---
title: "Zhu Zhiming: Seven Paths for Distributor Transformation (Part 1)"
description: "This article outlines seven transformation paths for alcohol distributors in China, emphasizing the need to adapt to industry trends. It provides detailed case studies on specialization, integration, and parallel development, highlighting successful models like Qiaoxi Commerce and Luobai Tobacco & Wine."
author: "朱志明"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-09-13"
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# Zhu Zhiming: Seven Paths for Distributor Transformation (Part 1)

> This article outlines seven transformation paths for alcohol distributors in China, emphasizing the need to adapt to industry trends. It provides detailed case studies on specialization, integration, and parallel development, highlighting successful models like Qiaoxi Commerce and Luobai Tobacco & Wine.

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The world moves with great force; those who follow it thrive, those who oppose it perish. This applies to nations, and equally to our alcohol distributors and dealers. Only by fully understanding the operational laws of the alcohol industry and aligning with its development trends can distributors survive and thrive in China's market—a market full of opportunities but also the most competitive in the world.

Facing the current difficulties in the baijiu industry, I have carefully and prudently considered the development status and出路 of distributors. Based on analysis and summary of excellent domestic and international distributor experiences, I have roughly summarized seven major transformation paths for Chinese distributors and dealers. I welcome industry peers to discuss and share.

**Distributor Transformation Path 1: Specialization**

Specialization means a distributor focuses on a specific industry or business segment (e.g., tobacco & wine shops, hotels, supermarkets) and does it thoroughly, becoming the strongest and most influential distributor in the local or national market.

In the current market, channel flattening is a major trend. This flattening is reflected in two aspects: First, from the upstream, large brand manufacturers compress channel levels, threatening distributors' living space. Large brand distributors further strengthen their channel management and control, squeezing the profit and development space of small and medium distributors. Second, from the downstream, large retail chains and specialty stores use their strong sales teams to shift operational risks and costs upstream to distributors, compressing their development space and profits. They also demand direct supply from manufacturers, bypassing distributors. However, due to China's vast territory, uneven market foundations, and highly differentiated consumer demands, the high cost of direct manufacturer operations across regions ensures that distributors remain irreplaceable and still have enormous development and survival space. Therefore, some excellent distribution enterprises recognize the breadth and sustainability of the distribution market and focus more on deep marketing in a specific industry or segment.

**Case Study: Qiaoxi Commerce's Specialized Business Model**

Qiaoxi Commerce, after 30 years of outstanding pursuit and unremitting effort, has formed a truly well-known "trade name" brand in the alcohol industry. With the establishment of "Qiaoxi Zhongjing Group," in mid-2012, Qiaoxi's "Wine Storage" model once again ignited the industry. Rumors circulated that Qiaoxi would complete the registration of prefecture-level city subsidiaries within 3 to 5 years and set up Qiaoxi offices in all 2,800+ counties nationwide. For a time, Qiaoxi became one of the most talked-about topics in the industry this year.

Let's look at Qiaoxi Commerce's specialized business model:

1. **Qiaoxi Commerce Positioning**
   To be the nation's No.1 brand operator, building the most professional alcohol business platform.

2. **Brand/Product Model**
   Buyout operations as the mainstay, distribution agency as a supplement; a product portfolio of national famous wines + regional strong brands.
   Qiaoxi Commerce has successively bought out the general distribution rights for 28 brands with over a thousand varieties from 11 large national famous distilleries, including Jiannanchun, Luzhou Laojiao, Langjiu, Fenjiu, Shaanxi Xifeng, and China Great Wall Wine Co., Ltd. The 28 brands include: Laobaifen, Fenjiu, Classic Fenjiu, Great Wall Dry Red Cellar Reserve, Great Wall Dry Red Vintage, Blue Flower Lang, Qinghua Lang, Guocang Lang, Xifeng Cellar Reserve, Xifeng Cellar Storage, Xifeng Beijing Special Supply, Luzhou Chenniang, Luzhou Chenqu, Luzhou Laojiao Touqu, Luzhou Laojiao Erqu, Luzhou Laojiao Red Sorghum, Luzhou Laojiao Laobaigan, Jiannan Jiaozi, Jiannan Guobao, Shuangou Chenniang, Shuangou Chenqu, Tuopai Chenniang, Tuopai Chenqu, Gujing Chenniang, Gujing Chenqu, Gujing Beijing Special Supply, International Red Star, Guocang Red Star, etc.

