---
title: "The Secret of Wahaha's Channel Control"
description: "Wahaha's existing channels are already dense compared to other beverage companies, but why does it still force first-tier distributors to develop second-tier networks? Wahaha is strongly promoting the construction of second-tier networks. Ultimately, there are two starting points: first, the sales performance of first-tier distributors falls far short of Wahaha's requirements; second, the mixed wholesale-retail operation of first-tier distributors reduces the profits of second-tier distributors."
author: "赵晶"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-06-09"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/nS2Su1Mii8cTEcIkgl-Lnw"
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---

# The Secret of Wahaha's Channel Control

> Wahaha's existing channels are already dense compared to other beverage companies, but why does it still force first-tier distributors to develop second-tier networks? Wahaha is strongly promoting the construction of second-tier networks. Ultimately, there are two starting points: first, the sales performance of first-tier distributors falls far short of Wahaha's requirements; second, the mixed wholesale-retail operation of first-tier distributors reduces the profits of second-tier distributors.

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Compared to other beverage companies, Wahaha's existing channels are already dense, but why does it still force first-tier distributors to develop second-tier networks? Wahaha is strongly promoting the construction of second-tier networks. Ultimately, there are two starting points.

**1. The sales performance of first-tier distributors falls far short of Wahaha's requirements.**

Wahaha's strength lies in the rural market, and it is a brand determined to thoroughly penetrate the rural market. However, the rural market is vast and sparsely populated. So how to penetrate it thoroughly? How to ensure every consumer consumes Wahaha products? This requires Wahaha to increase sales outlets. That is, Wahaha products must be seen in the small shops of every village. However, the mixed wholesale-retail operation of first-tier distributors hinders this requirement.

First, the capability and energy of first-tier distributors are limited. Taking Hebei Province as an example, if each first-tier distributor supplies an average of 200-300 terminals, a province can only directly supply about 10,000 to 15,000 terminals, while statistics show there are at least 50,000 terminals in the province. That is, distributors' mixed wholesale-retail operation can only control 20-30% of terminals, leaving 70-80% of terminals unmanaged, in a state of natural sales disorder, completely losing the opportunity to do everything thoroughly and deeply.

First-tier distributors have limited capability and energy; their manpower and material resources cannot keep up, so naturally they cannot meet the manufacturer's increasing requirements for sales outlets. Therefore, Wahaha continuously pressures first-tier distributors, and the task volume grows larger. When first-tier distributors hit a bottleneck in sales growth, expanding the second-tier sales network becomes inevitable.

Second, first-tier distributors supplying some terminals will prevent second-tier distributors from continuing to develop their own networks. If a first-tier distributor directly supplies some retail stores in a township, then second-tier distributors will slack off in developing that area. This results in a situation where some areas are not thoroughly developed and some are unwilling to develop. Obviously, this is also a situation Wahaha does not want to see.

**2. The mixed wholesale-retail operation of first-tier distributors reduces the profits of second-tier distributors.**

Wahaha has dominated the market for so many years, and its price difference management is very effective, which is the main reason it looks down on others. Each link in the channel has a fairly thick profit margin, and making money is an important reason why many distributors rush to do Wahaha.

In the past few years, the mixed wholesale-retail operation of first-tier distributors made significant contributions to Wahaha's sales, but at this stage it has shown shortcomings. First-tier distributors mostly choose only large terminals or small third-tier wholesalers with certain wholesale-retail capabilities (such as township wholesale departments), and often adopt "preferential prices," so second-tier distributors cannot earn profits according to the standard price difference system set by the enterprise in their areas, thus losing enthusiasm.

At the same time, first-tier and second-tier distributors compete for terminal resources, directly resulting in chaotic wholesale prices in the market, and then a host of management problems. For a best-selling product like Wahaha, it is hardest to avoid being used as a product to flush channels. When first-tier and second-tier distributors no longer regard it as a money-making product but as a product to flush channels, it will inevitably face the fate of being ignored by distributors and will eventually be dumped by them. Many mature brands have proven this truth. Wahaha is trying hard to avoid becoming a "product used to flush channels." Moreover, if Wahaha truly wants to root itself in the rural market frontline, it cannot do without the full efforts of all links in the channel. Therefore, this requires Wahaha to control the profit margins of each link and ensure the balance of the channel interest chain.

**Reduce costs, strengthen control, kill two birds with one stone**

What ultimate goal does Wahaha aim to achieve by promoting the construction of second-tier networks? And what situation has emerged?

Wahaha's purpose in promoting the construction of second-tier networks is to achieve dense layout and directly control the small shops in villages. Two direct effects are: first, shortening the intermediate links in the channel and reducing market management levels; second, achieving multi-legged walking and completely grasping market control in its own hands.

