When it comes to succession, most second-generation distributors take over a family business that is already well-established, with parents hoping to pass on their hard-earned legacy. Unlike the second-generation distributors previously reported by New Distribution, Chen Zhenyu took over the family business without strong resource support, and even faced real operational difficulties within the first 1-2 years, making it hard to get through. Essentially, he is a "second-generation distributor" forced by circumstances, from resistance to interest and research to re-entrepreneurship. His experience and thinking may offer inspiration to many distributors still in confusion.
-01- The Handover of the Business Between Two Generations, Seeking Transformation in Adversity In 1988, because they were located near the busiest dock and bus station in Ningbo, Chen Zhenyu's parents, while running their own retail shop, began to take on wholesale business for some early brands. This marked the beginning of Ningbo Jiangbei Huazhen Food Co., Ltd. (hereinafter referred to as Huazhen Food). The protagonist of this issue of "New Distribution 100 People", Chen Zhenyu, was born in 1989, which was also the time when the first batch of distributors started their businesses in the late 1980s and early 1990s. Chen Zhenyu's parents' business went from a street-side retail shop to wholesale of non-staple foods, and finally to becoming a major agent for first-tier brands, which served as the turning point for the second generation to take over. This journey spanned 30 years. In the late 1990s, Huazhen Food became the first-generation "postman" for Master Kong beverages, which was also a nickname for distributors at that time. During the same period, it also became the first-generation 101 customer for Coca-Cola in the region, with bottling plants ranging from Xiamen to Shanghai, and finally to Hangzhou Zhongcui. Around 2005-2010, Huazhen Food was upgraded to a city distributor for Master Kong, with more refined distribution areas, growing with the brand's rapid growth. At the same time, the business volume for Coca-Cola, Nissin, Master Kong noodles, and Master Kong Dingyuan cakes also expanded during these years, reaching a sales volume of 80 million yuan. From 2010 to 2016, a turning point occurred. At this time, Master Kong began to implement a dedicated logistics provider system, selecting major distributors for reform, separating commercial flow and logistics. Since then, in order to exclusively operate Master Kong, Huazhen Food basically gave up all other consumer product agency businesses, moving completely towards bulk wholesale and warehousing logistics. But this also planted the seeds of hidden dangers. Due to the complete change in functional roles, the company had almost no sales staff and had given up all other agency businesses. All work focused on warehousing, distribution, and document processing, losing all contact with the market. At the end of 2014, a family tragedy struck when Chen Zhenyu's mother passed away in an accident, dealing a heavy blow to the family. As anyone in the distribution business knows, although most distributors have formal company structures, it is extremely difficult to be an absentee owner. Currently, the business model of traditional distributors is mostly inseparable from the distributor themselves. At that time, Chen Zhenyu's mother's role was financial management and external customer management, which indirectly led to a pile of bad debts and messy accounts after the accident, with many accounts impossible to trace and basically unrecoverable. At this point, Chen Zhenyu had to shoulder the responsibility as the only son in the family. His father was mainly responsible for internal warehouse and distribution management, so the work that his mother had done fell on Chen Zhenyu's shoulders. After taking over, Chen Zhenyu spent about half a year sorting out and taking stock of the family business. At this time, he began to realize the problems and limitations of the family business. From 2016 to the present, Master Kong's system has been reformed again, with self-operated warehouses and fleets replacing distributors within urban areas. This can be considered the end of the era for the first generation of traditional major distributors, marking the beginning of the second generation's reform.