3. **Development Plan**
   Deep brand operation + Wine Storage chain + legal person subsidiary system + opening capital market listing channel.
   Strengthen and deepen the brand operator role within the industry, establish subsidiaries nationwide, build a national marketing and distribution network; interact the wine warehouse commercial brand with consumers. In other words, build a better brand among consumers through the "Wine Storage" chain brand.

4. **Sales Model**
   Branch companies (offices) + chain stores (franchise/direct).
   Qiaoxi's goal is to use sales subsidiaries as a means to face the nation, setting up Zhongjing Group branches and warehouse bases every 500 kilometers in representative large cities nationwide. Currently, Qiaoxi has established nearly 90 subsidiaries and over 200 chain stores, including more than 100 "Wine Storage" famous wine chains. In its strategic expansion, Qiaoxi plans to invest hundreds of millions of yuan and establish 300 independent legal person subsidiaries nationwide within 2-3 years. Qiaoxi also requires that for each registered company, a "Wine Storage" chain store must be prepared.

5. **Management Model**
   Qiaoxi Commerce adopts a two-line cross management model. One is the management line, from headquarters to provincial companies, prefecture-level companies, and county-level offices, using a tree-like management structure, with a unique three-level profit distribution mechanism between headquarters and subsidiaries. The other is the business line, where each brand has a brand manager, from the brand director at headquarters to brand managers at provincial companies, brand supervisors at prefecture-level companies, and brand specialists at county level. The management line is like the "latitude," with subsidiaries at all levels focusing on revenue and profit, while the business line is the "longitude," from brand director down to brand specialist, focusing on the development of the brand they are responsible for. Each line has its own focus, and this cross management of latitude and longitude ensures the operation of subsidiaries.

6. **Service Model**
   From Qiaoxi's current development trend, subsidiaries have actually become Qiaoxi's customers, reflecting the idea of turning employees into partners, with the company's strong service platform as backing. Qiaoxi has delegated all promotion and management to local subsidiaries, and all distributors with direct business dealings with Qiaoxi are now handled by local subsidiaries. Qiaoxi headquarters only serves as a comprehensive service backend. This allows power to fully sink, focus to sink, and provides comprehensive services to brand customers, while direct sales operations are conducted for weak brands without customers. At the same time, for terminals and outlets that have high operating costs, are unwilling for customers to operate, but are strategically important to the market, provincial service companies will also operate directly. This ensures market promotion achieves the "Four Modernizations": front-line approval, terminal service, simplified processes, and forward warehousing.

**Case Study: Luobai Tobacco & Wine's Channel Exclusive Model**

Luobai Tobacco & Wine is the most influential professional high-end alcohol brand marketing company in Luoyang. It is an excellent brand operator integrating Moutai, Wuliangye, Jiannanchun, Luzhou Laojiao, Yanghe Blue Classic, Great Wall Wine, and other famous wines. In 2008, on the occasion of Luobai's 10th anniversary, it proposed a new strategic plan—to build Luobai into the "No.1 brand for high-end alcohol professional marketing services."

1. **Adhering to the Famous Wine Path to Win Market Opportunities**
   Luobai grew step by step by relying on famous wines to build the market and terminals. In the past, Luobai adhered to the famous wine path, diligently operated terminals, carefully cultivated each famous wine brand, and ultimately achieved success.
   In 1998, when "Moutai" attacked the Luoyang market, the sauce-flavor baijiu market in Luoyang was narrow. Surrounded by strong-flavor baijiu, opening the market was very difficult. However, Luobai persisted in meticulous terminal channel cultivation, conducted multiple market research, locked onto target consumer groups, gradually cultivated core consumer groups, provided them with humanized and personalized services, and increased publicity for Moutai's "green, organic, healthy" attributes. After cooperation began, Moutai factory officials visited several times and were moved by Luobai's loyalty to the Moutai brand. Finally, they willingly handed over the Luoyang distribution rights to Luobai, and Moutai subsequently developed rapidly in Luoyang. Later, Luobai gradually obtained distribution rights for "Wuliangye," "Jiannanchun," "Luzhou Laojiao," and "Yanghe," thus truly embarking on the road of famous wines. After ten years of development, the company has been rated as "National Excellent Specialty Store" and "Advanced Distributor" by Guizhou Moutai Co., Ltd., and has been awarded "Excellent Distributor" by Wuliangye Group for consecutive years. In 2007, it was honored as one of the 11 "Strategic Partners" of Jiannanchun Distillery nationwide.
   Luobai Chairman Geng Jing said: "Luobai grew big by relying on famous wines. Through the successful operation of famous wines, we have also successfully built the golden signboard of Luobai. These famous wine products were built up by me with painstaking effort, drop by drop, and I have deep feelings for them. I will certainly continue to work hard to operate these products better." Geng Jing's words may be the best answer to why Luobai insists on the path of famous wines.

