DISTRIBUTION EXCELLENCE IN CHINA - How to overcome major challenges in China's complex distribution environment and excel in e-commerce? ...
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DISTRIBUTION EXCELLENCE IN CHINA How to overcome major challenges in China’s complex distribution environment and excel in e-commerce? Shanghai, March 2021 EAC I China Distribution Excellence I March 2021
INDEX 1 CHINA DISTRIBUTION EXCELLENCE Key challenges, consumer insights and how EAC can support 2 BRIEF EAC INTRODUCTION Key facts and global references 2 EAC I China Distribution Excellence I March 2021
CHINA DISTRIBUTION (1/2) – KEY OBSTACLES FOR BRANDS IN 2021 In dynamic Chinese market, distributors are often ‘gatekeepers’ to drive growth – EAC experience shows that reasons range from reliance on legacy distributors, lack of transparency and e-commerce experience Reliance on Legacy Distributors § Unstructured selection of only one general distributor § Lack of critical review and frequent benchmarking Distributors are often ‘Gatekeepers’ for Low Distributor Capabilities § Lack of financial support from distributors growth in China § Lack of product/ technical expertise and capabilities to provide service Limited Experience in New Channels (e.g., E-Commerce) § Missing understanding of key growth channels (i.e., e-commerce, social commerce) § Unclear alignment on opportunities and responsibilities of distributor(s) Poor Distributor Incentivization & Motivation § Missing transparency of industry incentivization standards § Lack of distributor incentivization concepts Lack of Market and Data Transparency § Distributors work independently limiting channel, accounts & POS transparency § No access to valuable end-customer data (i.e., e-commerce and offline sales) Unclear (End Customer) Pricing § Lack of pricing transparency throughout the distribution chain (online and offline) § Lack of enforcement of pricing policies 3 EAC I China Distribution Excellence I March 2021
CHINA DISTRIBUTION (2/2) – SUCCESS FACTORS Many foreign companies are faced with complex distribution challenges in China – Choosing the right distribution approach and managing distribution partners most efficiently is crucial KEY STRATEGIC QUESTIONS SUCCESS FACTORS § Have we selected the right distribution business model? § How to assess and select right distributors according to our product DISTRIBUTION portfolio and business model? How are they performing against others? Clear formulation of STRATEGY § How to evaluate the distributor’s motivation fit to company’s business distribution strategy and model and company culture? selection of best-fit § How can we best access and use end-customer data (online and offline) partners for our business model and product portfolio decisions? § How to incentivize and motivate distributors according to their MANAGEMENT DISTRIBUTOR performance (monetary and non-monetary)? Development and implementation of tailored § How to avoid regional distribution conflicts? distribution processes § How to monitor distributor’s performance? What are thresholds for and tools replacing distributors? § Who are my end-customers and which products are they buying? TRANSPARENCY § Many B2C brands e-commerce sales accounts for >50% of China sales Distributor sell-out CHANNEL – do we participate in growth potential with our current set-up? transparency that enables § Which online channels (B2B and B2C) are the most relevant for each management and control of product? Should online channels be managed by distributor or separately? end-customer needs § How to deal with counterfeits and grey markets in my distribution model? 4 EAC I China Distribution Excellence I March 2021