-02- Not a Business of Inward Seeking, but a Business with More Imagination In the period after his mother's death, Chen Zhenyu was not only taking stock of the family business but also thinking that what his parents had worked hard for most of their lives might only be worth a house in the real estate market. The situation for distributors in the soft drink industry during his parents' generation was roughly the same. All they could do was prepare the basic survival baseline for the next generation, with little left after earning. He felt it was unfair for his parents' generation. Why should distributors do business under these rules? Why can't they get higher value returns? Unlike the passivity of his parents, he was fearless and wanted to change this situation. With rising warehousing costs and fixed profits that were hard to increase, the pressure of various costs was overwhelming. After spending half a year familiarizing himself with the traditional agency and distribution business, he wanted to break out of this pure delivery business to seek development. At that time, Zhongwo, a manufacturer, came to him. At the end of 2015, Huazhen Food began to contact semi-package brands like Zhongwo, and started to have brand-specific sales staff to serve sales. But the good times didn't last long. Due to the instability of the manufacturer's personnel, to prevent interruptions in market sales and service, the company had to start building its own sales team. This move became the turning point for Huazhen Food's transformation. In Chen Zhenyu's view, whether you have a fully self-operated team determines two completely different business logics. The parents' business was a matter of accounting, and it was inward accounting. That is, with fixed output, save all possible costs. This kind of business is inward-seeking. For example, at its peak, Huazhen Food didn't even have a single salesperson. The thinking then was to cut all non-essential personnel expenses to save costs and play the role of a logistics distributor. After having a self-operated team, Chen Zhenyu gradually learned to think about business from the brand owner's perspective. He found that brand business gave him more imagination, no longer limited to the traditional distributor's inward-seeking mindset. Once he figured out what he wanted to do, all problems were no longer problems for Chen Zhenyu. Chen Zhenyu still remembers the entry date of the first salesperson. From November 20, 2016, to the present, Huazhen Food's team has reached about 40 salespeople, serving from the first direct terminal customer to the current 11,000 stores, covering all non-chain circulation and catering C-class stores within the Ningbo metropolitan area, and still growing. For Zhongwo, from the end of 2015 to June 2020, from pure new product promotion to a sales volume of 6 million yuan in half a year (non-peak season), it also set a record for the growth rate of provincial distributors during the same period. In June 2020, Huazhen Food officially entered the OEM own-brand path. The core product, VAN juice, has sold nearly 100,000 boxes since mid-June. The target for 2021 is 15 million yuan in brand sales, and currently, monthly targets are being exceeded.
-03- Brand Owner's Thinking, Channel Player's Means In Chen Zhenyu's view, the beverage industry is essentially a channel business, an industry with extremely high requirements for product availability. When demand arises, it must be met immediately. He strongly agrees with a statement by Tang Binsen, founder of Genki Forest: "Many people like to study changing things, but I prefer to study unchanging things." The changing things might be the new generation of consumers, new consumption concepts, new distribution channels, new communication methods, etc. But Chen Zhenyu still believes that in the soft drink industry, Coca-Cola's nine-character policy is the most essential unchanging thing: making people "able to buy, able to see, and able to afford". Including Genki Forest's approach, he thinks the outside world overemphasizes its new marketing tactics, ignoring that Genki Forest actually emphasized offline from the beginning, such as the widespread entry and product exposure in convenience store chains in first- and second-tier cities in the Yangtze River Delta. With brand owner's thinking and channel player's means, Huazhen Food quickly built a self-operated team of over 40 people and secured more than 10,000 outlets in Ningbo.
1. People are assets, not costs Compared to the strong brand power of first-tier brands and the high profit competitiveness of other miscellaneous brands, as an unknown local small brand surviving in the cracks, Chen Zhenyu believes the key to winning this battle lies in people, in the team. Chen Zhenyu sees that people will only become fewer and scarcer. When most companies consider people as costs, he thinks people should be treated as company assets. In his words, in the past, the equipment a person carried was very simple. Wars were fought with human wave tactics, treating people as consumables. Later, more and more equipment could be added to people, so people were no longer tools. One person going out might represent the concentrated power of the entire backend. Applied to today's beverage industry, one person is a mobile data processing center. Many pre-store tasks can be replaced by machines, such as the later popularization of ordering platform systems, which no longer require salespeople to visit. But post-store tasks, such as display, grabbing refrigerators, customer relations, and after-sales, cannot be replaced by ordering platforms and must be done by people. Therefore, Chen Zhenyu believes that bosses must first infinitely raise the importance of people, and then naturally there will be ideas on how to set performance for employees, how to use people to achieve dataization and systematization, etc. When treating people as assets rather than costs, you will find ways to equip people, making this asset appreciate, which is improving human efficiency.
2. Market strategy: Focus For a new brand to break through in a red ocean market, the core strategy is focus. In fact, this is also an inherent advantage that most distributors already have: The business at my doorstep is my call. In Chen Zhenyu's battle thinking, this means concentrating superior forces to win local battles. Distributors doing business at their doorstep have a focus capability that must surpass all first-tier brands. Based on this, Huazhen Food uses a guerrilla warfare focus strategy to counter the fixed market strategies of big brands. For example, on the same street, if a big brand invests one person visiting once a week, Huazhen Food invests a mobile team of 8-10 people (composed of regional team leaders) to visit daily in the short term until the first round of repurchase after entering the store, then gradually withdraw some to switch to a maintenance strategy. In addition, based on product category characteristics, Huazhen Food focuses on the catering channel in channel selection. Chen Zhenyu believes that 20-30 years ago was the era of small shops, which were the main force for selling beverages. But now, the entire commercial structure has changed. The sell-through of beverages in the catering channel has begun to surpass traditional small shops in some places, especially for new products. Using the catering channel to ignite new products is an experience he has gained through repeated practice. From the consumer demand side, the demand for food pairing in catering is a strong demand. From the market competition perspective, the product SKUs in catering stores are far fewer than in traditional stores, with fewer competitors.
