Editor's Note: When we look at excellent distributors, what should we learn from them? Learn from their current thinking and actions, learn from their judgments and choices for the future? These are all important. But this is not the most effective way to learn. Each distributor's strength, scale, development stage, environment, and position are different. Their current thinking and actions may not be the most valuable for us. The most effective method is not to learn from the successful distributor's present, but to learn how they got to where they are today, to learn their thinking, judgment, and actions from back then. Zhejiang Yiwu Huihua Food is an excellent major distributor specializing in alcoholic beverages in the Yiwu area for over 20 years, and it is also a core distributor for many well-known brands such as China Resources Beer. Starting in 2019, Huihua Food entered a mode of rapid growth. On the basis of a hundred-million-yuan scale, it grew 5-fold in 5 years, with annual beer sales exceeding 11 million cases, becoming one of the fastest-growing super distributors in the Zhejiang region. Today, we will try to use a time-travel approach to retrace the path of Chen Xiongfu, founder of Huihua Food, hoping everyone can gain some inspiration.
Different Trades Are as Different as Mountains The Hardware Guy Waded Through the Pitfalls of Alcohol Distribution Before 2003, Chen Xiongfu followed his family in the Yiwu Small Commodity City doing small hardware business. Yiwu is the world-famous capital of small commodities. During this period in the small hardware business, Chen Xiongfu completed his commercial initiation. In 2003, two alumni of Chen Xiongfu had invested 200,000 yuan in a Xinghuacun liquor distribution business that was failing. Because he was the intermediary who introduced the two alumni to each other, they hoped Chen Xiongfu would take over the liquor business. Zhejiang merchants are a business group with naturally strong commercial talent. Chen Xiongfu was not satisfied with the family's small hardware business, and he genuinely wanted to solve his classmates' problems. So, in 2003, he paid a transfer fee of 10,000 yuan to take over the business, and the predecessor of Huihua Food, "Longrun Trading," was born. Different trades are as different as mountains; reality is always harsher than imagination. After taking over the Xinghuacun agency, Chen Xiongfu discovered that this product was only a customized development product of Xinghuacun, not a direct product from the factory. To build the market, he was "fooled" into advancing a lot of market expenses, but when it came time to reimburse, the general operator reneged. After staying at the operator's location for three days without getting a penny back, Chen Xiongfu returned to Yiwu and never called the operator again. He accepted the failure, directly gave up the Xinghuacun product, and in March 2004 became the Yiwu agent for Qiandao Lake Beer, a local Zhejiang brand. The beer market in 2004 was a period of chaotic but rapid expansion. Qiandao Lake Beer was not cheap at the time, over 40 yuan per case, and no one in Yiwu had done it before. But after Chen Xiongfu took over, sales quickly increased, and by the end of 2005, monthly sales exceeded 30,000 cases. "In 2004, I felt we didn't do much different; we were just more pragmatic and service-oriented than other brand distributors. It was an era of rough growth; as long as you didn't mess around, you would basically grow," Chen Xiongfu commented on those years. The good times didn't last. In 2006, just as Chen Xiongfu was selling well, the best "Bingshuang" single product of the Qiandao Lake brand was cut off by the upstream and given to another local distributor. Coincidentally, also in early 2006, Chen Xiongfu met Hou Xiaohai, then the national marketing director of Snow Beer. So, on March 16, 2006, Chen Xiongfu officially began cooperating with China Resources Beer. It was this cooperation that truly opened the door to 18 years of sustained growth for Chen Xiongfu.
