Click to read the original text for details The Origin of the Contracting System The contracting system originated in 1978 in Xiaogang Village, Anhui Province, where 18 farmers gathered for a meeting that would later influence national policy and gave birth to the prototype of the contracting system. Its main contents were threefold: first, distributing farmland to households; second, no longer asking the state for money or grain; third, if cadres were imprisoned, members would ensure their children were raised to age 18. During the "People's Commune" period, this act was considered a daring defiance of the world, and also a great feat. From 1980, when the central government issued "Several Issues on Further Strengthening and Improving the Agricultural Production Responsibility System," affirming this contracting system, the national contracting system gradually standardized. By 2016, the "three rights separation" land contracting system was formally confirmed, dividing land contract management rights into contract rights and management rights, implementing the separation of ownership, contract rights, and management rights, in line with farmers' wishes to retain land contract rights and transfer land management rights. The effects of this contracting system on agriculture were evident: China's total grain output increased from 659.5 billion jin in 1978 to 601.94 million tons in 2013, feeding 22% of the world's population with only 7% of the world's arable land. The implementation of the household responsibility system liberated rural productivity and greatly increased farmers' enthusiasm for production. In a sense, it opened a second golden age in the history of China's agricultural development. Reasons for the Emergence of Distributor Contracting Many FMCG manufacturers also use contracting systems, such as Jinmailang's "Four-in-One" and Uni-President's "Big Package Earn," with Jinmailang's model being relatively successful and still in use today. Why did distributor contracting emerge? Mainly for the following reasons: 1. Management difficulties Many distributors lack the organizational and management capabilities for large teams. When personnel and scale grow, managing salespeople becomes chaotic, and it's unclear whether they are seriously building the market. Not only does this fail to activate employees' initiative, but salespeople may even engage in gray income. Actions required by manufacturers and distributors, such as displays and end-cap placements, are not executed properly, ultimately failing to increase sales. 2. Inability to retain talent This is a common problem in the industry. Many salespeople work for years but only earn 5,000-6,000 yuan per month. In a market environment where delivery drivers and couriers can earn nearly 10,000 yuan, salesperson turnover is high. On the other hand, excellent salespeople, after becoming familiar with the market and gaining the ability to operate independently, are likely to leave and start their own businesses if distributors cannot pay higher wages. 3. Marginal markets Most people tend to be lazy and dislike difficult tasks. This applies to salespeople visiting terminals: if a terminal isn't won over on the first or second visit, they basically stop going, preferring to visit places with good relationships and quick sales. This leads to many markets being marginalized. These marginalized markets are essentially full of potential, and not working them is a loss. 4. High marginal costs In the past, salespeople worked for distributors, and terminal expenses were borne by the distributor, so they had no personal stake. They used expenses and ran promotions as much as possible, maximizing costs, leading to high expenditures. Benefits of the Contracting System The contracting model divides an operating area into multiple small markets, contracted out to salespeople, with the core idea of turning salespeople from employees into small bosses. The direct benefit is that salespeople's mindset shifts from "working for someone" to "being the boss." Previously, building the market was a task assigned by the distributor; now it becomes a motivation to earn money, greatly stimulating the enthusiasm of small bosses and increasing their investment of effort. The second benefit is stronger controllability. The small boss contracting model is managed through a unified data system, linking people, vehicles, and area contracts into one line. Data makes each salesperson quantifiable and visible, making management easier. Moreover, compared to the independence of second-tier distributors who are not constrained by the distributor, salespeople are under the unified management of the distributor, offering stronger control. Currently, the best practitioner of the contracting system in the market is Jinmailang, whose original "Four-in-One" integrates vehicles, personnel, area contracts, and terminal machines. 1. Without vehicles, there are no outlets; without outlets, there is no sales. 2. Having vehicles alone is not enough; effective visits by personnel are needed to lock in sales. 3. Through area contracts, workers are promoted to partners, becoming a community of shared destiny. 4. Through terminal machines, intelligent management of vehicles/personnel/contracts establishes a new management system. The core of the Four-in-One is replacing low efficiency with high efficiency, low productivity with high productivity, low energy with high energy, and one-way communication with two-way communication. Problems with the Contracting System Of course, any new system will encounter problems. The contracting system has faced many issues in FMCG enterprises. 