2. **The Word-of-Mouth Effect of Luobai's Anti-Counterfeit Labels**
   Luobai defines its corporate responsibility as: brand marketing, genuine product marketing, providing consumers with quality products, caring for consumer health, and advocating the healthy consumption concept of "drink good wine, drink less." For ten years, every bottle of wine that leaves the factory and enters Luobai has been affixed with a Luobai anti-counterfeit label. Good wine is tasted and tested by time.
   It is understood that a customer once came into contact with another supplier during cooperation with Luobai, and that supplier's quote for the same wine was far lower than Luobai's. This made the customer very dissatisfied with Luobai, believing that Luobai had deliberately raised the price. The customer immediately parted ways with Luobai. Luobai thought it had lost a customer, but a year later, the customer called Luobai hoping to resume cooperation. According to Luobai staff, the customer's hotel was found to have counterfeit alcohol and was inspected multiple times by relevant authorities, causing the customer's reputation to decline and business to plummet. To regain lost credibility, the customer chose the trustworthy Luobai.
   Now, consumers in Luoyang dare not drink famous wine without Luobai's anti-counterfeit label. Many consumers actively promote Luobai: "Go to Luobai to buy wine; Luobai's wine is genuine!" Ten years of quality assurance and ten years of advocating healthy consumption concepts have won consumers' hearts and established the good reputation of "Buy genuine wine, go to Luobai!"

3. **Refining Channels to Enhance Control**
   Luobai insists on refined operations in five major channels: catering, supermarkets, group purchases, famous tobacco & wine shops, and county-level distribution. On one hand, it established a group purchase public relations department to conduct long-term publicity and public relations for high-end consumer groups, build good customer relationships, and do a good job in famous wine sales services. On the other hand, it established direct supply relationships with various channel outlets to effectively control channels and the market. In hotel and supermarket terminals, Luobai deploys hundreds of promoters to conduct word-of-mouth publicity at the frontline and continuously plans and implements various promotional activities targeting consumers, waiters, and hotel owners to stimulate market consumption.
   Luobai creatively pioneered the direct-sales hotel model nationwide. Kaixuanmen, Hanji, and Xihu Zhichun hotels are leading hotels in the Luoyang market. Luobai, based on market demand, creatively turned Kaixuanmen Grand Hotel and Hanji Hotel into Moutai direct-sales hotels, and Xihu Zhichun into a Jiannanchun direct-sales hotel. This direct-sales hotel model is a national first. It was recognized by manufacturers, and many distributors came to visit and learn.
   In each county-level market, Luobai deploys several salespeople who combine the products they operate with the resources of each distributor and recruit distributors by product. In a county-level market, 4-5 distributors are set up by product. Each distributor faces competitive pressure because if they don't perform well, they can be replaced at any time. Therefore, to survive, distributors will certainly do their utmost to develop the market and terminals. Moreover, each distributor's resources and terminal resources can be used mutually. In addition, Luobai spends heavily every year on customer relationship public relations for various channel outlets, so Luobai has established good relationships with various outlets and has strong control over all channels.
   To better serve, Luobai has dedicated personnel to maintain and manage each channel outlet. To ensure genuine product supply, Luobai does not allow salespeople to deliver goods themselves; salespeople only take orders, and the company's delivery personnel arrange timely delivery uniformly. If urgent delivery is needed, even in the early morning, Luobai staff will deliver at the fastest speed. Luobai's customer-first service attitude has won praise from all hotels and attracted more terminals to cooperate directly with Luobai. Now, newly opened hotels in Luoyang mostly approach Luobai for cooperation first. Geng Jing said: "Actively building and maintaining terminals is the only way to polish Luobai's golden signboard, and we can then achieve greater development on this basis."

