As China's overall economic transformation enters a deep-water period, in 2015, China's economic growth shifted from high speed to medium-low speed, from extensive scale-and-speed growth to intensive profit-stability growth, and from single marketing-driven to integrated innovation-driven. Consequently, China's FMCG market has also shown corresponding changes and trends. These changes and trends pose new challenges and bring new opportunities for Chinese FMCG companies. How to respond to these changes, turn challenges into opportunities, and achieve greater development are urgent issues for all FMCG companies.

In 2016, China's economy is undoubtedly in an era of uncertainty. The current shifts in politics, economy, demographics, and external environment—any one of which could change the landscape of China's FMCG industry—are compounded by all shocks together. FMCG companies can only learn from 2015 and continuously adjust their logic to cope with the industry's "winter" in 2016.

Four memories from China's FMCG industry in 2015:

  1. Industry growth rate was lower than everyone expected, and profit margins were even worse; 50% of companies experienced a "double decline" in revenue and profit.
  2. Frequent M&A and restructuring within the industry revealed that the competitive environment has entered a stage of hand-to-hand combat.
  3. The phenomenon of industry "oligopoly" accelerated, particularly prominent in sectors such as dairy, beer, and hand soap.
  4. All industries are actively embracing Internet+, with mobile consumption rising from 35% in 2014 to 65% in 2015; e-commerce channels are eroding the market share of traditional channels.

Ten judgments on development trends in China's FMCG industry in 2016:

1) In 2016, the overall industry growth rate will be slow; profit will be the main focus, scale secondary, and cautious diversification will become the development strategy for enterprises in 2016: In 2016, the entire FMCG industry will continue to experience a downturn. Low consumption desire, more segmented consumption levels, and reconstruction of consumption structure all bring many unfavorable factors to the growth of large enterprises and unprecedented crises to the survival and development of small and medium-sized enterprises. Profit first, scale second, and cautious diversification will be the "main theme" of China's consumer goods industry in 2016.

2) In 2016, industry concentration will further increase, and the brand landscape will present a dumbbell shape: In 2016, with the continued downturn of the macro economy and the increasing ceiling effect on corporate performance, the number and speed of M&A and restructuring cases within the industry will accelerate. In certain industries such as dairy, plant protein, beer, hand soap, and laundry powder, industry concentration will further increase. In these industries, a "de-intermediation" phenomenon will emerge: either very large enterprises or very small ones; medium-sized enterprises, affected by factors such as profit, scale, and cost, will basically face the fate of being acquired or restructured. This phenomenon is particularly prominent in the dairy and beer industries.

3) In 2016, investment funds will continue to be enthusiastic about the FMCG industry, and the M&A heat within the industry will continue to rise: Against the backdrop of slowing overall economic growth, the domestic FMCG industry continues to show adjustment trends. The most direct manifestation is the increase in capital M&A events within the industry. The author expects the M&A boom of 2015 to continue in 2016. According to industry insiders, M&A in the FMCG industry in 2015 showed some new characteristics. Most notably, the activity of capital contribution was mainly concentrated in some foreign investment institutions, multinational companies, and state-owned enterprise giants. The top ten acquirers by investment amount accounted for about 80% of the total investment, and powerful group forces are becoming the dominant force in M&A. Correspondingly, due to slowing consumer market growth and rising operating costs, some FMCG companies chose to exit or switch industries in the early and middle periods of this year.

4) In 2016, under the influence of multiple factors, the FMCG industry structure will accelerate passive optimization: With the advent of the post-financial crisis era, in 2016, the FMCG industry will also face a reshuffling pattern. As early as August 16, 2014, He Yanli, Deputy Director of the Industrial Coordination Department of the National Development and Reform Commission, stated that during the "12th Five-Year Plan" and "13th Five-Year Plan" periods, the government will vigorously encourage FMCG enterprises to form and cultivate a number of leading FMCG enterprises through alliances, mergers, and acquisitions, increase industrial concentration, and improve the food industry system. He Yanli pointed out that China's FMCG industry still faces problems such as unreasonable industrial structure and extensive development methods. Therefore, during the "12th Five-Year Plan" period, especially during the "13th Five-Year Plan" period, it is necessary to vigorously promote the adjustment of China's FMCG industry structure and accelerate the transformation of development methods. Therefore, under the dual demands of national macro policies and industry development, the FMCG industry in 2016 will see large-scale upgrading and shifting to match the multiple needs of national policies, industry development, and consumer demand. Medium-sized enterprises with good hardware and software will usher in opportunities for acquisition and restructuring, while small and micro enterprises will inevitably face elimination.

5) In 2016, imported FMCG products will further seize China's FMCG market: According to customs data, the growth rate of China's imported FMCG products from 2013 to 2015 increased by more than 47% year-on-year. This is only official data, not including overseas purchasing agents and some unofficial channels. The global economic downturn, especially the sluggishness of traditional European and American markets, has led more and more foreign brands to "pan for gold" in China. China's huge demographic dividend and development speed are the core reasons for imported FMCG products to seize the Chinese market. The acceleration of consumption differentiation among Chinese consumers also provides a soft environment for the annual growth of imported consumer goods. In 2016, the scale and speed of imported consumer goods seizing the Chinese market will continue to accelerate, especially in industries such as beer, wine, and personal care.

