveness is unknown, channel costs are also hard to measure in terms of timely growth. So we classify our 450,000 customer resources into 22 categories. Some products should be sold in trial channels, while others should not be tested there. This makes our upstream and our own investments more precise. Another advantage of Internet companies is data. We have connected interfaces with six or seven upstream brand owners, providing them with product information for free so they can make more accurate decisions. From the platform, they can see daily sales data fluctuations. Finally, brand promotion landing: we have about 10,000 standard stores nationwide, each with fixed standard display positions, including cash registers and TVs in stores. This greatly helps upstream brand owners in brand communication, joint promotions, and 2C promotions.

Next, I'll briefly show you some brand activities we've done recently. Price cutting is an endless affair and is not something Huimin should do. We now try to adopt brand embedding and joint promotion methods to avoid the price sensitivity of small B customers. From the results, as we expected, when we reduced resources, our turnover dropped from 30 million to 20 million, but after a period of contraction, when we launched brand activities, turnover rose from 20 million back to 30 million. Whether you are a distributor or an e-commerce friend, raising prices is not a scary thing; price cutting is an endless affair. We are committed to bringing brand owners' old products, new products, and bestsellers to Huimin, using our system, platform, and promotion capabilities to quickly reach 450,000 terminals. So we currently have about 300 direct-signed brand owners, with direct signing reaching over 70%, excluding those designated by brand owners. We hope to have more and better partners.

For the last minute of advertising, as I mentioned, Huimin has always pursued 'Hui Life, Yi Livelihood' (Benefiting Life, Improving People's Livelihood). We are committed to factory-supermarket and agriculture-supermarket direct connections. Using our platform, we enable store owners, on the basis of healthy and stable growth of 2B business, to bring community financial services and livelihood value-added services into our millions of community convenience stores. We aim to achieve the integration of business flow, logistics, information flow, and capital flow—'Four Flows in One'—so that everyone can develop and succeed together. Thank you!

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