Whether distributors are aiming for greater scale to embark on capitalization, seeking to strengthen their bargaining power in the channel, huddling together for warmth in the industry's winter, or trying to latch onto a "big shot" for better development, the phenomenon of alliances or mergers among distributors has become a trend, quietly unfolding around us. Three Forms of Distributor-Distributor Alliances:

  1. Vertical Alliances (Cross-regional distributor alliances, capital-driven mergers) The industry is developing rapidly, and the traditional loose, fragmented business models can no longer generate comprehensive, large-scale benefits covering operational scale, management capability, profitability, and other aspects. Therefore, finding like-minded individuals with operational capabilities and corporate development vision, who can integrate to form a large-scale sales system, is key. Through establishing such a system, they can improve management levels, enhance management capabilities, increase the intensification and refinement of liquor distribution enterprises, achieve scale operations, perfect the necessary resources in the supply chain, improve efficiency in product circulation, and ultimately achieve complementarity of advantageous resources and operational capabilities, balance scale and flexibility, enhance bargaining power and value chain influence, reduce innovation costs, and realize asset securitization. Let's look at a few typical phenomena from the past two years.

  1. Since May 2015, Baichuan has used capital as a sharp tool, entering a frenzied acquisition period, reaching Shanghai, Jiangsu, Zhejiang, and Anhui. In May last year, it established "Shanghai Bairong Trading Co., Ltd." with Songjiang Longcheng Company; in July, it formed "Kunshan Baite Wine Co., Ltd." with the famous French wine producer Bait Group; in August, Baichuan began preparing "Baichuan Taifeng" with Pudong Xintaifeng; in September, it jointly established Baichuan Gupin Trading Development Co., Ltd. with Shanghai Gupin Wine; in November, Baichuan completed acquisitions in Anhui, Jiangsu, Zhejiang, and other markets.

  2. Recently, the much-publicized Eternity (Yiyatong) incident. A media outlet published an article titled "Eternity Reported for Setting Traps to Harm Shareholder Partners," accusing Eternity's joint venture shareholders of being trapped by guarantee contracts with unlimited joint liability for loans, even leading to bankruptcy. Concurrently, an article from former partner Wang Jun, former general manager of Anhui Yihe Deep Supply Chain Management Co., Ltd., recounted the various hardships and drawbacks of cooperating with Eternity.

  3. The "Hero Alliance" initiated by Jindong Capital (Huaze Group) and the "Pinhui No.1 Cloud Partnership" promoted by Shenzhen Yinji both aim to aggregate regional distributors and build large platforms for the liquor distribution industry, with functions covering trade, finance, investment, and equity cooperation. Mergers and acquisitions are serious matters; every step must be handled with care and cannot be taken lightly. But how to conduct M&A, and after the merger, how to manage coordination and strategic alignment to avoid uncontrollable issues between the parties? Let's look at the 11 basic processes Baichuan Trading adopts in distributor-distributor M&A.

Baichuan's M&A basic process consists of 11 sub-processes:

  1. Intentional contact;

  2. Due diligence;

  3. Communication with upstream suppliers;

  4. Asset evaluation;

  5. Signing of cooperation agreement;

  6. Registration of new company;

  7. Asset import;

  8. Preparation of new company (board of directors, management, business objectives, organizational structure, labor relations, management systems, key processes, performance appraisal);