**Case Study: Qingdao Yixingyuan Trading Co., Ltd.'s Specialization Path**

Brand and network are the fulcrum for alcohol distributors to survive and thrive. If the fulcrum is solid, even a county-level distributor can gallop across the province or even the country.

Ten years ago, when Qingdao Yixingyuan Trading Co., Ltd. was restructured from Laoshan Sugar and Wine Company, it was, like most similar trading companies, just a county-level distributor with a relatively good foundation. However, after years of development, the company has not only grown into one of Qingdao's best alcohol distributors but has also expanded its market to the entire Shandong Province and other provinces and cities. Yixingyuan General Manager Li Bo said when discussing the company's development history: "Thinking determines the way out. We set our sights on the entire Shandong market from the beginning, so our product development and network construction have been built entirely according to this 'big plan'."

Indeed, from the beginning of the restructuring, Yixingyuan abandoned the familiar path of agency and distribution and opened a new path of self-owned brand building. At the same time, it set aside traditional channels and focused on supermarkets. After 10 years of arduous construction, they finally achieved success. Today, Yixingyuan not only occupies the supermarket network in Qingdao but also radiates to the entire Shandong Province, with six field offices in Jinan, Zibo, Dongying, Weifang, Linyi, Yantai, and Weihai. Starting last year, they also went out of Shandong to attack markets in Shenyang, Dalian, and other places. With Yixingyuan's development, more markets will be incorporated in the future.

**Brand Development Closely Linked to Supermarkets**

At its inception, Yixingyuan established the development strategy of basing itself in Qingdao, radiating to Shandong, and focusing on supermarkets. The company's product development fully follows this guiding ideology. Therefore, the products they develop first meet the consumption characteristics of the entire Shandong Province and also cater to supermarket consumption characteristics. They adhered to this thinking and successfully walked a unique development path.

**Based on Local Conditions, Developing New Products**

Yixingyuan General Manager Li Bo was previously the head of the alcohol section of Laoshan Sugar and Wine Company. He has connections with major famous wine enterprises and a good network of relationships. In just a few years, they successfully developed brands such as Moutai Town Guibinyan, Moutai Jiachangfu, and Yatai Yangfan Qingdao. At the same time, Moutai Han Sauce Wine has just been released, and Kongfujia Vintage Wine is about to be launched. By hitching a ride on national and local well-known brands, they formed a self-owned brand cluster and perfected a product structure spanning high, medium, and low grades.

Qingdao consumers' loyalty to local brands is rare nationwide. In such a market environment, Yixingyuan can successfully develop foreign brands one after another, demonstrating its product development prowess. The company has not only successfully introduced multiple foreign brands into Qingdao's supermarket channels but also ranks among the top in sales in major supermarkets.

Shandong hotels prefer low-alcohol wine, but family consumption and gifting prefer high-alcohol wine. These two segments are precisely the focus of supermarkets. After conducting market research, Yixingyuan established the route of promoting high-alcohol wine. In product development, they first choose well-known brands, creating a pattern where national and local brands complement each other. In product creation, they avoid the common mindset of most OEMs that overemphasize packaging and neglect wine quality, putting wine quality first. For every product developed, sufficient market research is conducted. Besides senior management tasting, consumers are also invited to taste and feel the product to ensure it meets consumer preferences. In product promotion, they downplay advertising investment and emphasize experiential consumption, using free tasting, buy-one-get-one, and other forms, relying on excellent wine quality and good taste to let consumers spread the word. A series of effective measures ensures the success of their product development.

**Distributor Transformation Path 2: Integration**

Integration here refers to manufacturer-distributor integration, meaning distributors deeply embed themselves into the manufacturer's distribution system and retail terminal supply system through management alignment with brand manufacturers, achieving steady development without seeking rapid growth.

In terms of competitive trends, the market has concentrated toward big brands. Similarly, the distributor industry has also seen concentration toward big brands. To better serve terminal customers, implement business policies, and maintain market order, large brand manufacturers use their strong brand position to strictly manage and control distributors, requiring them to focus more exclusively on distributing their brands. To this end, upstream manufacturers must strictly select distributors, cultivate capable and potential distributors, and embed these distributors into their own business networks to achieve integrated operations. This ensures stable relationship development.