A Fall into a Pit, a Gain in Your Wit Adhering to the Multi-Brand Path In 2006, after taking on Snow Beer, Chen Xiongfu also reached a cooperation with Luzhou Laojiao. In 2007, he took on beverage brands such as Wanglaoji and Red Bull. More than a year later, Chen Xiongfu also secured the general agency for Wanglaoji in the Yiwu area, with annual sales once exceeding 1.3 million cases. Adhering to the multi-brand path was the most important lesson from Chen Xiongfu's first three years of entrepreneurship. "For a trading company, you can start with a single brand, but you must never operate with a single brand forever, " Chen Xiongfu summarized. First, it's unsafe, and the manufacturer-dealer status is unequal. If the manufacturer changes a policy, or even changes a leader, it can be a life-or-death crisis for the distributor. Second, it's not conducive to the market or to meeting terminal demand. If the product is too single, terminal demand cannot be maximally satisfied, and other beverage distributors may take advantage of the gap. Third, it's not sustainable. As a company, a distributor must strive for sustained growth in sales and profits. A single brand may face intensified competition, and it's impossible and shouldn't be that a single brand bears the mission and task of the distributor's sustained growth. Therefore, Chen Xiongfu has always maintained great openness to good products and good brands that come along. In the following years, he successively took on brands such as Yanghe, Xijiu, Jinsha Abstract, Moutai 1935, Changyu, Penfolds, Youxianggu, and Guangming Luke, covering white spirits, beer, red wine, yellow wine, beverages, and more. "China Resources Beer will always be Huihua's most important strategic partner. It can be said that without China Resources Beer, there would be no Huihua Food. Under the multi-brand strategy, China Resources Beer is not our only one, but it will always be our first," Chen Xiongfu defined and interpreted the partnership between Huihua Company and China Resources Beer.
The 30/70 Model The Exquisite Combination of Direct Supply and Distribution Multi-brand operation is easier said than done. If not done well, it becomes "biting off more than one can chew." Many brands, but none done well; the more you do, the more you lose—this is a problem many multi-brand distributors face. But Chen Xiongfu built a unique channel model, which he summarized as the "30/70 channel model: 30% direct supply + 70% distribution. " Why do the "30/70 channel model"? Full direct supply would make management and service costs too high, and quality terminals wouldn't be satisfied; full distribution would weaken terminal control too much, making it impossible to control the market. For example, there are about 9,000 dining terminals in Yiwu. Huihua chooses 1,500 quality dining terminals for direct supply, and the remaining over 7,000 are all handed over to distributors for service. 30% direct supply: For commanding-height terminals with scale, status, and market influence, direct supply must be achieved despite all difficulties. The best policies, the best service, to achieve the strongest control. 70% distribution: For the 70% of terminals other than the commanding heights, adopt a "tiered management" distributor model, mobilizing quality distributors to continuously improve service levels and terminal network control on the basis of high coverage. Under the "30/70 channel model," distributors may often have problems. How to mobilize and maintain the initiative, enthusiasm, and loyalty of distributors? Distributors are businesspeople and not easy to mobilize and manage. For this, Chen Xiongfu used a unique "territory theory" model to effectively solve this problem. Why are distributors always disloyal and disobedient? Because unlike agents, they don't have a "territory" defined by the brand. Without territory, it's like having no base; without a base, they naturally become "roving rebels." If distributors don't have territory, then I'll give you territory. Chen Xiongfu divided the entire Yiwu area into 23 districts and classified the 200 channel distributors into three levels: core customers, major customers, and ordinary customers. Each level has different treatment, rights, and obligations. The 23 districts correspond to 23 core customers. Each core customer has a district, which is their own "territory." In their own territory, in addition to the profit from their own sales, core customers also get a profit per case from the sales of other customers in the territory. But what core customers must pay for this is: achieving regional target totals, leading sales in the region, assisting in price control, prohibiting cross-region sales, and cooperating to complete basic market work. At the same time, core customers are not permanent. Once your performance declines or you fail to meet targets, the core customer of that district may become another excellent distributor. The difference between major customers and ordinary customers is mainly in the per-case sales rebate. But similarly, if major customers fail to meet sales and basic work standards, or violate market order, they will also be downgraded; if ordinary customers do well, they can be upgraded to major customers or even core customers. Through the unique "30/70 channel model" + "territory theory" , most of the brands represented by Huihua have achieved very good market results. For example, China Resources Beer's single-brand sales exceeded 10 million cases , Youxianggu exceeded 1 million cases , and Yanghe white spirits is the largest single county-level market outside its home base of Jiangsu, among others.