**1. Reduce intermediate links in the channel.**

Before the adjustment, Wahaha's channel interest chain was like this: Wahaha directly controlled first-tier distributors in county towns; second-tier distributors reported the product varieties and quantities they wanted to order to the first-tier, then transferred the corresponding payment to the first-tier, who aggregated and reported to the headquarters; the headquarters then directly shipped the products to the warehouses designated by each second-tier distributor. Second-tier distributors directly supplied the small shops in townships or to small third-tier wholesalers in townships, who then wholesaled to the villages.

After this round of adjustment, this interest chain will still be maintained. That is, Wahaha manages first-tier, first-tier manages second-tier, and second-tier delivers to terminals. The only difference is that the second-tier network has changed from being controlled by first-tier to being fully controlled by the manufacturer.

Previously, the manufacturer distributed goods to first-tier and some second-tier distributors reported by first-tier. The unreported second-tier distributors were supplied by first-tier, so the profit margins and market development progress of second-tier were completely controlled by first-tier. This had two drawbacks.

The first drawback was that after the manufacturer shipped goods to the first-tier's warehouse, the first-tier then shipped to the second-tier's warehouse. During the transfer process, additional costs for warehouses, transport vehicles, personnel, etc., added an extra layer. Now the manufacturer directly ships goods to the second-tier warehouse, saving the first-tier's costs and reducing channel management expenses. At the same time, it can reduce delivery time and improve Wahaha's market response speed.

The second drawback was that first-tier distributors might take part of the profits that the manufacturer originally reserved for second-tier. This fundamentally impacts the price difference management system on which Wahaha relies for survival. The manufacturer's management levels have been compressed. From the previous multi-level management system, it has transformed into a two-level management system, i.e., manufacturer -> second-tier -> terminal (first-tier). The two-level management system has obvious advantages in reducing costs and increasing market response speed.

The manufacturer directly controls second-tier distributors, thus reducing the intermediate link of first-tier and saving a large amount of sales management expenses. Of course, reducing this link does not mean eliminating it. First-tier distributors still exist in Wahaha's channel system, but their function has shifted from sales to management. We will analyze this in detail later.

**2. Multi-legged walking, firmly grasp market control.**

Especially for an enterprise with grand visions like Wahaha, relying solely on first-tier distributors is not enough. Once a first-tier distributor cannot adapt to the enterprise's development requirements, there must be enough candidates to step in, cultivating a distributor echelon. This is not relying on one leg to walk, in order to ensure the stability and safety of network construction.

However, the premise is a high-quality second-tier distributor team. Building a network is not dividing territory; giving second-tier distributors power and benefits also requires them to bear corresponding responsibilities and obligations. So what are the responsibilities and obligations of second-tier? They must have a sense of task and brand, a sense of responsibility and initiative to cooperate with enterprise actions, and warehousing, transportation, and personnel matching the tasks. Wahaha requires salespeople to cooperate with first-tier distributors to select, negotiate, and build second-tier according to these standards.

After the second-tier network is aggregated to the manufacturer, on the one hand, the manufacturer can directly grasp the sales situation of second-tier. Which second-tier are strong, which are weak, which townships have strong consumption capacity, and which places still have development potential—the manufacturer can see at a glance. On the other hand, the manufacturer can supervise and support some second-tier distributors based on their funds, warehousing, and marketing capabilities. If some second-tier have strong sales willingness and high initiative, the manufacturer can support them in terms of gifts, advertising, expenses, etc., of course after communicating with first-tier. The fundamental purpose is to increase regional output and further stimulate consumption potential in various places.

In this way, the manufacturer can firmly control the market initiative, because the situation reflected by many second-tier distributors is the real market. The manufacturer can adjust products based on second-tier sales and guide early when the market just shows signs. Moreover, the manufacturer can ensure that every policy it issues is implemented to the terminal to the greatest extent. Previously, first-tier distributors intercepted promotional items, suppressed second-tier distributors, and regulated product categories for their own interests. After the adjustment, these phenomena will be largely avoided.

**First-tier distributors' role changes to managers**

If the manufacturer directly controls second-tier, are first-tier distributors still needed? If there are first-tier distributors, where is their position?

From now and for a considerable period, Wahaha cannot do without the operation of first-tier distributors. First-tier distributors have a very deep understanding of the local market and have various resources locally, all of which Wahaha lacks. Even if it sets up offices, there are still many things that cannot be solved. At this time, first-tier distributors are needed to help and solve problems. First-tier distributors play an important role in Wahaha's channel. These roles and responsibilities are not yet within the capability of current second-tier distributors. Therefore, it is certain that first-tier distributors will still occupy a very important position in Wahaha's sales system in the coming years and will receive high price difference profits.

**1. Pay less, earn more, "first-tier" becomes a cushy job.**

But since the enterprise cannot do without them and wants to directly control second-tier, how to arrange the interests, status, and voice in between? This problem does not stump Wahaha, because it has always been an expert in handling such relationships. Back then, Wahaha used special second-tier distributors to solve the problem of channel refinement and dismantled the situation where large distributors dominated. Now, Wahaha has only slightly changed this strategy to resolve such contradictions.

