This article is a first-person account by Mr. Luo Kai, General Manager of Luoyang Hecai Trading Co., Ltd., about building a local B2B supply chain platform. Luoyang Hecai Trading Co., Ltd. was established in 2006. Before that, I worked in sales management at a manufacturer, and in 2006, I started this trading company. Since its inception in 2006, the company started with leisure snacks, then tried condiments and batteries, and finally returned to mainly operating leisure food in 2010. Fortunately, we have weathered wave after wave of market cycles, and in a third- and fourth-tier city, the business has continued to grow. To date, we distribute over 70 first-tier international and domestic well-known brands, including Strong, Lay's, Wrigley, Perfetti Van Melle, Alps, Wuqiong, and Orion, mainly in leisure food, covering categories such as food, alcoholic beverages, condiments, daily chemicals, and freshly brewed beverages. We have 4,000+ SKUs, 100+ employees, 10,000+ square meters of warehouse space, and 50+ vehicles. This is my basic business situation. Today's sharing is not about how I built my original traditional trading business, but rather about the methodology of my second venture over the past three years: building a local B2B supply chain platform and growing it to a scale of 100 million RMB in three years. Compared to the B2B platforms familiar to many distributor bosses, such as Kuaile Zhanggui, Jiayun Yunshi, Rongcheng Yigou, Yijiupi, and Zhongshang Huimin, I have three labels:
1. I am a traditional distributor building a local B2B supply chain platform, not directly starting a B2B business. I retain my original trading business and now also have a B2B platform business.
2. I am in Luoyang, a third- and fourth-tier city, not a provincial first-tier city with a large market and capacity. It is relatively rare to successfully build a B2B business in a third- and fourth-tier city.
3. The three-year second venture has been thrilling. At the beginning of 2021, we encountered the strongest community group buying period, from Meituan to Chengxin to Lingshoutong, and we fought our way out of the chaos to find our own path. Some friends in the industry call this the unique "Luoyang Model" of trading-company B2B in the FMCG B2B field. I think this is the core reason why New Distribution invited me to share here. I hope to provide some inspiration and food for thought for distributor bosses in third- and fourth-tier cities who are eager to try B2B or are already doing B2B. Overview of the Local B2B Business Before discussing how we reached 100 million RMB in three years, I would like to give an overview of my B2B business situation, development history, category structure, store activity, and hardware configuration. Luoyang Hecai Trading launched its B2B business (formerly known as Luoyang Rongcheng Yigou, now renamed Shendu Yigou) on December 15, 2020. After a full year of operation in 2021, sales reached 30 million RMB; in 2022, 60 million; and in 2023, nearly 100 million. To date, there are a total of 4,200 SKUs, of which 60% are from distribution and agency, and 40% are from external procurement. In terms of revenue structure by category, leisure food accounts for 65%, alcoholic beverages and drinks 15%, convenience and non-staple food 10%, grain and oil condiments 3%, household cleaning and daily chemicals 2%, and other categories about 5%. The B2B business mainly covers community supermarkets of 50-150 square meters, with local circulation small stores in Luoyang as the core. The annual active store count is 4,500, and the monthly active store count is 3,200. In terms of hardware configuration, we have 4,500 square meters of warehouse space and 15 vehicles. In addition to these basic introductions, I would also like to show you the current internal organizational structure of the Shendu Yigou business, so that you can understand the internal operating mechanism of Hecai Trading's B2B business. Shendu Yigou has set up six major departments:
- Procurement and Sales Department
- Operations Department
- Sales Department
- Finance Department
- Human Resources Department
- Logistics Department
The difference from a trading company is the addition of a procurement and sales department, which is generally used to connect with suppliers for external product procurement. The operations department is responsible for maintaining the official account and platform pages, video output, marketing planning, and other tasks. The above is a basic introduction to the B2B business over the past three years. I think only by sharing these basic operating conditions with you can the specific measures below be more easily understood by distributor bosses. The Start and Stages of the B2B Business Why do B2B platform business? I still want to seriously communicate with distributor bosses on this point. B2B has been very hot in the past year, especially at various New Distribution conferences where local B2B supply chain platforms are discussed. I see many distributors thinking this is a trend and a dividend, and they all want to try it and make a big push. Or they feel their existing business is unsustainable, but they don't want to switch industries. After investigating, they seem to think B2B is feasible, so they plan to do B2B. In both of the above cases, the starting point for distributors doing B2B is opportunism. From the perspective of someone who has been through it and is an actual operator, I do not recommend it. Because doing B2B well is not easy, and making it successful is even harder. Even though Hecai Trading's B2B business has reached a scale of 100 million RMB today, I dare not say it is a success. Looking back at these three years, I think distributors doing B2B will not do well without going through two layers of hardship! To put it bluntly, if distributors do not have firm determination and perseverance, it won't work. If distributors treat the B2B platform business merely as a project investment, it will definitely not succeed. Let's get back to the point. Let me talk about why I wanted to do B2B platform business at a time like 2020. There are two reasons:
1. Internal business ceiling
