Gree, which is undergoing channel reform, seems to have a growing contradiction with traditional offline distributors.
On August 23rd, it was reported by Cailian that Gree Electric had recently stopped supplying Hebei distributors, and this news has been confirmed by many Gree distributors. In this regard, the relevant person in charge of Gree Electric responded that we are learning about the media report that Gree Electric stopped supplying Hebei dealers.
It is reported that this matter may be related to the recent public speech by Xu Zifa, the chairman of Hebei Gree distributor. Xu Zifa said in a recent public event, "Don’t do Gree, turn to Philips." In addition, CBN quoted people familiar with the matter as saying that Gree Electric had stopped supplying Hebei agents for two months.
Source: screenshot of the webpage
The topic of "Gree Electric stops supplying Hebei dealers" also quickly reached the hot search list of major social platforms, which triggered a hot discussion among netizens. Perhaps the reason behind the hot discussion is that Xu Zifa, the party involved in this "betrayal", has been a core distributor of Gree for many years, and also joined the board of directors of Gree Electric from 2015 to 2017. According to the interface news report, some insiders called him an important "clique" of Dong Mingzhu.
Perhaps the outside world pays more attention to the defection of "clique". I wonder what adverse effects this will bring to Gree, which is already in a decline in performance and poor market performance.
The sorrow of channel reform
Gree’s channel model has undergone two changes. One is to prevent a series of behaviors such as malicious price reduction and goods smuggling from adversely affecting the price system of Gree air-conditioning. In 1997, Gree began to implement channel reform, transforming the previous regional multi-agent model into a joint-stock regional sales company.
Under this mode, Gree has established an offline distribution system of professional agency mode, leading the whole industry by relying on the trinity system composed of headquarters, branches and dealers, which not only unifies the price, management and service, but also enables dealers to enjoy profit sharing. At the end of 1997, after the establishment of Gree’s first joint-stock sales company in Hubei, this model was quickly pushed to the whole country, which led Gree’s turnover to climb year after year. In 2015, the market share of Gree air conditioners reached a peak of 46.3%.
However, the continuous development of online channels in the past two years and the impact of the COVID-19 epidemic have dealt a big blow to the offline channel model that Gree has always relied on. Beginning in 2019, Gree began to actively promote new retail changes, reduce channel levels, change Gree’s offline distribution system, and develop online formats.
In May of this year, at Gree’s performance briefing, Dong Mingzhu once said that Gree’s original channel model was established after she returned to the company. "It has hardly changed since 1997," but she also said that the background at that time was completely different from now. "With the advent of the Internet era, the channel marketing model is facing challenges from offline to online."
Dong Mingzhu’s live broadcast in May 2020, there are many channels in the live broadcast room.
In order to actively promote the channel reform, Dong Mingzhu personally went off the stage to broadcast the goods. According to the data, there are 13 live broadcasts in Dong Mingzhu in 2020, with sales of 47.62 billion yuan, accounting for 27.93% of Gree’s revenue that year. However, according to "Aotou Finance", this figure is not paid by consumers, but the bottom dealers "buy goods" from the live broadcast room, and the sales of the live broadcast room in Dong Mingzhu depend on the support of dealers.
Source: Tik Tok @ Hangzhou Daily screenshot
In the past two years, Dong Mingzhu’s live broadcast has quite a tendency of "fishing for three days and drying the net for two days", and even it was reported that she left the scene immediately because of the mistake of the live broadcast assistant during a live broadcast.
In addition to live delivery, Gree Electric takes the WeChat applet online mall of Gree Dong Mingzhu Store as the core, which enables Gree retailers everywhere to combine online and offline, and retailers can place orders directly online. This change has strengthened the control of Gree headquarters, which can lower the price, but it also narrows the profit margin of channel providers.
Channel reform makes Gree no longer rely on offline channel providers, and it is only a matter of time before it "breaks up" with channel providers. But the most important thing is that the channel reform has not achieved remarkable results. Dong Mingzhu once said frankly, "In 2021, the company’s sales did not meet expectations, and channel reform was one of the influencing factors."
The loss of market share and the evaporation of market value exceeded 200 billion.
Not only is the contradiction with offline dealers increasing, but Gree’s air-conditioning business in base camp has also been difficult to hide in recent years. In the first quarter of 2020, Midea’s air-conditioning business surpassed Gree in market share for the first time. By the end of 2020, Midea’s air-conditioning business revenue was 121.215 billion yuan, and Gree was 117.882 billion yuan. By the end of 2021, Midea’s air-conditioning business income was 141.8 billion yuan, and Gree’s air-conditioning business income was 131.713 billion yuan, and the gap has expanded to 10 billion yuan.
Source: Gree official website screenshot
It is worth noting that Midea’s air-conditioning business only accounts for more than 40% of its total business, while Gree’s air-conditioning business accounts for 70.11% of its total business in 2021. This also means that the impact of air conditioning business on Gree itself is bound to be greater than that of other home appliance enterprises on the market.
Entering this summer, many places are plagued by high temperature and drought. As of mid-July, the number of weather stations that broke the high temperature record in China increased from 28 last year to 71. Among the 368 cities in China, the highest temperature in 77 cities exceeded 40℃ this summer. The high temperature has also led to a sharp increase in the demand for air conditioners.
However, according to Aowei Cloud, as of the 31st week in the third quarter of this year, online sales of Gree air conditioners only increased by 9%. At the same time, Haier’s air-conditioning online sales rose by 41%, and Midea’s air-conditioning rose by 29%. It can be seen that Gree’s air-conditioning business is no longer strong.
Gree’s performance in the secondary market is also unsatisfactory. As of 14: 00 on August 24th, the market value of Gree Electric was 169.6 billion yuan, which has evaporated by more than 200 billion yuan compared with its peak period. Not only that, Midea’s market value of 360 billion yuan is twice as high as Gree’s, and Haier is nearly 60 billion yuan higher than Gree with a market value of 229.2 billion yuan.
The struggle between Gree and offline distributors is only the tip of the iceberg of the difficulties faced by this old household appliance enterprise. The loss of air-conditioning market share and the continuous decline of market value are the problems that Gree urgently needs to solve.