  9. ERP system implementation and training;

  10. General meeting;

  11. Commencement of operations. Basic Conditions: Annual sales of over 50 million yuan, possession of agency qualifications for first-tier liquor brands and full-channel terminal operation capabilities, clear equity structure, willingness to accept the costs of standardization, willingness to accept corporate management system reform, willingness to accept Baichuan Premium Products' 51% equity investment, and willingness not to engage in horizontal competition. These are the partners they seek. High Alignment of Values: Partners must have a sense of belonging to the industry, recognize that the liquor distribution industry is a long-term viable sector with huge optimization potential, believe that terminal operation service capability is the core competitiveness of intermediate liquor distribution enterprises, and be long-term oriented. After the new company is established, members must achieve high ideological alignment to achieve the "1+1>2" effect. They are definitely looking for like-minded partners; if there is no ideological unity, they would not enter the Baichuan Premium Products system. In fact, in cooperation between people and enterprises, honesty is the foundation of cooperation. With a sincere attitude, if you have a foundation of sincerity and cooperative systems during the process, I think there will be no problems. Because in the early interactive understanding process, both parties have at least a basic understanding; without sincerity, there is no foundation for cooperation. Integrity is placed first. Willingness to Accept Standardization Costs: Many liquor distribution enterprises in China are family businesses, with a complex web of conflicting interests. If Baichuan enters and insists on standardization, it will inevitably offend many vested interests, hindering the reform. Such situations are inevitable during M&A integration. Before the merger, we already stated that "willingness to accept standardization costs" is a prior consensus; both parties must follow it. There is only one way to handle such situations: act according to the rules, focus on the matter, not the person, and deal with it accordingly—everyone is treated the same. Post-Merger Operations Still Led by Original Team: How will the merged subsidiaries be managed after the acquisition? The main forms are financial management, strategic management, organizational management, and marketing management. In management, Baichuan requires three aspects for acquired companies.

First, safety: Introduce the NC system, adopt transparent financial management according to listed company standards, implement strict audit systems, execute key process reforms, and achieve joint management;

Second, stability: We must keep the core business of the acquired entity unchanged, decision-making authority unchanged, and core team unchanged;

Third, growth: The acquired entity's core products, supply chain platform, and business innovation must all achieve growth, with future regional expansion, secondary acquisitions, and equity incentives for core employees. Financial Management: Financial management is a fundamental management requirement that must be implemented. Strategic Management: Strategic arrangements for the acquired entity are necessary and must align with Baichuan Premium Products' strategy. Partner companies have channels and brands; they only need strategic arrangements and marketing guidance, without intervening in marketing execution, because marketing guidance is implemented according to their strategic plans. Organizational Management: Baichuan sends personnel to each acquired company, but operations staff remain primarily original; they only need personnel to implement Baichuan Premium Products' overall strategy, communicate, integrate, and execute. Currently, talent reserve is also a major focus for Baichuan. Over the years, Baichuan has introduced and cultivated many talents, so the talent pool for current M&A projects is sufficient. If suitable professional managers are available, they may be considered for introduction into middle and senior management. For management talent reserve, Baichuan implements a dual approach: cultivate and introduce, ensuring ample and matching talent for M&A.

. Horizontal Alliances (Intra-regional alliances of same-category or same-channel distributors, forming joint sales entities) Multiple distributors of the same category (or same channel) within a region advocate and reach consensus to jointly establish a regional product sales center, pooling their original resources, optimizing and restructuring; forming an exclusive, unified brand operator in the regional market, concentrating resources for deep cultivation of the operating regional market. Case Study: Chengdu Dehongju Distributor Alliance For trading enterprises, scale is the most important guarantee of strength and the premise of efficiency. Reality requires distributors to establish a new model to adapt to market changes. If through distributor-distributor alliances, participating merchants are brought together, fully leveraging the role of distributors in various cities and counties, and building a well-established network platform, they gain bargaining chips with famous liquor factories. This is not just theoretical discussion but a realistic choice for many distributors, and Dehongju was born under such conditions. In March 2007, Chengdu Dehongju Trading Co., Ltd., led by Yao Yaohui, was formally established. Gathering channel strength to demand voice from upstream manufacturers became the company's core purpose. At the beginning, it attracted strong distributors from 17 secondary markets in Sichuan, including Chengdu and Mianyang, who became Dehongju's 17 shareholders. They brought substantial capital and complete channel resources from 17 prefecture-level markets. Since its establishment in the first half of 2007, this alliance has become the Sichuan general agent for brands such as Honghualang, 46-degree and 52-degree Jiannanchun, Luzhou Laojiao Fengtan vintage wine, and COFCO's Shacheng Great Wall. It is conceivable that relying on individual strength, distributors would find it difficult to obtain agency rights for these famous liquor factories. Through this organization, Dehongju secured high-quality resources and then shared them with its members. In fact, there are many similar intra-industry integrations, but most end in failure, with key issues often arising in management. In business, people unite or separate for one reason: "Come for profit, leave for profit." How to achieve true unity? Balancing interests is the most critical. Taking Dehongju as an example, management and distribution based on equity is the core.