Due to the rapid circulation of big brand products, capable distributors not only receive guidance and assistance from manufacturers in management and operations but also have stable distribution business and opportunities for sustained development and benefits.

The prerequisite for manufacturer-distributor integration is that the manufacturer's brand is a major brand or a rapidly developing dark horse brand. Only then is this integration model more likely to succeed.

**Case Study: Luzhou Laojiao's Qiquan Model**

The "Qiquan Model" is a continuation of Luzhou Laojiao's 2006 targeted issuance to distributors, further expanding the beneficiary targets to sales personnel and more distributors. It is a marketing channel management service company established with joint investment from the original Luzhou Laojiao channel sales team, distribution customers, and their management teams, operating exclusively for Luzhou Laojiao's core brands. "Luzhou Laojiao" directly faces Qiquan Marketing Company and regulates and supervises its behavior through contracts. Currently, the company has established six Qiquan companies: Chongqing, Sichuan, North China, Central China, Laojiufang independent brand, and Fujian distribution alliance.

The Qiquan marketing model unites a group of powerful local distributors, forming long-term and sustained cooperative partnerships and building a distributor interest community. While expanding sales, distributors can also receive dividends and share in price increase benefits. Under the Qiquan model, original enterprise marketing personnel have transformed from "Luzhou Laojiao" employees into shareholders and managers of Qiquan Marketing Company, strongly mobilizing their initiative and enthusiasm in meticulous market cultivation. Specifically, sales personnel in the original area also invest in Qiquan Company and terminate their labor contracts with "Laojiao." The general manager of Qiquan Company is the original area manager, holding shares, while distributors serve as chairman.

The Qiquan model can be understood as the company "outsourcing" terminal sales to Qiquan Company and constraining it through systems, contracts, and interests. Although sales personnel have terminated their contractual relationship with the company, they are still constrained by the company. In specific operations, the sales company supplies goods to Qiquan Company at a discounted price and cancels the original rebate and free wine policies. Then, distributors in the area purchase goods from Qiquan Company. Qiquan Company's profit margin comes partly from the company's discount and partly from the share of price increases after the company raises product prices.

The Qiquan marketing model is a direct manifestation of Luzhou Laojiao Group's implementation of "large group, small supporting" in sales, and has profound strategic significance for Luzhou Laojiao's future development.

First, it adjusts the roles of factory area sales personnel, distributors, and marketing managers to become shareholders, forming a responsible strategic partnership. Market management and operations are handed over to professional managers, forming an interest alliance among the factory, distributors, and professional managers, completely resolving the game relationship among the three parties.

Second, the previously troublesome issues of price and logistics responsibility are incorporated into the corresponding execution management system, maximizing market scale and market profits.

Third, it aggregates Luzhou Laojiao's national distributor customers, forming a distributor customer alliance, becoming the most powerful alcohol marketing network system. In the future, it can also enter the capital market through Luzhou Laojiao's listed company resources to obtain greater benefits.

Fourth, the Qiquan marketing model implements long-term equity incentives for professional managers, realizing the long-term interests of manufacturer and distributor salespeople. At the same time, through market mechanisms and equity incentives, it quickly introduces excellent professional managers, maximizing the benefits of professional managers.

In summary, Luzhou Laojiao's Qiquan marketing model, through equity reform, establishes an interest alliance of brand, channel, and professional managers, reducing interest conflicts, maximizing common interests, and opening a direct line of execution from the area to the distributor execution team to market operations, laying a good channel architecture foundation for future market expansion. As a new thing, the Qiquan marketing model still needs continuous磨合 and improvement during its development, and it is also a key task for Luzhou Laojiao in a period. After all, it is a beneficial exploration and bold attempt at a new type of manufacturer-distributor cooperation in the baijiu industry.

**Case Study: Guangzhou Baiyun District Alcohol Merchants Association**

Industry associations are not a new term, but it is rare to see an industry association integrated into the daily operations of every alcohol trading enterprise. The association's frequent activities and various peer interactions have formed a "circle" among its members, and the effect of their unity on the development of trading enterprises is increasingly evident. Alcohol trading enterprises united under the name of an association are not a distributor alliance linked by capital or equity, but their broader unity, especially its practical effects, is worth discussing among industry insiders.