EAC SOLUTION – HOW EAC HELPED OTHER CLIENTS IN CHINA EAC has leveraged its holistic distribution product offering to help numerous clients with their complex distribution challenges in China – most recent developed solution enables online channel transparency EAC Digital Solution DISTRIBUTION STRATEGY DISTRIBUTOR MANAGEMENT CHANNEL TRANSPARENCY 1D ISTRIBUTION STRATEGY HEALTH-CHECK 2D ISTRIBUTOR SCREENING & ASSESSMENT 3 DISTRIBUTOR MGMT. EXCELLENCE 4 E-COMMERCE STRATEGY § EAC best-practice sharing § Regional distributor § Utilization of EAC § Mapping & quantification § Competitor distribution landscape assessment distributor management of key online channels model benchmarking § Distributor screening process tool § Channel prioritization & § Distributor and model fit to (long-list database) § Definition of distributor strategic fit assessment: key industry trends and KPIs and thresholds – Domestic platforms § Initial assessment of sales – Cross-border impact of COVID-19 and distribution fit to derive § Definition of distributor monitoring processes/ platforms § Joint workshop-based short-list – Social commerce development of best-fit frequency and tools § In-depth analysis of short- – B2B platforms distribution model, e.g.: listed distributors with EAC § Implementation of incentivization tools (e.g. § Platform comparison, e.g. – Layers of distributors distributor assessment tool key customers, costs distributor awards) – Responsibilities per layer § Distributor risk assessment § Definition of reporting § Define e-commerce – Integration model standards operating model and role – Regional/ product of distributors portfolio coverage Selected EAC Distribution References 5 EAC I China Distribution Excellence I March 2021
EAC SOLUTION – DISTRIBUTION STRATEGY HEALTH-CHECK To assess the current distribution model and identify major short-comings, EAC conducts intense 1-2 days joint ‘Distribution Strategy Health Check’ workshops JOINT DISTRIBUTION 1 WORKSHOP 2 ¡ 1-2 days joint workshop to 3 review current distribution model and identify major short- 4 comings ¡ EAC best-practice sharing of direct competitors and companies from adjacent industries ¡ Joint definition of concrete improvement initiatives and § Review of current distribution model and required action items, e.g.: EAC insights on best-practices – Distributor monitoring and § Assessment of China and distributor review mechanism performance – Distributor incentive § Product portfolio performance standardization § Key industry/ channel trends and fit of – Assessment of legacy distributors (especially after COVID-19) distributors § Regional and channel white spot analysis – Distributor performance transparency § Review of distributor management set-up and KPIs § Current distributor bottlenecks 6 EAC I China Distribution Excellence I March 2021
EAC SOLUTION – DISTRIBUTOR SCREENING & ASSESSMENT In-depths EAC distributor filter process consists of several filter process steps, consisting of secondary and primary research supported by proven EAC distributor assessment tools EAC DISTRIBUTOR SELECTION (FILTER PROCESS) EAC DISTRIBUTOR ASSESSMENT TOOLS 1 2 Comprehensive Distributor Assessment Tool 3 Distributor Screening 4 Shanghai Area Beijing Area Guanghzhou Area Key food importers in 3 tier1 cities Sinodis Sims Shanghai Dapei Shanghai Qinzhou Pinlive Beijing Huadelong Beijing Sheng Feng Guang Yuan GOODWELL Guangzhou Branch Shenzhen PSB Trading Co., Ltd (Long-list of potential distributors) Weight Weight Value Score Value Score Value Score Value Score Value Score Value Score Value Score Value Score Value Score 1.1 General information 