First, establish a service team; they are not members but independent managers whose duty is to serve everyone, and by giving them management shares, stabilize them;

Second, establish a board of directors and a board of supervisors within the company, separating ownership and management, with clear division of labor and clear rewards and punishments;

Third, strengthen market management by implementing unified pricing and unified policies. Members operate in their own regions; if products sell poorly, they can exchange products through headquarters, achieving internal exchange and interaction. This management model clarifies the responsibilities, rights, and interests of regional distributors and shareholders. However, there are differences between regions; how to manage the market to achieve fair competition? Every month, Dehongju holds a shareholders' meeting to communicate on new issues, listen to shareholders' opinions, and reach consensus. The company stipulates that once a unanimous decision is made, it must be strictly implemented. Although distributors are relatively weak, they are actually excellent. They have local connections, networks, and diligence, but they lack a "home." If through distributor-distributor alliances they can create a "home," it will be a very valuable network, and I believe the path for liquor distributors will broaden. Case Study: Heqixin Trading Alliance—The Past Life of Heqixin

  1. Background of Heqixin Trading In 2009, facing industry competitive pressure, some distributors in Hanchuan City established the Hanchuan FMCG Industry Chamber of Commerce. The chamber provided a platform for distributors to connect and discuss. After several meetings, many distributors felt that competition in the FMCG industry, especially liquor, was too fierce, and many felt unprecedented pressure. First, large retail chains like Wuhan's Zhongbai Shangqu, Wushang Liangfan, Xiaogan's Xiaoshang Group, and Walmart, which was about to enter Hanchuan, had a significant impact on FMCG distributors in commercial circulation. Many distributors said business was getting harder in the face of large supermarkets' aggressive posture. In fact, large supermarkets had a huge impact on FMCG distributors, even threatening their survival space. Objectively, the FMCG chamber played a positive role in industry self-discipline. But a chamber is a loose organization, far from solving fundamental problems. To be able to respond to the challenges of large supermarkets, some members of the Hanchuan FMCG Chamber believed they needed to combine, "gathering scattered forces" to counter the pressure from upstream manufacturers and downstream terminals. So in April 2011, 18 brand agents in Hanchuan's FMCG industry jointly established Hanchuan Heqixin Trading Co., Ltd., which gathered 70% of Hanchuan's FMCG distributors. At its inception, the Hanchuan government provided some support. The Hanchuan Federation of Industry and Commerce took the initiative to bridge connections, renting the former national grain reserve depot owned by Hubei Chuandong Real Estate Co., Ltd. for their office and warehousing. Hanchuan included Heqixin as a key support target, supporting the company to requisition 216 mu of land to build a professional distribution warehouse. The Hanchuan Federation of Industry and Commerce helped solve temporary warehousing and office space, helped Heqixin lease over 3,000 square meters of storefront to open its first supermarket, and initiated emergency mutual aid procedures to help the company resolve 4.8 million yuan in private lending.
  2. Two Forms of Distributor Alliances There are generally two forms of distributor alliances: First, a relatively loose, alliance-type. That is, participating distributors are comparable in scale and channel networks, with no dominant strong distributor; members have an agreement, mainly playing a role in price unification and channel terminal stability, avoiding vicious competition from price inversion and channel transshipment; there is no direct capital link among member distributors; they are all distributors of a certain brand with equal status. Second, with one or several large distributors as the main body, jointly investing to establish a new company that is independent in operations and account management; the allied distributors integrate into this new company, sharing product resources and channel networks. This type of alliance is very close, with frequent economic exchanges among internal distributors, a unified external image, and strong constraints on member distributors; it is a close cooperative relationship. Heqixin Trading is the latter type, where multiple distributors combine into a new trading company for business activities.