Currently, the vast majority of member units of the Baiyun District Alcohol Monopoly Association are alcohol trading enterprises, ranging from large enterprises to small wholesalers. Moreover, member units also include alcohol sales terminals such as Renrenjia Shopping Plaza, Haodangjia Supermarket, Wanhe Shopping Plaza, Jiangnan Business Hotel, and Manjinglou Restaurant. Therefore, the Baiyun District Alcohol Monopoly Association is actually an organization with a broader industry attribute. It is precisely this breadth that provides more communication opportunities between alcohol trading enterprises and alcohol sales terminals, enhancing mutual understanding.

According to Zhang Jianwei, general manager of Guangzhou Juntao Famous Tobacco & Wine Chain Corporation, the largest difference between this association and other regional associations in China is the close connection among member units. The core ties are two points: First, the association is an efficient platform for member units to understand official policies and handle relevant procedures. Second, the association has the value of an industry parent, with common rules to follow, which excludes small and medium merchants below the threshold (with alcohol retail licenses and alcohol wholesale licenses), especially those dealing in counterfeit and shoddy products. From this perspective, the association is an endorsement for local alcohol wholesale and sales; joining brings honor, and leaving brings disgrace.

The active members of the Baiyun District Alcohol Monopoly Association include Zhang Jianwei, Wen Wenlong of Longcheng Wine Industry, Qiu Ruilin of Guangzhou Ruiying Trading, and Liao Xiushan, general manager of Wanhe Shopping Plaza. The association hopes to use them as core forces to lead the development of member units. How strong the role of peer models is cannot yet be measured by data. However, it both conveys official directives and plays a semi-official role—such as cooperating with government departments in anti-counterfeiting (which distributors consider "very powerful"); at the same time, through various training and meetings, it enhances the professional capabilities of member units. Such practical activities make alcohol trading enterprises and terminals "tighter and tighter."

The following examples can illustrate the association's nature and current operations: Example 1: Providing alcohol practitioner qualification training for members (mainly covering the Ministry of Commerce and Guangdong Province's regulations on alcohol, as well as professional knowledge such as alcohol evaluation, identification of genuine and fake alcohol, and distillation technology, which is also a prerequisite for obtaining a monopoly license). Example 2: Externally, especially for national sugar and wine fairs, the association organizes participation uniformly, emphasizing organizational image. Example 3: Three days after the 5.12 earthquake in 2008, the association initiated a donation and raised 123,639 yuan on the spot, even though members had already donated 464,900 yuan through other departments within a few days.

**Distributor Transformation Path 3: Parallelization**

Parallelization refers to parallel extension development, meaning distributors should continuously enrich their distribution brands and expand distribution business, engaging in multi-variety and multi-platform agency distribution. Extending distribution business on the original basis, engaging in cross-industry and cross-sector operations, can not only reduce operational risks but also cultivate more business growth points. Our market is different from mature markets in developed countries; it has many opportunity points. These opportunity points provide a huge platform for distributors and dealers to extend in parallel, not only cultivating more business growth points and achieving business scale effects, but also expanding enterprise scale and increasing opportunities for enterprise operations.

**Case Study: Beijing Chaopi Trading Co., Ltd.'s Horizontal Extension Path**

Speaking of Chaopi, a distributor friend in Beijing said: If Chaopi withdrew their distributed products from the market, 60% of the shelves in Beijing's retail terminals would be empty—regardless of the truth, this shows Chaopi's influence on the Beijing market. Beijing Chaopi Trading Co., Ltd., mainly engaged in food, beverages, daily cosmetics, and washing products, is the largest FMCG wholesale agency company in North China.

Currently, Chaopi has established cooperative relationships with more than 300 famous domestic and foreign production enterprises, including Nestlé, Moutai, Wuliangye, Jiannanchun, Arawana, Lotte, Wahaha, and Nivea. It has become the general distributor, general agent, or largest distributor for more than 70 manufacturers in the Beijing area. Its network covers large and medium-sized retail chains in Beijing and more than 6,000 small shops in densely populated communities, and it has established a sales network centered on Beijing and covering the Bohai Rim region.