5% 1.1.1 Years in food distribution 10% > 10 5 > 10 5 > 10 5 > 15 5 > 10 5 > 10 5 > 8 years 4 Over 10 years 5 4 years 2 1.1.2 Turn-over in Y 2011 (mio RMB) 15% 400 4 1,300 5 400 5 250 4 400 5 40 3 65 3 640 5 80 1 1.1.3 Gross margin requirement of new coming brand 20% 40% 1 18% 3 40% 1 40% 1 40% 1 40% 1 40% 1 40% 1 40% 1 Normal Aggressive to Normal Normal Normal Aggressive to Normal Aggressive to Normal 1.1.4 Management style 20% 3 5 3 3 3 5 3 5 3 (Stay same) grow up (Stay same) (Stay same) (Stay same) grow up (Stay same) grow up (stay same) Normal Normal (Require to be (Require to be 1.1.5 Cooperation willingness (exclusive requirement) 35% 3 Strong 5 Weak 2 Normal 3 3 Strong 5 Weak 1 Strong 5 Normal 3 exclusive exclusive distributor) distributor) 3.0 4.6 2.8 3.0 3.1 3.9 2.0 4.2 2.2 2.1 Product portfolio 10% 2.1.1 Share imported dry food in total business (%) 60% 50% 3 Strong (90%) 5 Strong (85%) 5 90% 5 80% 4 95% 5 60% 3 50% 3 100% 5 2.1.2 Contribution all biscuit brands (%) 30% 10% 4 0 5 0 5 40% 1 15% 4 3% 4 7% 4 10% 4 0% 5 2.1.3 Other biscuit brands in negotiation 10% Yes 1 2 brands 1 Yes 1 Yes 1 Yes 1 No 5 Yes 1 No 5 no 5 3.1 4.6 4.6 3.4 3.7 4.7 3.1 3.5 5.0 3.1 Key account coverage 25% FILTER I (SECONDARY) Over 95% of the > 70% key Over 70% 90% of Shanghai key account 80% of the key accounts ~95% in 3 tier1 Over 90% key Over 90% in coverage in 70% 3.1.1 HM/C&C/SM store coverage, 50% 3 5 area, except of 4 5 covered in 5 account covered 4 0% 1 4 3 covered in cites account covered Guangzhou Shenzhen and Lotus Beijing and in Beijing Shanghai Guangzhou Shanghai > 80% key ~ 100% covered 70% coverage in accounts ~ 95% in 3 tier1 100% covered in 100% covered in Initial product and 3.1.2 Premium/department store coverage. 20% 4 5 ~ 100% covered 5 ~ 100% covered 5 in Beijing and 5 5 5 100% covered 5 Guangzhou and 4 covered in cites Beijing Beijing Shanghai Shenzhen Shanghai > 70% key 60~70% Only 20~30% Beijng: 70% Beijing: 50%, accounts ~ 95% in 3 tier1 (except Kuaike, ~ 90% of CVS Shanghai : 40% coverage in 3.1.3 CVS/drug store 15% 3 5 3 4 3 covered, (7-11, 4 only 7-11 and 3 100% covered 5 2 covered in cites Kede, Haode, covered Beijing: 70% Guangzhou and Wanning) Wanning Shanghai Wuyuan) Shenzhen company fit assessment Currently ~10% 2.5% of total sale Total ~ 10%, ~ 15%, mainly in of total sales ~ 3% among the value, mainly 7~8% of total mainly in TM, Mainly focus on 1HAODIAN, 360, value, through total sales, focus on sales value, 1Haodian, 360 3.1.4 on-line shopping 15% 3 1Haodian and 4 3 3 5 Zhuoyue, 5 no on line sales 1 major on line 4 none 1 mainly through 1HAODIAN and mainly in jingdong, Jingdong 360 Dangdang, channel, e.g. 1Haodian, its own on line 1haodian, 360, Zuoyue, etc. Zhongliang, etc 1HAODIAN, 360, platform TV: Dongfang CJ etc 3.2 4.9 3.9 4.6 4.7 4.4 2.1 4.4 2.8 80% stores 70% coverage in All store in 3 tier1 95% of Shanghai No coverage in 3.2 Store coverage 30% 3.2.1 HM/C&C store/SM 70% covered in 3 5 4 100% covered 5 100% covered 5 80% covered 4 1 90% covered 4 Guangzhou and 3 cities Area Bejing Shanghai Shenzhen 80% stores All store in 3 tier1 3.2.2 CVS/drug store/premium store 30% covered in 3 5 70% coverage 3 100% covered 5 70% covered 3 70% covered 4 80% covered 4 95% covered 5 20~30% coverage 2 cities Shanghai 3.0 5.0 3.7 5 4.4 4.0 1.9 4.3 2.7 3.1 4.9 3.8 4.7 4.6 4.2 2.0 4.3 2.7 ~ 70 4.1 Sales & marketing support 20% 4.1.1 No. of distributor SR 20% (will outsource 3 110 5 25 3 30 4 175 5 16 4 20 4 100 5 40 5 the sals SR soon) FILTER II (EAC PRIMARY) Yes, with total 10 4.1.2 Availability customer service department 25% Yes 5 5 Yes 5 Yes 5 Yes 5 Yes 5 Yes 5 Yes 5 Yes 5 people 1 brand 1 