  3. How Are Interests Distributed in the Alliance? The emergence of distributor alliances is to counter growing industry competitive pressure, and regardless of the form, there is a key link—commercial interests. If this link has problems, the interest chain in the alliance will eventually break. The primary task before any distributor alliance formally operates is to solve the interest distribution problem among all distributors. What form to use, what standards to distribute by, etc., are fundamental to ensuring the normal operation of the alliance. Some senior industry insiders believe that the most important part of a distributor alliance is how to balance interests among distributors, or check and balance, because once one or several distributors gain more benefits through the alliance and develop rapidly, while others cannot stand on the same platform, the alliance may disintegrate. Achieving ultimate balance through mutual checks does not mean increasing internal friction, but because participating distributors have their own interests, when they conflict with the alliance, they all want to protect their own interests, so some means are needed to maintain the alliance's interests. According to Xie Caiming, chairman of Heqixin Trading Co., Ltd., Heqixin is a joint-stock trading company. At its inception, to ensure rational use of resources, the 18 agents integrated on the basis of full consultation. But commercial integration touches the interests of each distributor, making it quite difficult. To solve this, Heqixin hired professional managers to participate in company management and decision-making, promoting integration on the basis of full consultation. The first issue to solve was equity. As a joint-stock company, if share distribution is not well resolved, the stability of Heqixin, which is bound by capital interests, would be greatly reduced. Professional managers came up with a solution: determine share amounts based on three indicators: each distributor's sales volume, sales profit, and network status. After shares were determined, each merchant injected capital into Heqixin according to their share amount. The year-end dividend issue was also resolved—distributed according to share proportion. The dozen or so distributors thus became shareholders of Heqixin Trading Co., Ltd.
  4. Organizational Structure After Integration After the equity issue was resolved, the next issue was how to arrange the original shareholders and their staff when a dozen shareholders gathered together. Since they united in the form of a joint-stock company, how should distributors be positioned in the alliance? Not everyone can be chairman or general manager; when problems arise, "who has the final say"? At the inception of Heqixin, these issues were resolved one by one.

First, the 18 shareholders gradually transferred their cooperative relationships with manufacturers to Heqixin Trading, and all shareholders' accounts were unified for operation and management.

Second, Heqixin stipulated that shareholders could participate in company management through re-employment, taking positions commensurate with their abilities; pre-integration employees were also given priority for re-employment as company staff through re-recruitment.

Third, when problems arise, shareholders' meetings are held to discuss and resolve them collectively. Heqixin established five major operation centers, each headed by a general manager, with business department heads as department directors; the basic salary for general managers and department directors is the same level. This ensures that investors, even with different positions, enjoy the same salary treatment.