Integration and M&A From a Profitable Company to a Valuable Company "Only distributors with professional integration and M&A capabilities can become future super distributors. This is also the key for a trading company to go from 'making money' to 'being valuable.'" Chen Xiongfu realized this early on, and as early as 2013, he successfully completed his first integration and M&A. In the early days, there were three professional beverage distributors in the Yiwu area: Huihua, Jingliang, and Hengyou. Among them, Jingliang was acquired by Zhejiang Shangyuan Group in 2005, leaving Huihua and Hengyou to develop independently. Hengyou Liquor mainly operated Yanjing and Tsingtao, with white spirits like Gujing Gongjiu and Zhuyeqing, and red wine like Weilong. Its scale was quite influential in the Yiwu area. In 2013, because the two shareholders of Hengyou Liquor each held 50% of the shares and had incompatible ideas, neither willing to yield to the other, the two shareholders approached Chen Xiongfu, hoping he would come in. Chen Xiongfu purchased 40% of Hengyou Liquor's shares, making the ratio 4:4:2. In 2016, another 40% shareholder wanted to do real estate and exited. The Hengyou share ratio became 7:3, with Chen Xiongfu holding 70%. In 2019, Huihua established Dingshan Group, and Hengyou Liquor became a subsidiary of Dingshan Group specializing in nightlife venues. The other shareholder's 30% of Hengyou shares were exchanged for about 10% of the group's shares. Why go into such detail about Huihua's first integration and M&A process? On the one hand, this successful integration and M&A greatly consolidated and enhanced Huihua's leadership in the Yiwu beverage market; on the other hand, this multi-year integration ultimately achieved great success, which also accumulated very good experience for Chen Xiongfu in integration and M&A. In 2019, Chen Xiongfu established Dingshan Group Company. During the extremely difficult five years in the FMCG industry, he started a sprint mode of integration and M&A. In just five years, Chen Xiongfu's Huihua and Dingshan Group established more than a dozen subsidiary companies in the three adjacent regions of Jinhua, Lishui, and Quzhou through integration and M&A. What is particularly rare is that after these subsidiaries were established, they all achieved considerable growth in sales and profits without exception. It is also this growth that created the remarkable growth miracle of 5-fold growth in 5 years for Huihua Company. In the abnormal economic cycle after 2019, why did Chen Xiongfu dare to stride forward and expand, and succeed? Chen Xiongfu summarized two key factors.
1. The market entered an abnormal state, distributors faced increased operating pressure, and their willingness to seek integration was strong. After 2019, many distributors with weak strength and single brands had operational difficulties and hoped to be integrated for joint development. Therefore, under the organization and leadership of factory leaders, joint ventures and M&A went smoothly. At the same time, Chen Xiongfu's philosophy of "losing is gaining" also greatly helped accelerate integration. When integrating others, Chen Xiongfu calculated based on the other party's net assets plus a certain premium; when others exchanged or purchased group shares, he strictly calculated based on net assets without any premium. In addition, Zhejiang merchants are relatively open-minded, and Chen Xiongfu has had a good reputation and credit in the Yiwu area for many years, which is also an important factor.
2. M&A is easy, but integration is difficult; an effective group operation system is crucial. M&A is easy; it's just a matter of whether the price is right. But after the M&A, the difficulties are just beginning. After the M&A, there must be growth. If 1+1 doesn't equal more than 2, the original shareholders are harmed, and the cooperation is hard to sustain. After the M&A, you have to eat from the same pot. Trust and fairness are the most critical. Without these two, cooperation will also fall apart. Chen Xiongfu made very sufficient preparations for both of the above aspects. Many distributors have high operating pressure and find it hard to make money. It's not that their sales ability is poor, but that they lack resources and have weak management. Therefore, the M&A targets Chen Xiongfu chooses must be complementary. Only if Huihua's strong upstream brand resources and management capabilities can empower the other party will he choose to integrate and merge. In addition, Chen Xiongfu does not seek controlling stakes in integration and M&A; instead, he encourages a high degree of autonomy. But management is always open and transparent. Product procurement and supply prices are public, sales policy formulation has red lines to fix operating gross profit, and expenses use a budget system. Under the group, the financial system and human resources are unified. In human resources, the group outputs salary and rank frameworks, and each subsidiary determines specific performance plans and salaries based on actual conditions, but the accounting standards are uniformly reviewed by the group. In finance, Chen Xiongfu said, "No one in the company is responsible to the boss; they are responsible to the company they are in. Finance doesn't need to listen to any shareholder; it only needs to listen to the company and execute according to the system." "The boss or major shareholder is often the biggest destroyer of the system. I have managed myself well and done well myself. In fact, the group's subsidiaries are not that difficult to manage," Chen Xiongfu said about group management. In the past five years, Huihua has achieved ultra-high-speed growth. But Chen Xiongfu believes that Huihua's ultra-high-speed growth will continue for a long time. His goal is to reach 3 billion yuan in scale by 2030 and become the most influential professional beverage operator in the Zhejiang region.