brand manager Separate the mamager will be Only categoried takes care of 10 1 team with 3 1 brand manager marketing 1 people will be 1 brand manager responsible for by channel in 4.1.3 No. of marketing team will service for Bahlsen 25% brands, 2 peoople in charge 4 5 5 will be arranged 5 2 source by 2 2 2~3 5 arranged will be arranged all brands' stead of by Performance Evaluation of Potential Distributors including of 2~3 brand for Bahlsen channel instead marketing and brand Cooperation willingness, Bahlsen of by brands promotion issue Yes (Sensitive to 4.1.4 Willingness on joint control on ANP 30% discuss expense 4 Yes 5 Yes 5 Yes 4 Yes 5 Yes 5 Yes 5 Yes 5 Yes 5 details with Bahlsen) customer access, SWOT 3.6 4.8 4.6 4.5 5.0 4.1 4.1 4.3 5.0 Yes, while all Yes, 6,422 s.q. Yes, around 30% Yes, around 30% Yes, around 30 5.1 Supply chain performance 15% 5.1.1 Any area with refrigerated W/H 15% 3 5 Yes 5 4 5 No 1 3 Yes 5 No 1 rented from TPL meters of total (2,400) in total (13,000) s.q. meters Yes, while not all TPL TPL Yes, not all of 5.1.2 Ownership of the logsitc 15% TPL 2 4 2 TPL 1 2 Self owned 4 Self owned 4 3 TPL 2 the warehouse (High flexbility) (High flexibility) them Normal truck 4 normal trucks Only 3 normal 7 normal trucks, Normal trucks: 61 6 normal trucks, 5.1.3 No. of normal trucks/No of A/C trucks 15% 3 5 s: 64 4 NONE 1 None 1 1 A/C truck 4 4 truck, the rest 3 TPL 2 the rest rented A/C trucks: 53 1 A/C truck A/C trucks: 12 pending rented from DCH CC: 1 week SC: 2~3 weeks CC: 5 days CC: 3 days CC: 1 Week CC: 1 month CS: 3 days 5.1.4 Speed to get the related Sanitary certification/custom35% clearance 3 5 Very weak 1 Good 4 4 3 3 5 5 SC: 2 months CC: 1 weeks SC: 1~1.5 month SC: 2-3 months SC: 2-3 month CS: 1 week CC: 15 days Yes, so far only in 5.1.5 Provide the service of repackaging 20% NO 1 Xinhui 5 No 1 No 1 Yes 5 Yes 5 No 1 Yes 5 No 1 warehouse 2.5 4.9 2.2 2.5 3.6 3.4 2.9 4.4 2.7 Accuracy: Accuracy: Accuracy: Accuracy: depends on the depends on the depends on the Usually 1 month, 2~3 months due depends on the 1.5 months negotiation with negotiation with negotiation with dpends on the to the negotiation with according to 2~3 month 6.1 Data exchange 10% 6.1.1 Accurate and timely Ex-D data exchange (monthly) 50% former 4 former 3 former 3 cooperation 3 cooperation 3 4 3 former 3.0 No experience 1 FILTER III (JOINT VISITS) former usually distributor, distributor distributor level of former level of former distributor experience Timely: 1.5 Timely: 2~3 Timely: 2~3 distributor distributor Timely: 2~3 months months months months 1 time per 1 time per 2 times per 1 time every 2 6.1.2 Distributor Stock information (1 time 2 weeks) 20% 4 1 time per week 5 1 time per week 5 1 time per week 5 4 5 3 1 time 2 weeks 5 Weekly base 5 month month month months 1 time per 1 time per 2 times per 1 time every 2 6.1.3 Store stock data availability 20% 4 1 time per week 5 1 time per week 5 1 time per week 5 4 5 3 1 time 2 weeks 5 Weekly base 5 Cooperation model, month month month months 1 time per 1 time per 2 times per 1 time every 2 6.1.4 Delivery report 10% 4 1 time per week 5 1 time per week 5 1 time per week 5 4 5 3 1 time 2 weeks 5 Weekly base 5 month month month months 4.0 4.0 4.0 4.0 3.5 4.5 3.0 4.0 3.0 7.1 Finance performance 15% 7.1.1 Total capital in operation (mio RMB) 25% ~ 70 4 ~ 500 5 ~ 80 4 ~ 50 3 80~100 5 6 3 25 3 80 4 10 2 7.1.2 Capability in collection from trade 25% 90% 5 Stong (95%) 5 Good (70~90%) 4 Over 95% 5 Over 95% 5 Over 95% 5 Over 90% 4 100% 5 90% 4 7.1.3 TT payment 20% No 1 No 1 No 1 Yes 5 No 1 Yes 5 No 1 Yes 5 Yes 5 motivation, cultural fit Tight during the 7.1.4 Cashflow situation in peak season 30% Normal 3 Very sufficient 5 Tight 2 Sufficient 5 Sufficient 5 Normal 3 Tight 2 Sufficient 5 2 peak season 3.4 4.2 2.8 4.5 4.2 3.9 2.6 4.8 3.1 Total score 3.2 4.6 3.6 4.0 4.2 4.1 2.8 4.3 3.5 Best-fit Distributors (Short-list of potential distributors) 7 EAC I China Distribution Excellence I March 2021