6) In 2016, the trend of polarization among FMCG consumer groups will become increasingly evident: As China's economic reform enters a deep-water period, the gap between rich and poor among Chinese consumer groups is further widening. This directly leads to a further widening of consumption capacity and concepts among consumers with different income levels. This further widens the price differences, quality differences, functional differences, service differences, and consumer group positioning differences among FMCG companies. In 2016, the binary polarization of consumer groups will continue to expand to different industries, especially prominent in the FMCG and automotive industries.

7) In 2016, food safety issues in the FMCG industry are the hottest concern for consumers: Since the Sudan Red incident in 2005, Chinese consumers' attention to food safety has risen to a stage of "public outrage." Especially in recent years, Chinese consumers' perception of food attributes has undergone a qualitative change. Food has upgraded from a satiety attribute to health and enjoyment, which places higher demands on national relevant departments and enterprises for food safety! There are four main reasons for food safety issues:

  1. Environmental pollution (e.g., serious water and soil pollution, causing damage to crops); excessive use of food additives, making food lose nutritional components, and long-term consumption of such food can also cause certain harm. 2) Enterprise's own problems: some food enterprises lack integrity and self-discipline awareness. To pursue maximum profit, they take shortcuts in production, processing, and food circulation, focusing only on profit and not on food quality. Poor management, weak hygiene awareness, and poor personnel operation capabilities lead to unqualified, spoiled, and contaminated food being sold to the market. 3) China's market economy system is not fully developed, and the policy system is not sound, leaving loopholes for illegal manufacturers to exploit and hidden dangers. 4) Law enforcement departments have unclear powers and responsibilities, insufficient enforcement, inadequate penalties, and officials shielding offenders.

Therefore, food safety is not only an economic and political issue but also a technical and management issue. It requires the participation of the whole society and effective methods to improve food safety.

8) In 2016, FMCG companies will rebuild the product pyramid to precisely target heavy consumer groups: As China's consumer groups enter an era of segmentation, companies are vigorously restructuring their product pyramids to cope with increasingly hierarchical consumer groups. To meet different customers' preferences for product style, color, and other aspects, as well as differences in personal income, and to maximize customer base and market share, companies continuously launch high, medium, and low-end products, forming a product pyramid. At the base of the pyramid are low-priced, high-volume products, earning profits through volume sales; at the top are high-priced, low-volume products, earning excess profits through excellence.

9) In 2016, the FMCG industry will embrace the Internet across the board to maximize sales: For the FMCG industry, to achieve enterprise mobile Internet model transformation and precisely target heavy consumer groups, it is necessary to adopt a consumer-centric Internet marketing model. Because the majority of heavy consumers of FMCG products are active on the Internet. The netizen population and FMCG consumers are highly matched. The popularity of mobile Internet and the emergence of various social media networks have led to a surge in the number of Chinese netizens. In the FMCG industry, the audience is mainly concentrated in the 15-45 age group, which coincides with the "deep users" of the Internet. Therefore, in 2016, the FMCG industry must accelerate the marriage of enterprise and network marketing. How to use mobile Internet to communicate with consumers and maximize sales becomes the top priority for innovative Internet marketing models in the FMCG industry.

10) In 2016, fan-based experiential marketing communication will replace traditional coercive hard advertising: In the era of mobile Internet prevalence, the communication methods in the FMCG industry are ever-changing and innovative, but they all follow the same principle. FMCG companies can only remain invincible in future competition by paying more attention to consumer experience and enhancing consumer stickiness to products. Traditional coercive hard advertising has gradually exited the historical stage. How can FMCG companies better enhance fans' experience? In addition to producing high-quality products, the most important way is to let consumers participate. Make them fans of the brand, and use mobile Internet to break the fragmented communication of time and space, giving fans more opportunities to get close to the brand. At the same time, based on the interactivity and participation of mobile Internet, enhance the resonance between FMCG brands and consumers, ultimately achieving mutual joy and win-win between fans and brands.

Statement: This article has been authorized for original publication by the author. For reprinting, please contact the author.

Zhu Danpeng: Researcher at China Brand Research Institute. Winner of China's 9th Marketing Golden Tripod Award, China's 2013 Outstanding Professional Manager. He has served American Duracell Batteries, British United Biscuits, French Danone Group, Yake (China), Guangdong Huashanquan Group. He has been engaged in the FMCG industry for over 24 years, has in-depth research on China's food industry, and is a special industry commentator for multiple mainstream financial media.

Focused on strategic transformation and upgrading of Chinese SMEs, precise customization of marketing models, and consulting and training.

"66 Rules for SME Survival" is available on Amazon and Dangdang.

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