Distributors often complain that their enterprises cannot grow big. The reasons are simple: First, the enterprise is small and cannot bear market risks and capital pressure, so it prefers short, flat, and fast markets, doing whichever product has faster capital turnover and is more profitable, neglecting network building, making it even less likely to grow. Second, during development, the business philosophy lacks overall consideration, the overall quality of personnel is low, they cannot make targeted adjustments based on the manufacturer's situation, and channel maintenance capabilities are poor.

Let's look at how Chaopi, with annual sales of over 6 billion yuan, grew big. Compared with other wholesale enterprises, Chaopi's channels are more complete: First, supermarkets—this is Chaopi's foundation, with about 90% of sales coming from supermarkets and hypermarkets. Second, secondary wholesalers—as a general distributor, it covers catering, suburban counties, and untouched markets through more than 100 secondary wholesalers, meeting manufacturers' distribution requirements. Third, mom-and-pop stores and convenience stores—as a comprehensive agent, Chaopi's idea is simple: I set up the stage, manufacturers perform. Chaopi has built four distribution transfer stations in the east, west, south, and north of Beijing. Manufacturers willing to cooperate can share the resources of 4,000-5,000 mom-and-pop stores and convenience stores. In these three networks, Chaopi can find suitable sales channels for manufacturers based on their different product characteristics and needs. However, with the rapid changes in channels, pressure also comes to the developing Chaopi. With increasing categories and intensifying competition, they have begun to adapt to changes and continuously adjust their business strategies.

**Five Core Forces Behind Chaopi's Success:**

1. **Independent Operation of Strong Brands**
   For many years, Chaopi has implemented a divisional system, forming divisions based on major product categories such as alcohol, non-staple food, daily chemicals, beverages, and food. However, as competition intensified, more brands wanted to enter Chaopi's marketing channels, and competing products of similar strength were very unwilling to be placed under one department. Chaopi did not want to offend customers, so it handed them to another department to operate, gradually giving rise to many subsidiaries under different brands. The most representative is Nestlé. Nestlé continuously improved its brands, which once brought great inconvenience to Chaopi's category management. Chaopi simply spun off several of its products and established a subsidiary to operate Nestlé products independently. Some independent subsidiaries were established at the manufacturer's request, such as Nivea. When this department was first established, its business volume was only a few million yuan. The manufacturer hoped Chaopi would form an independent team for it, with the manufacturer providing investment such as basic wages for employees, field incentives, market promotions, and expense support. After evaluation, Chaopi felt this was a brand with potential and specially established a Nivea department. After two years of operation, the department's sales had reached nearly 40 million yuan. Independence benefits both manufacturers and distributors, but operating any independent brand requires costs; wishful thinking won't work. For a wholesaler to independently operate a brand, it must ensure that market growth is sufficient to support the department's development.
   Therefore, Chaopi examines three aspects: whether the manufacturer has sufficient market share, whether the product has sales volume, and whether it can receive the manufacturer's attention and support. To date, Chaopi has 11 subsidiaries and 6 operating departments. Rapidly splitting brands not only allows for more detailed brand management and more professional field work but also gains more manufacturer support.

2. **Refined Management**
   Chaopi's rapid development is well known, as can be seen from the market performance of its agency brands: "Erguotou" over 200 million yuan, "Jinliufu" over 100 million, Huaxia Dry Red nearly 100 million, Luhua Oil and Arawana Oil with over 90% market share in Beijing, 7 international baby formula brands, famous chocolate brands (Cadbury, Nestlé, Ferrero)... It can be said that Chaopi controls its markets with enormous brand pull.
   Big brands have an increasingly obvious pulling effect on Chaopi's sales. This pull mainly comes from two aspects: First, tapping the potential of existing markets of famous brands, such as newly opened stores, making the market more detailed and deeper, driving sales. Second, new varieties derived from famous brands greatly boost market share. However, market development costs are increasing, and it is increasingly difficult for new brands and varieties to develop rapidly in local markets. Therefore, refining management of key brands has been put on the management agenda. The original divisional management began to shift to flat management, with the goal of making business more refined. Under the original system, salespeople had to handle settlement, promotion, shelf restocking, and market maintenance—multiple tasks for one person. But everyone's energy is limited, and often they can't attend to everything, so work was done roughly. Evaluating sales personnel was based on settlement performance; no payment meant no income. So they spent most of their energy on settlement, leading to poor store tracking and difficult sales process control. Therefore, Chaopi began to further clarify frontline division of labor: settlement clerks only handle settlement; salespeople are responsible for promotion and in-store negotiations, arranging promotional activities with retailers; salespeople are assisted by shelf restockers who execute specific promotions, orders, and check for out-of-stock items. The refined division of labor greatly improved in-store terminal service capabilities. In addition, Chaopi also made professional divisions for brands. In the past, "only looking at sales results at year-end, not the process" greatly affected category management efficiency. Now, they estimate the annual target for a brand, decompose sales targets into monthly targets based on product characteristics and different seasons, and then decompose them to each store. Each store has different sizes and different demands for each SKU. For example, Nestlé's 300 SKUs may not be suitable for every store. Chaopi sets standards, and salespeople list display standards and SKU stocking standards for their responsible stores. Then, salespeople know how much to sell this month, what the business targets are, which stores help decompose the targets, and which products should be stocked in which stores. Every quarter, salespeople review sales performance with manufacturers and retailers.