EAC SOLUTION – DISTRIBUTOR MANAGEMENT EXCELLENCE Customized distributor management tool will be developed according to agreed-upon key criteria to ensure continuous tracking and improvement of distribution capabilities EAC DISTRIBUTOR MANAGEMENT TOOL 1 GENERAL INFORMATION & CONTACT DETAILS # 2 2 DISTRIBUTOR MANAGEMENT Company / Dealer Name Province City 3 [Dealer Name] Dealer Number Year Founded Province Map with POS ¡ Once key distributors are selected, a detailed [Dealer Number] Name of Contact Person Title Mr./Mrs. 4 management process and underlying tools are i i required to ensure transparency and best- Function & Department possible performance of distributors, incl: E-Mail – Definition of distributor KPIs and Phone Number Full Address thresholds as basis for incentives and ‘kick-out’ criteria Homepage – Definition of distributor monitoring and Score Weighting Set-Up review processes/ frequency # 1 Scoring Section Company Profile Weight 5.00% Complete? No 2 Revenue 20.00% No – Implementation of incentivization and sales 3 Global Project 20.00% No 4 Trade 20.00% No Overall Score push tools (e.g. distributor awards, joint 5 New Business 20.00% No 6 Training 15.00% No 7 0 marketing campaigns) 8 9 0 0 10 0 ¡ Utilization of EAC distributor management 11 12 0 0 REVENUE OVERVIEW tool for ‘daily’ management of all distributor S 100% 2017 2018 2019 2020 Overall Gross Sales in [KEUR) Scoring Result By Channel - - - 0 related issues enables structured distributor GP Trade Mode DIY Weighted coordination, management and review and E-Commerce By Brand …. - 1 Score: Score: Score: - - 0 performance reporting …. … By Segment - - - 0 …. …. … Good TOTAL 8 EAC I China Distribution Excellence I March 2021
EAC SOLUTION – E-COMMERCE STRATEGY Wide range of different B2B and B2C e-commerce platforms in China leads to need for careful assessment of options based on strategic fit as well as integration with overall distribution strategy ONLINE PLATFORMS IN CHINA EAC E-COMMERCE CHANNEL 1 Online distribution strategy needs to be aligned with overall distribution Comprehensive Platform Assessment EAC 2 D Solu igital model, e.g. operations responsibility split between distributor & company, tion 3 access to customer data, initial investment (i.e. for listing and marketing) 4 DOMESTIC E-COMMERCE Domestic platform with comprehensive or specialized (vertical) product portfolio, dominated by Alibaba group & JD CROSS-BORDER E-COMMERCE International e-commerce, available for companies outside of China, international logistics need to be considered Operation Model Integration with Distributors SOCIAL COMMERCE Involves social media that supports social interaction & user contributions to assist buying/ selling of products B2B-FOCUS COMMERCE Platforms focused on B2B customers with holistic or vertical (e.g. chemicals, electronics, FMCG) product offering 9 EAC I China Distribution Excellence I March 2021
INDEX 1 CHINA DISTRIBUTION EXCELLENCE Key challenges, consumer insights and how EAC can support 2 BRIEF EAC INTRODUCTION Key facts and global references 10 EAC I China Distribution Excellence I March 2021