2. External environment challenges First, the internal business ceiling. The trading company's business, mainly in leisure food, has reached a scale of over 100 million RMB, and the obvious feeling is sluggish growth. This is mainly because in the leisure food category, except for super first-tier brands, the volume of other products is not very large, and it relies on the combination of categories. However, there are also many competing brands in leisure food, so it is impossible to have unlimited agency products. Of course, most distributors at this time start to cross categories for distribution and agency. We did the same and stumbled into the alcoholic beverage business. We entered the bottled liquor industry and represented brands such as Longjiang and Xiao Langjiu. After several years of ups and downs, we found that we had entered someone else's red ocean to compete, without any advantages, and we still had to find resources and pay tuition. My final conclusion was: If we only expand the business by adding new brand agencies, we cannot fundamentally solve the contradiction between output and input. This is the internal business ceiling. Now let's talk about the external retail environment. In recent years, local chain supermarkets have faced "difficult times"—declining foot traffic and declining sales. Under the multiple impacts of the economic cycle and online e-commerce, local chain stores have two core strategies on the procurement and sales side: 1. Reduce supply costs;
2. Direct cooperation with brands. Regarding these two points, I think many distributors will empathize. Facing the risk of "de-intermediation" and brand direct operation in local chain supermarket stores, distributors absolutely cannot sit still and wait for death. In addition to continuing cooperation and increasing professional promotion capabilities in their own categories, they must also broaden channels in the local market to spread risk. Obviously, covering more local small and medium-sized independent stores is the most suitable, and only this channel can be firmly grasped by distributors themselves. At the same time, considering the contradiction between new brand agency and personnel input-output, relying on one or two brands to do business with small and medium-sized stores is definitely not enough. Based on the above, Hecai Trading finally chose the B2B platform distribution model, using digital tools to scale upstream product distribution (4,200 SKUs) and scale downstream coverage of small and medium-sized stores (5,000+ small and medium-sized stores). This is the underlying thinking behind why Hecai Trading did B2B business. It was not a whim, but a deep operational pain point. Facing the operational dilemma, we had to do B2B business. This is also the reason why, in the past three years, despite the pressure of losses and investment, we continued to cultivate deeply. I regard the B2B platform business as the second curve for Hecai Trading's business growth. Let me share the changes in hardware configuration each year. 2020 - Preparation and investment year: at the initial launch, 4 vehicles, 2,000 square meters of warehouse, 18 people. 2021 - Launch and investment year: sales of 30 million+, 8 vehicles, 2,000 square meters of warehouse, 35 people. 2022 - Operation and investment year: sales of 60 million+, 12-15 vehicles, 3,500 square meters of warehouse, 65 people. 2023 - Stable operation year: sales of 100 million+, 15-20 vehicles, 4,500 square meters of warehouse, 86 people. The Value of the B2B Business Next, let's talk about the operational results after doing B2B business. Let's start with first-tier brand business, using Lay's and Wuqiong as examples. Lay's potato chips previously directly covered 300 small stores, and now it directly covers 2,500 stores. In 2020, Lay's small store business was 50,000-60,000 RMB per month, and by 2022 it reached 400,000-500,000 RMB per month. Wuqiong is also the same: previously, small store business was 10,000 RMB per month, and now it is 130,000 RMB. This has truly increased the output of first-tier brands. Of course, you can also understand that it not only increased sales output but also provided an incremental channel for brands. Naturally, there is more expense support. In addition to the increase in sales of first-tier brands, the growth of the B2B business has also attracted more high-quality first-tier brands. For example, we have also taken on brands such as Haitian, C&S, Yili, and Weilong, which are TOP 1 or 2 in their respective categories, and we have signed brand agency agreements covering small and medium-sized stores. In one sentence: Through the B2B business, we not only increased the output of first-tier brands but also attracted more high-quality brand cooperation. Luoyang Hecai's influence and voice in the local trading circle continue to improve. That was from the brand perspective. Now let me look at it from the management perspective. In the past, my average per-capita output was 50,000-80,000 RMB per person per month, but now the average per-capita output has reached 350,000-600,000 RMB per person per month, almost seven to eight times growth. Inventory turnover days have decreased from 30-60 days in the past to 15 days now, a reduction of more than 50%. On payment terms, we used to have 200 small stores that required payment on delivery or 30-day terms, but now all are zero payment terms, and cash flow is relatively good. Through the development of the B2B platform business, Luoyang Hecai has also successfully transformed from a single leisure food category distributor into a comprehensive multi-category, omni-channel trading enterprise. Due to space limitations, I cannot elaborate on all the business methodologies around Luoyang Hecai. From March 14 to 16, 2024, during the Spring Sugar Fair, the Second China FMCG Distributor Conference, organized by New Distribution and Zhoupu Data, will be held in Chengdu. On March 15, a closed-door private sharing session for distributors will be held, titled "Low-price impact, manufacturer direct control, declining foot traffic: What are the options for distributors?" It will feature one-on-one dialogues with outstanding major distributors to share experiences, explore business opportunities, and discuss the era's dividends. At the same time, we will also invite 16 benchmark distributor bosses from across the country and relevant industry executives to share their latest thoughts on distributor business. We hope to provide some direction and set up a lighthouse for the distributor community in the face of intense changes today, so that at least the business direction is not blurred or confused! The Second China FMCG Distributor Conference is not only a grand event of knowledge, cases, and methods but also a conference that leads the future development of distributor business! This conference will revolve around the theme of "Supply Chain Revolution." Over three days, there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, more than ten sub-forums and closed-door exchange meetings, and the first major debut of the [Ultimate Supply Chain] Brand Factory Direct Procurement Fair. We will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and ways out in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave. 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