Retail: Effective supply chain key to success
operators have increased incomes in recent years.
“The villagers have the money to spend,” said Luo. “The challenge is howwecangetcommoditiestothem.”
Long distances between stores in rural areas can mean high distribution costs.
InHenan, there are around 45,000 village stations of China Post and thousands more independent stores.
But distribution to rural villages in China is also proving a major challenge for regional and national manufacturers, and brand owners.
PostMart has already held wideranging talks with major brands about how to distribute their products more efficiently, and cheaply to more remote provinces.
Major fast-moving consumer goods brands, especially, are eager to gain a firmer foothold in the countrysides and in lower-tier cities.
“What this is doing is actually disrupting the old-fashioned supply industry in China.
“Now the distribution system is like a bowl of noodles, and we hope the bigger brands will use our system to help them build a more effective supply chain,” said Luo.
China Horizon first signed its 50-50 joint venture agreement with China Post in June 2013.
By the end of August, PostMart had 98 directly operated stores and 6,000 franchise stores in China. The State-owned China Post specializes mostly in postal finance, deliveryand logistics services.
In a 25-year cooperation with China Post, China Horizon said it would invest 1 billion yuan ($162 million) to develop 10,000 retail stores. The partners also decided to build 111 terminal distribution centers (one in each county in Henan) and seven regional
farmers’ distribution centers to support largescale distribution to the village stores.
At each center, there are now at least five sales employees, who visit stores to check on product availability. The service is supported by a truck fleet that delivers the next day, on-time and in full.
Such a system would have proved expensive for manufacturers to build, but Luo said PostMart’s advantage is being able to call on a large-scale system that lowers costs, provides doorto-door delivery, and supports and manages services to individual store owners.
PostMart claims to have reduced delivery time from 21 days to one day.
Ben Cavender, principal of the Shanghai-based China Market Research, is enthusiastic that the China Post/Horizon logistics model mayworkwell in helping to get small businesses their commodities easier.
But the question remains how they will handle competition from other wholesalers and e-commerce operators in the next fewyears.
Cavender said that the partners must build their brand awareness and the relationship with their customers quickly, to guarantee any hope for long-term growth.
ThePostMart ideawasactually the brainchild of Alan Clingman, CEO of China Horizon Management, who concluded that its previous business model of managing retail shops in rural China was not working.
Clingman took part in a three-year joint pilot program with China Post in rural regions, during which time the partners opened 100 stores under the PostMart brand and provided services to more than 6,000 ChinaPost village postal stationsand franchisees.
The idea of developing a fullblown retail business in rural China then came to Clingman.
The PostMart pilot program with operations in three provinces— Henan, Shandong and Jiangxi — was to run retail operations out of China Post real estate in various towns.
At the same time, they would run a wholesale distribution model to distribute products to stores at the village level.
“It was not a commercial operation. It was a giant experiment. The prime objective was to find a commercial model,” said Clingman.
China Horizon concluded that running its own small stores at a town level was difficult to manage. They suspended operations in Shandong and Jiangxi.
One of the major decisions in the newproject was to focus all the company’s resources on Henan with the goal of becoming profitable and improving the model further in that province, said Clingman.
Speaking about the reason for selecting Henan province, Clingman emphasized its infrastructure.
“The roads are world class, the roads to the villages are in very good condition,” he said.
He was also amazed by the use of cell phones and the availability of electricity in villages in the province.
Most importantly, however, choosing the right partner to work with in rural China is vital.
The distribution system centers owned by China Post have eased the investment pressure for international partners.
The use of traditional mail in the world is declining because of electronic and wireless services. “Physical mail is a dying business, with the exception of package delivery thanks to e-commerce,” said Clingman.
However, the value of the postal network is enormous, he said, and cannot be replicated by private businesses. In addition, China Post is the most famous brand in China, especially in rural areas where it is most trusted.
“Some of the best people in rural China already work for China Post,” said Clingman. “The key to success is tohaveanefficient distributionmodel at massive scale.” Contact the writer at email@example.com