1. Overextending the market. If salespeople lack long-term planning, they may overstock terminals to earn more money, pushing several months' worth of inventory at once for short-term sales gains. But the goods don't reach consumers directly; they sit in terminal warehouses, causing serious after-sales problems. For example, in some lower-tier cities, we find that although Jinmailang products enter stores, their shelf life is generally older compared to competitors. This is due to salespeople's short-sightedness: they stock and display but fail to maintain terminals promptly, don't rotate stock, and don't handle old dates, leading to poor sell-through. These short-sighted actions will inevitably cause problems later. Some small bosses, after earning high short-term income, choose to collect payments and run away, ignoring after-sales, leaving a mess. Losing terminal trust basically ruins the market. This is like "killing the goose that lays the golden eggs," gaining short-term gains by overextending the market, but from a long-term perspective, it's not advisable. It may require even more investment to rebuild the market later. 2. Disobedience. Under the contracting system, salespeople become small bosses with more autonomy, weakening the distributor's control over employees. Basic tasks like daily store visits, displays, maintenance, and execution cannot be fully carried out according to the distributor's requirements. 3. Arousing greed. After becoming familiar with the process, salespeople realize this model is profitable, and greed is aroused. They don't see the pressure the boss bears; instead, they think, "The boss earns so much per box," and have improper thoughts. For example, if they earn 100,000 yuan this year with Jinmailang, they might push for 110,000 next year, but there's a ceiling. They might then consider carrying other products, and with more products, they become less focused, which is a loss for the company. 4. Interest-oriented, interest-driven. Under the contracting system, the interests of salespeople and distributors are not aligned. Salespeople want to earn more this year, while distributors want sustainable profits. When interests conflict, salespeople act in their own interest, thinking, "The market mess is none of my business." Overall, the shortcomings of the contracting system currently have no good solutions, making it a high-risk model. Why Does Contracting Work in Agriculture but Is Difficult in Business? Undeniably, the contracting system has achieved great success in agriculture, which is why it has been used to this day. However, in business, contracting has generally not been very successful, and many have failed midway. There are three main reasons. First, the way institutions change is different. Agricultural contracting was bottom-up: farmers tried it successfully, and then the state studied and promoted it as a spontaneous institution, which was quickly accepted at all levels and highly stable. In contrast, commercial contracting is typically formulated by enterprises as a top-down, mandatory institution. It is essentially imposed on employees, creating resistance, and without a model to reference, it cannot balance the interests of all parties. Second, institutional stability differs greatly. Agricultural production is very simple and doesn't fluctuate much over time, so there's no worry about significant losses due to changing times. Business is a complex world, especially in the internet age, where changes are rapid. A new competitor today, a new model tomorrow—these can greatly impact the contracting system, causing income instability. Third, with contracting, land doesn't depreciate due to business failure; it may even appreciate. But a company is an entropic entity: if operations are poor and the market is ruined, the brand in that market basically dies. In conclusion: In the short term, the contracting system can achieve business growth, but in the long run, without a good management system, it carries significant risks. A slight misstep could ruin the market. Therefore, not all enterprises are suitable; distributors should be cautious when trying the contracting system. -END- PS: The 2021 (4th) China FMCG Conference, hosted by "New Distribution," is about to open in Shanghai. Focusing on industry trends + practical cases + growth connections , 3,000 FMCG practitioners will gather. 10 themed forums cover new retail O2O, community group buying, short-video live e-commerce, distributor transformation, rise of new consumer brands, new wine and beverage interpretation, distribution B2B supply chain, omnichannel marketing, B2B2C new technology applications , etc., with operators from various segments bringing the latest case studies. Confirmed heavyweight guests so far include: 1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, global expert partner at Bain & Company and former vice president of marketing for Coca-Cola China; 4. Chen Xiaodong, senior vice president of Nestlé Greater China; 5. Zhang Fujun, president of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; 7. Yang Hongbin, vice president of Junlebao Dairy Group; 8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operations Center; 10. Li De, e-commerce general manager of Gold Hong Ye Paper Group ... A grand gathering for FMCG professionals—you must be there! Are you "watching" me?