  1. How to Integrate Channels and Play a Role? After Heqixin was established, the advantages of the alliance gradually emerged in cooperation with upstream manufacturers and downstream channels. In cooperation with upstream manufacturers, it changed from multi-point docking to single-point docking. Product category management tried to sort out similar products in the regional market, implementing limited brand retention based on packaging capacity, price range (high, medium, low), brand recognition, etc. Products and manufacturers with poor quality or outdated business service concepts were restricted from entering downstream sales channels; in service to downstream terminal outlets, on the basis of self-built supermarkets and direct-operated stores, they expanded franchise stores to townships and villages, with unified numbering and store signage, and franchise agreements. The company directly delivered products to outlets with its own vehicles.
  2. What Role Did the Distributor Alliance Play? Before Heqixin was established, there was vicious competition in Hanchuan's FMCG industry, not only harming distributors' interests but also disrupting market stability and balance. Coupled with the impact of large supermarkets, many distributors found it unbearable to fight "alone" against groups. The emergence of distributor alliances changed this situation to some extent. Some call this integration model the "Harmonious Merchants Alliance" business model, which horizontally integrates distributors and vertically integrates upstream manufacturers and downstream terminal networks. This changed the situation of merchants acting independently, high internal friction, and low efficiency, effectively improving the service quality and operational efficiency of trading companies. The biggest role of establishing a distributor alliance is to concentrate previously scattered channel networks, integrate sales networks, form capital for negotiating with upstream manufacturers, and thus obtain operating rights for certain popular brands or strong products. By appearing as an alliance, it is relatively easier to negotiate agency rights for locally popular brands, which must become the main framework of the alliance's product structure, and can also be seen as a "benefit" for member distributors. Heqixin currently represents products covering all daily necessities for Hanchuan residents, including liquor, non-staple food, and daily necessities. This has a huge impact on the entire Hanchuan FMCG industry. Even to counter the impact of large supermarkets on distributors, Heqixin is preparing to establish its own chain supermarket under the company; currently, there is one in Hanchuan, officially opened in January 2012, with an operating area of over 2,000 square meters. After Heqixin was established, it adopted modern measures to manage logistics, distribution, and other links, saving vehicles and costs. At the same time, it began gradually adjusting its product structure, introducing a "last-place elimination system" to optimize existing brands and form healthy competition. Distributor alliances mainly play a role in resource integration, including integration of upstream product resources and downstream sales resources. After alliance, distributors first change their weak position, enabling more equal dialogue with upstream and downstream; second, they increase profit margins. Integration avoids unnecessary losses from price wars, and company vehicles, manpower, and distribution achieve intensification, reducing operating costs; third, it greatly optimizes the business environment, rationalizing market development, and improving service attitudes and product quality; fourth, after integration, they can rationally use respective resources, adopt resource optimization and restructuring, and improve original work efficiency.
  3. Commercial Associations Commercial associations are not a new term, but it is rare to see industry associations integrated into the daily operations of every liquor trading enterprise. The frequent activities and various peer interactions within associations have formed a "circle" among members, and the effect of their collective action on promoting the development of trading enterprises is increasingly evident. Liquor trading enterprises gathered under the name of an association are not considered distributor alliances bound by capital or equity, but their broader collective behavior, especially its actual effects, is worth discussing among industry insiders. We won't elaborate here; you can pay attention to Zhao Yu's China Wine Industry Forum and Wu Xiangdong's China Wine Industry Hero Alliance. In the future, alliances among distributors will show diversified results, but essentially they all aim for common development. Regardless of the form of alliance chosen, after uniting, preparations must be made in two aspects: management and interest distribution; otherwise, the path of alliance is the path to extinction!
  4. On Equity Evaluation, Distribution, and Division of Labor (1) Equity evaluation composition system: share capital, share structure, profit distribution structure (2) Equity evaluation composition system: reference dimensions for share capital structure and share structure calculation Note: If an indicator cannot be measured collectively, the weight of that decomposed indicator is calculated according to the corresponding full value; agreement cooperation clients must have original product sales documentation; each decomposed indicator is calculated as the total value based on the corresponding reference value: for example, if the percentage is 40%, it is calculated as 40. (3) Equity evaluation composition system: share capital structure, share structure, profit distribution structure. (4) Organizational operation support system: "Board of Directors + Professional Manager" selection principle The board of directors consists of all shareholders; the largest shareholder and the chairman position are separated; however, the largest shareholder can concurrently serve as general manager; the chairman and general manager implement front-end and back-end functional division, with the chairman overseeing overall back-end planning and operations, and the general manager responsible for overall sales. Management below the general manager should be formed by non-shareholders in principle, prioritizing the "professional manager" principle; if shareholders participate in actual operations, they must cooperate to ensure the company's operational system, with positions and responsibilities defined according to department duties. Source: True Knowledge Society -END-