3. **Distribution Chainization**
   According to the old practice, wholesalers only needed to obtain the agency rights for the Beijing area. Starting in 2004, for three considerations, Chaopi began to look beyond Beijing:
   1. Chaopi is affiliated with the Hong Kong-listed Jinkelong Group, which put forward higher requirements for the company's performance—it must consolidate the Beijing market and expand to surrounding areas.
   2. Following the rapid expansion of major hypermarkets, Chaopi must be able to radiate to various regional markets.
   3. The company's rapid development also requires more network support.
   From the agent's perspective, the longer the tentacles, the firmer the foundation. However, can regional agents expanding to other places get manufacturer support? Because manufacturers have already divided business regions, selling Beijing goods in Tianjin will inevitably create conflicts. Therefore, Chaopi's current strategy is to strive for the North China general agency rights for a product, avoiding future market collisions and frictions. In recent years, it has successively established branch companies in Tianjin, Shijiazhuang, Tangshan, Jinan, Qingdao, and other Bohai Rim economic circle cities, replicating the Beijing market business model. Chaopi's ideal is to create a new wholesale chain format in the future.

4. **Advanced Information Management**
   Fully utilizing advanced information technology to improve supply chain management is a key factor in Chaopi's success. As early as 2001, Chaopi cooperated with Beijing University of Technology to develop an enterprise management information system, realizing internal information exchange and unifying procurement settlement and warehousing distribution. As the system developed further, Chaopi realized that information technology could further deepen the entire supply chain process, so it upgraded the system to an e-commerce platform based on ERP (Enterprise Resource Planning) and took the lead in the industry in developing a "3G" mobile marketing management system, achieving "electronic document exchange with major suppliers and customers, integrating internal business with external transactions, and gradually realizing modernized operations of the entire supply chain process." The application of electronic labels enabled Chaopi to successfully meet the requirement of 7-11 convenience store chains for delivering scattered goods to stores. Chaopi uses its strong information collection and processing capabilities, through analysis of various data on products and their marketing, to cooperate with production suppliers in detailed marketing from product selection, purchase analysis, promotion, and even product display, coordinating multiple marketing strategies around manufacturers and stores. It must be able to tell suppliers what market demand is, and also tell retail terminals and even public consumers what products are most suitable.

5. **Strong Logistics Service Capability**
   It is reported that Chaopi has a modern logistics distribution center integrating warehousing, processing, sorting, breaking bulk, and transportation. While meeting its own logistics distribution needs, it has established third-party logistics service cooperation relationships with multiple manufacturers, with distribution coverage including Beijing, Tianjin, Hebei, Shanxi, Shandong, Inner Mongolia, and other regions.
   Chaopi's warehousing area is nearly 200,000 square meters, with 160,000 storage positions, a maximum daily throughput of 600,000 cases, storage capacity of 8 million standard cases, and annual throughput of 90 million cases. The two automated sorting lines, rare in China, are a Chaopi feature, enabling automatic sorting of 9,000 cases per hour, improving picking speed, reducing labor costs and error rates in outbound goods, and reducing product damage caused by manual handling.
   Over the past 25 years, Chaopi has formed a three-in-one enterprise form integrating wholesaler, distributor, and logistics provider, mutually supporting and integrating, creating a Chaopi-featured industry development model, and introducing a large number of well-known brands familiar to the public into Beijing's sales terminals. (To be continued)

Source: Channel Network

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