We sell our liquid milk products to consumers primarily through regional distributors. We believe that our distributor-based model provides us with the following benefits: (i) contributing to a faster expansion to markets nationwide and market penetration; (ii) enabling us to reach a wide range of points of sale, including department stores, supermarket chains and convenience stores; and (iii) allowing us to focus our management resources and attention on our core businesses. We believe that the use of distributors is generally in line with the industry practice in China. We have built a retail distribution network that now covers major cities in China. Sales to distributors accounted for substantially all of our total revenue of liquid milk business in 2012 and 2013. Our distribution network is structured to facilitate the sales of our liquid milk products in different geographic markets. Particularly, we use regional distributors to enter into new geographic markets in order to benefit from their established relationships with the local sales channels. We also sell a very small portion of our liquid milk products directly to end-consumers via VIP card membership and corporate wholesale in Hohhot and Beijing. See also “—Our Customers.”

As of June 30, 2014, our distribution network had 332 distributors with over 68,000 points of sale in China. Our distributors either sell the products directly to end-consumers or points of sale, or to their sub-distributors which in turn sell to end-consumers or points of sale. We believe that our distributors engage sub-distributors primarily to supplement and expand their sales networks in regions not covered by their own sales and marketing teams. We have no contractual relationship with and do not directly supervise or manage these sub-distributors.

We or our distributors also engage in a variety of marketing and promotional campaigns tailored to different consumers groups to promote brand recognition of our products, including the following:

  • Undertaking image advertising, which includes placing advertisements on the television and in inflight media. In 2013, we entered into advertisement placement agreements with advertising agent, to promote our organic concept and organic products on CCTV, the official and leading television station in China. In 2013, we also entered into advertisement placement arrangements with an advertisement agency to display promotional videos at certain airports and on Air China flights.
  • Organizing open-house events at our dairy farms and production facilities to demonstrate our stringent safety control and advanced production processes.
  • Establishing specialty shops to educate consumers about our “grass-to-glass” organic production model and the benefits of our organic milk and promote our brand image.
  • Promoting our brand image and consumer loyalty through the Internet.
  • Actively participating in philanthropic and public interest activities to further develop trust in our brand.

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