Kangshifu—Three Stages of Distribution

Kangshifu—Three Stages of Distribution

          
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Kangshifu—Three Stages of Distribution

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    In This Article
    • An extensive sales and distribution network contributes to Tingyi’s rapid penetration in the smaller cities and its lead in market share.

    • When competition intensified in the late 1990s, Tingyi revamped its channel management for sustainable long-term growth.

    • Today, Tingyi is planning for another revolution of its distribution network to support its ambition to expand into the rural market.

     

    Tingyi, which owns Kangshifu, one of the most recognized national food brands in China, earned revenues of more than RMB 5 billion in 2009. An extensive sales and distribution network, which includes nearly 500 sales offices and 100 warehouses serving more than 5,000 wholesalers and 73,000 direct retailers, has contributed to the company’s rapid penetration in the smaller cities and its lead in market share (55 percent for instant noodles and 48 percent for ready-to-drink teas in 2009, according to ACNielsen).

    When it was established in 1988, Tingyi relied on distributors to build its network. To minimize conflict, it empowered a single distributor in each city to be in charge of all products and channels. To encourage the distributors to more actively promote products in the market, Tingyi offered attractive margins and incentive schemes. The generous partnership attracted a broad network of distributors, and the Kangshifu brand successfully achieved nationwide coverage very quickly.

    When competition intensified in the late 1990s, Tingyi revamped its channel management for sustainable long-term growth. First, so that it would be less reliant on the distributors’ networks, it strengthened local control by establishing local sales offices and developing its own network of wholesalers, especially in the suburbs and smaller cities.

    Later, the company refined this approach to its distributor partnerships to ensure that each city was covered by multiple distributors. This encouraged competition among distributors to increase sales. Products that had been ignored began to receive proper attention and better sales numbers. Market share began to grow with the company’s wider penetration into the smaller cities.

    Tingyi also improved its distributor-management system, capturing not only logistical order-and-delivery information but also end-market demand from key customers (and channels). This allowed the company to gain greater visibility of its growth drivers and to continue to build direct relationships with key retailers. The results of this change, ten years later, have been significant: in 1998, Tingyi relied on a network of more than 14,000 distributors for just under 10,000 direct retailers. In 2009, it maintained fewer than 6,000 distributors to serve more than 70,000 retailers directly. The scale of the business has also grown—from $586 million in revenues in 1998 to more than $5 billion in 2009.

    Today, Tingyi is planning for another revolution of its distribution network to support its ambition to expand into the rural market. Because it would be both costly and inefficient for its current network, which covers mostly the urban areas, to distribute products to the rural outlets, the company is working in cooperation with distributors to build a network for hard-to-reach rural markets by sharing investment in a fleet of vehicles to visit these markets. Results from this effort are still uncertain, but Tingyi is already ahead of other companies in exploring opportunities in rural markets. It understands the importance of continually reviewing and readjusting its distribution model for different phases of expansion.

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    • Hong Kong
    • Senior Partner & Managing Director
    • Hong Kong
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