To make first-tier distributors no longer resistant, a good way is to buy them off with money. How to buy them off? Second-tier distributors are still under the jurisdiction of first-tier; local sales policies are formulated by first-tier; second-tier distributors pay money to first-tier; and when ordering goods, they must report to first-tier, who regulates. This solves the problem of voice. It makes first-tier feel they still have the right and ability to control second-tier. At the same time, all sales of second-tier count as first-tier's sales. First-tier not only earns quite high price difference profits but also gets substantial year-end rebates. In this way, the money first-tier earns does not decrease; if second-tier sales increase, first-tier will earn even more. Moreover, because the intermediate transfer costs of first-tier are saved, the expense ratio of first-tier decreases, saving costs, which also means earning more. Roughly calculated, a first-tier distributor can earn one to two hundred thousand yuan on the Wahaha brand alone. If they also represent other brands, the annual income is considerable, which is also middle-to-high income in a county town.

In this way, first-tier distributors reduce costs, earn more, and still have voice and dominance. It is almost a win-win situation. What else could they disagree with?

**2. Function transformation: from sales to management.**

Of course, correspondingly, the function of first-tier distributors also faces transformation, that is, from previous sales to management. First-tier distributors become managers. For their own market, what strategies should be formulated, which categories are most suitable, what to support, what to reduce, how to place advertisements, what forms to use, which TV stations or print media to invest in, etc. While first-tier manages, Wahaha also has many grassroots customer managers to cooperate with first-tier in developing and maintaining second-tier customers. If the network is built but no one manages it, it is wasted. It is understood that currently many (nearly half) of second-tier distributors are in a state of no management, that is, nearly half of the second-tier management positions are not yet filled. Wahaha's countermeasure is to recruit full-time salespeople at the township level, whose task is to strengthen the construction and management of the second-tier network. The salesperson's task is to supervise whether second-tier distributors' sales are in place, to judge whether the market still has mining potential and whether second-tier distributors need to be replaced.

The entire system construction idea looks almost perfect. So, how is this perfect design implemented?

Wahaha's vision is perfect, but implementation is not smooth. A large resistance comes from first-tier distributors. Their reactions are generally the same: on the one hand, they reflect that second-tier have no loyalty and the network is hard to build; on the other hand, they worry that building second-tier is to replace them.

After years of ups and downs in the market, first-tier distributors know very well: although Wahaha repeatedly reiterates that it will not abandon first-tier, after the manufacturer directly controls second-tier, the role of first-tier obviously diminishes, and their voice also decreases. Although it is impossible to cancel first-tier in the short term, it is uncertain that they will be replaced or directly removed in the future.

In addition, from the perspective of making money, although after the increase of second-tier, sales in their jurisdiction increase and income correspondingly rises, at that time they can only manage second-tier and cannot do terminal business, while now the mixed wholesale-retail operation also earns a lot. Some distributors say the enterprise wants to control (mixed wholesale-retail) but cannot. But is it really uncontrollable? The reporter thinks it is not necessarily so. Once this policy is implemented, Wahaha's follow-up management will definitely be very strict. Once it is found that a first-tier distributor is still doing retail, it will definitely be severely punished.

Based on these considerations, what first-tier distributors most hope now is that the manufacturer can change this strategy and maintain the current state. However, from the previous analysis, this is impossible.

Wahaha had long anticipated the resistance of first-tier distributors. In this regard, Wahaha believes the reasons for distributor resistance are: they still pretend to worry that the enterprise building second-tier is to replace distributors; they lack business philosophy and sales models, so they can only compete with second-tier for territory; they are too greedy for the per-box profit brought by direct supply to terminals; they treat Wahaha as a product to flush channels and use it to build networks.

Faced with Wahaha's determination, first-tier distributors are mostly helpless, knowing that the arm cannot twist the thigh, so they can only find other ways, that is, to control the scale of second-tier as much as possible. In the future for a considerable period, second-tier still need to be managed by first-tier; ordering and payment must go through first-tier, so first-tier can control and regulate through this. If a certain second-tier exceeds a certain sales quota, first-tier can regulate through products. In addition, in the process of building the second-tier network, there are two other problems: First, the construction speed is slow. Mainly the number of newly added second-tier is slow. The original second-tier need to be re-reviewed, qualifications determined, and adjustments made; good ones are maintained, average ones are supported, and very poor ones are removed. This takes time, and then new ones are added. Second, the sales of newly added second-tier are not ideal. Because the funds, warehousing, distribution, and personnel capabilities of second-tier are not strong, and the customer manager has high requirements to complete tasks, some second-tier feel they cannot complete tasks and thus do not work hard. In this regard, the enterprise requires, on the one hand, giving new second-tier an adaptation period, then gradually increasing requirements as experience grows; on the other hand, customer managers should increase sales by increasing the number of second-tier.

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