USP OF EAC – PROFOUND EXPERTISE IN KEY REGIONS With a clear vison we provide first-hand know-how and experience with the highest standard – we work with culturally mixed teams to achieve maximum results in our offices around the globe LONG-TERM MANAGEMENT EXPERTISE IN ASIA IN-DEPTH INDUSTRY KNOWHOW ¡ With >25 years of local presence EAC is a pioneer in the ¡ No “off the shelve”-projects: tailor-made project emerging core markets China and India solutions for the individual requests of our clients ¡ Strong project track record stems from long-standing ¡ EAC is supported by a high-caliber advisory board of relationships with global and regional industry former, internationally active CEOs in China and Europe stakeholders WE CREATE VALUE MORE THAN A VISION – A PROMISE ¡ “Single-Shop-Services guaranteed through high cross- ¡ We are overachieving the expectations of our customers with regional flexibility – no risk of “profit center fences” individual consulting approaches and innovative strategies ¡ Strong global network of independent experts in all ¡ We are a strong strategy partner – also during execution relevant growth markets through EAC regional hubs stage. Our project philosophy: “Walking the last mile” 11 EAC I China Distribution Excellence I March 2021
OUR OFFERING – SUCCESS WITH TAILOR MADE SOLUTIONS EAC offers holistic consulting solutions from strategy development to roll-outs and operational efficiency programs for mid-cap and multinational companies in growth markets OPERATIONAL STRATEGY M&A EXCELLENCE ¡ Go-to-market Strategy ¡ Acquisition ¡ Performance & Cost Improvement ¡ Product Design-to-value Initiative ¡ Divestures ¡ Sales Push & Distribution Excellence ¡ Portfolio Diversification ¡ Corporate Finance Services ¡ Global Footprint Advisory ¡ Innovation Strategy ¡ SCM & Sourcing ¡ Strategy Execution Cockpit ¡ Human Resources DIGITALIZATION SUSTAINABILITY ¡ Digital Business Models ¡ Sustainable Supply Chains ¡ Digital Transformation ¡ Circular Economy Potential ¡ E-Commerce Strategy ¡ Climate Protection ¡ Digital Empowerment ¡ Waste Reduction 12 EAC I China Distribution Excellence I March 2021
TRACK RECORD – EXAMPLES OF CUSTOMER REFERENCES > 25 years consulting experience > 50 countries > 2,000 projects = our expertise 13 EAC I China Distribution Excellence I March 2021
EAC – YOUR LOCAL DISTRIBUTION EXPERTS Our local team in China possesses extensive experience in distribution and channel management – We are happy to assist you, feel free to reach out to us! Mr. Uwe Haizmann Mr. Raphael Eder Mrs. Emma Ye Partner Managing Consultant Senior Consultant EAC Shanghai EAC Shanghai EAC Shanghai 14 EAC I China Distribution Excellence I March 2021
WHERE YOU CAN FIND US – EAC AROUND THE GLOBE SIGN U EAC AUSTRIA P fo Newsle r our month l Briefin tters – Busin y EAC International Consulting Kohldorf 79 | Office Building gs for C ess 8323 Sankt Marein bei Graz https:/ hina & /eac-co nsultin India: g.d e/news letter/ Phone +43 316 376155 christian.santner@eac-consulting.de EAC SWITZERLAND EAC International Consulting Bleicherweg 10 8802 Zürich Phone +41 791 558 884 roger.jann@eac-consulting.de EAC MUNICH EAC MOSCOW EAC MUMBAI EAC SHANGHAI EAC - Euro Asia Consulting PartG EAC - Euro Asia Consulting OOO EAC - Euro Asia Consulting Pvt. Ltd. EAC - Euro Asia Consulting Widenmayerstraße 29 Potapovskaya Roshcha 7/1, 306-310 Peninsula Plaza Sunyoung Centre, Rm. 801 80538 München office 37 A/16, Veera Industrial Estate 398 Jiangsu Road 108814 Moscow / Russia Andheri (West), 400053 Mumbai / India 200050 Shanghai/ China Phone +49 89 92 29 93-0 Phone +91 22 26 74 24 91 Phone +86 21 63 50 81 50 eac-muc@eac-consulting.de eac-mos@eac-consulting.de eac-mum@eac-consulting.de eac-sha@eac-consulting.de Find out more about EAC - www.eac-consulting.de EAC I China Distribution Excellence I March 2021
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