Q&A with CSGT Chairman Howell Cu on FMCG Distribution Business

Howell Cu is the founder and chairman of the CSGT Distribution Group of Companies. With over 20 years of sales, distribution and entrepreneurial experience, Cu was able to establish several multi-million companies distributing various products for local and multinational brand owners. Beginning with just 4 trucks and 12 personnel, CSGT Distribution has grown to having over 180 trucks and over 700 personnel.

Q1: How did you start your own distribution company?

Answer: Growing up with an entrepreneurial family, I was exposed to some form of business. At a young age, I was always eager to buy and sell various items to earn money. I remember that as early as grade 4, I was buying and selling candies to my classmates and teachers in school to build up my savings. In school, aside from focusing on my studies, I forced myself to become active in school organizations to build my leadership and social skills. It paid off as I was able to get my first job with Procter & Gamble Phils, Inc.. I was fortunate to have been assigned to the Customer Business Development (sales) department to handle and develop different distributors across different provinces. This gave me the much needed training and experience to see the opportunities of setting up my own distribution company.

Thus with a small personal investment, along with investments from my family and college friends, I was able to start up a distribution company in eastern central Luzon. In the beginning, it was really difficult as various obstacles and hurdles had to be surmounted in order to make the company viable. I can tell you that there were a lot of times when I just wanted to give up. At one point, we even had bad debts amounting to two million pesos from the closure of Glori Supermart just as we were starting our distribution in the Metro Manila Area. But thankfully, with God’s guidance and blessing, all our hard work and perseverance paid off as we were able to grow the company at a fast rate. Eventually, I was able to buy out the shares of several of my partners and even buy out some other distribution companies.

Q2: There is a common notion that going into a distribution business is hard since you are usually given a small profit margin only, what made you enter the FMCG (fast moving consumer goods) distribution industry aside from having the experience?

A2: It is a common knowledge that going into a distribution business, especially for FMCG sector, is a difficult business with small profit margins. The industry has a high mortality rate for companies closing or declaring bankruptcy since many people think that all you should have is a lot of financial capital and some sales experience. I have seen a lot of high ranking sales or marketing executives from local or multinational FMCG companies venture into their own distribution company, only to fail and accumulate huge amounts of debts thinking that’s just what it takes to run the business — even if they partner up with very rich financiers.

Now, the distribution business may offer low margins resulting in a low net income compared to your sales but what is important is the number of turns your capital can churn out. Bottom line, the rate of return that a distribution business can give to your equity is way higher compared to putting the same equity into the bank — or even into a Jollibee franchise — if done correctly.

Furthermore, if you happen to acquire a good principal partner, you have the benefit of building your company equity faster as you carry good brands that your principal partner has. And you realize this benefit without having to take the risk of investing heavily in marketing the brands.

Another nice thing in the distribution business is that you usually don’t have to invest your equity in fixed assets or investments. Majority of the investments are put into inventory and account receivables, which are current assets or assets which can easily be liquidated. This, in turn, makes a distribution business possess a low risk factor if you experience a downturn. This means that if you ever decide to cease the business, you can recover around 80% of your investment back.

Of course, all the benefits I have stated will depend on how you handle the distribution company to make it more robust and competitive.

Q3: What does it take to be a strong distribution company?

A3: Initially, to be a strong distribution company, you should have the basic key elements. First, one should have sufficient financial investments to make sure you can support the demand of the products you are going to carry. Second and third key elements are on having the proper logistics structure and manpower complement to enable your company to service your customers at the right service levels. At the heart of the first three elements, one should have the proper work processes to bind them together. For example, one should have the right logistics process to make sure when you acquire a sales order from your customer, your manpower team will know what appropriate steps to follow in taking the ordered stocks from your supplier up to your customer. You have to know how much financial investment you will need to make your order from your suppliers, then how many logistics warehouse space and trucks you may need to ensure you deliver your purchased stocks to your customers at the right time.

The common pitfalls of most distribution companies are to over or under forecast the required key elements. For instance some companies are so frugal in paying its manpower, meaning hiring their people at a very low compensation level. This has a trend of resulting to a high turnover of people which leads to poor servicing of one’s customer. On the other extreme, some companies are so extravagant with their salary package when hiring people. These businesses have an inclination to hire high-level sales executives that their operations expenses bloat up to the point their sales cannot cover their income expectation. Thus these companies have the tendency to become discouraged in continuing the distribution business or, worse, garner much losses that they have a hard time recovering their initial investment.

To be a strong distribution company is to know and understand the business comprehensively. One should do the proper financial analysis and do the appropriate forecasting to know the appropriate amount of the key elements one should have. Then one should know how to synergize the key elements to make sure you are able to do four things:

1. Increasing profitably the sales of your principal partners
2. Maintaining the appropriate amount of operational costs
3. Maximizing your assets or to produce the most income from the investments you have made
4. Developing and sustaining a strategic relationship with your principals

Q4: In your various experience of handling various principals, what is your most important learning or advice you can give to other would-be distributors?

A4: In the past 15 years of developing our distribution companies, I can say I have learned the most from the failures that I have experienced. The most painful failure I experienced were when our company had to disengage with our principal partners. I learned that whenever we separate with our partners, it is still important to maintain a healthy relationship with the principal or with the people managing your principal partners. I can say we have grown over the years to be better at what we do because we have been continuously approached by new principals. These new potential principals being referred to us by people currently working with us or even by those who have worked with us before. Even people that work for principals that have disengaged with us also still refers our company to others. Therefore, developing a strategic relationship with one’s principal partner is important and one should prepare an excessive amount of patience to create and maintain one.