Finally, from an industry perspective, the complexity of the catering channel is much higher than that of traditional stores. Currently, even first-tier brands, including beer, cannot achieve comprehensive direct service to the catering channel. What big brands cannot do is a good opportunity for Huazhen Food.
3. Market sell-through: Refrigerators, visits, offline promotion Regarding how to drive sell-through, distributor bosses with years of experience should each have their own methodology. For the beverage industry, Chen Zhenyu shared several of his views. First, the most important sales grabbing point in the beverage industry is the refrigerator. Having only shelf space counts as zero; only with a refrigerator can it count as one. Refrigerator plus shelf space may be greater than one. Without a refrigerator, everything is zero. So Huazhen Food places great emphasis on the team's ability to handle refrigerators, and grabbing refrigerator shelf space is the first priority. Second, improving outlet quality lies in visits. Through long-term observation, Chen Zhenyu found that store owners have a simple perception: whoever visits my store the most sells the best. Therefore, a normal weekly visit is essential. In addition, Huazhen Food has a mobile special forces team that can concentrate on breakthroughs whenever needed. Third, in terms of marketing strategy pull, as a local small brand, Huazhen Food was not capable of large-scale advertising in the early stage, but in its own territory, there is still a lot of offline promotion investment that can be made. For example, they once had a "Thousand Stores, Ten Thousand Tables" plan to create scenario-based consumption. They provided free tissues to catering stores, effectively buying advertising space on tables of all sizes, printing new product information on tissue boxes. A small box of tissues has a huge effect: it not only facilitates salespeople's negotiations but also saves restaurant owners the cost and hassle of purchasing tissues, and finally promotes new product sales. It kills three birds with one stone.
-04- Summary and Thoughts on Business As a relatively young second-generation distributor, Chen Zhenyu has received a completely different education and social environment from the first generation. Logically, he should be more inclined to pursue the more high-end things that young people of the new generation think are cool. But the author found that he seems more down-to-earth. Although at the beginning, he also admired some seemingly more high-end designs and more creative packaging, and wanted to do them, he finally found that what business must grasp is the essence of business, the unchanging factors in human nature within market demand. These cannot be replaced by gorgeous product designs. This also follows the principle that you must first have the essential 1, and then the 0s that add brilliance to it. In the past, distributors were used to doing business with services provided by upstream manufacturers. When they got used to the services from upstream factories, they would instinctively go to the manufacturers for promotion strategies, product after-sales, and expense support for any new product. But in fact, at their own doorstep, distributors can have their own teams and do their own brand business. Chen Zhenyu has proven this with his practical actions. From the background of the first generation of distributors going into business, consumers and channel players jointly sought good products upstream, leading to overall supply shortage. The current background for second-generation distributors is an era of information flow surplus and overcapacity, with the overall industry reaching a situation where supply exceeds demand at the product brand end. At this time, scarcity has returned to the channel end. Looking at the hottest internet giants in the past 20 years, they are all doing channel business without exception. Online e-commerce Taobao, JD.com, WeChat on mobile, Douyin for information, Meituan for food delivery—all are essentially traffic entrances, and the essence behind traffic is channel entrances. Therefore, there are many giants in online channels, but looking at offline, there are 6.5 million retail outlets nationwide, and an even larger group of catering stores, yet no one has been able to aggregate them into a massive traffic entrance. Stones from other hills can be used to polish jade. Looking at the United States, due to European and American consumption habits, they are accustomed to bulk shopping at large supermarkets, so Walmart is equivalent to the traffic entrance for offline consumption in the U.S., which directly contributed to Walmart standing at the top of the Fortune 500 for decades. In comparison, our country's business comes more from a vast and scattered collection of social stores, and this huge, unimaginable market cake is precisely the strength and expertise of all regional distributors. Currently, the reason many distributors find business increasingly difficult is that they have gradually become tools for advancing funds, warehousing, and transportation. In the past, a distributor's team was a boss leading ten relatives to endure hardship, but will it be like this in the future? Of course not. New Distribution sees more and more excellent distributors stepping out of traditional concepts and models, shining in their respective markets. Moreover, with the growth of a group of excellent young distributors born in the 1980s and 1990s, New Distribution believes that the entire distributor group will usher in an important turning point. As an indispensable force in the entire industry, it will surely usher in a brand new situation.
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