---
title: "2016: Industry Leaders Show Signs of Recovery, Initial Results from Mainstream Shift?"
description: "I once posed a proposition: when sales decline, how can profits grow? Now this proposition is becoming a reality. Sales decline is a social reality that companies cannot control; profit growth is a business capability within their control. As 2016 half-year reports are released, they show initial results from the transformation of the past two to three years."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-09-06"
language: "en"
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# 2016: Industry Leaders Show Signs of Recovery, Initial Results from Mainstream Shift?

> I once posed a proposition: when sales decline, how can profits grow? Now this proposition is becoming a reality. Sales decline is a social reality that companies cannot control; profit growth is a business capability within their control. As 2016 half-year reports are released, they show initial results from the transformation of the past two to three years.

I once posed a proposition: when sales decline, how can profits grow? Now this proposition is becoming a reality.
Sales decline is a social reality that companies cannot control; profit growth is a business capability within their control.
As 2016 half-year reports are released, they show initial results from the transformation of the past two to three years.
In recent years, the FMCG market has been like a roller coaster, leaving companies dizzy.
Up to 2013, the market was consistently growing. If a company performed poorly, it simply failed to meet incremental targets. Unexpectedly, 2013 may have been the historical peak for many industries' sales volumes.
Starting in 2014, the FMCG industry collectively declined. Initially, people thought the decline was abnormal, so they aimed to "preserve volume."
In 2015, the FMCG industry continued its collective decline. By then, people considered the decline normal, so "preserving volume" became routine work.
In 2016, with "young leaders" like Liu Xinhua at Uni-President and Hou Xiaohai at China Resources Beer taking office, a clear signal of marketing transformation emerged: acknowledging sales decline and adjusting product structure. Gross margin, a metric previously overlooked by the industry, has now become a key indicator for evaluating marketing team performance.
Just as people expected sales to continue declining in 2016, the first-half reports this year show signs of bottoming out, with some achieving slight growth.
I can boldly predict: starting from 2017, sales volumes in many industries may continue to decline, but due to higher gross margins, revenue may see slight growth, and profits for industry leaders may generally increase.
**From "Double Decline" to "Sales Decline, Profit Rise"**
This round of sales decline is primarily a decline in volume. In 2014 and 2015, it was basically a "double decline" in both revenue and profit.
Compared to the widespread sharp declines of the previous two years, some companies saw revenue increase in the first half of 2016. Can we conclude that sales are bottoming out?
In terms of sales volume, it may be too early to draw that conclusion. But from a revenue perspective, the likelihood of bottoming out is higher, because the value added by new products from the shift may offset the revenue decline caused by volume decline.
In 2017, more companies may achieve revenue growth, but this is a basic judgment, not specific to different industries or companies.
Profit growth, however, is a common phenomenon in 2016, indicating that higher gross margins offset the sales decline.
**Appendix: 2016 Half-Year Reports of Leading Companies**
Company | Revenue Growth | Gross Margin Change | Profit Growth
China Resources Beer | -1.80% | +0.41% | -45.10%
Tsingtao Brewery | -8.22% | +0.48% | -10.81%
Master Kong | -13.94% | -1.25% | -33.51%
Uni-President | -2.43% | -0.84% | +12.90%
Want Want China | -12.80% | +5.30% | +4.10%
Dali Foods | +6.10% | +5.80% | +0.40%
Coca-Cola | -4.57% | -0.43% | +5.90%
PepsiCo | -3.14% | +1.37% | -8.28%
Yili | +0.23% | +4.2% | +20.63%
Mengniu Dairy | +6.60% | +1.80% | -19.50%
**Rising Gross Margin: A Key Indicator of Transformation**
Compared to revenue, I actually care more about changes in gross margin. This is a metric that was previously largely ignored.
In the era of mainstream shift, judging whether a company is shifting gears is essentially done by observing changes in gross margin. New mainstream products won't generate huge sales volumes in the short term like mainstream products did, so gross margin changes are gradual.
Looking at the gross margins of the industry leaders I selected, the vast majority saw an increase. This is a good sign, indicating that companies are shifting their goals from "preserving sales volume" to "adjusting structure." Moreover, higher gross margins can offset sales declines.
Of course, I've also noticed some odd phenomena, such as a leading company raising prices across the board after revamping old products. I think this kind of margin improvement is not very meaningful, and raising prices on old products will also lose existing sales.
**Seizing the New Mainstream Price Band**
Besides financial metrics like revenue, gross margin, and profit that listed companies focus on, I also pay close attention to one indicator: whether they are seizing the new mainstream price band.
This involves correctly judging the mainstream shift. After the concept of mainstream shift was proposed, many people were confused about what exactly constitutes a new mainstream product. I previously gave a consumer-based criterion: high appearance—love at first sight; high quality—love at first taste. Now it seems that's not enough.
The so-called new mainstream refers to products that will become mainstream in the next phase, as opposed to old mainstream products. Since they are mainstream, they must be the best-selling products in the next phase.
In recent shifts, some have focused on niche products that won't sell in large volumes and thus can't become mainstream; others have set their sights too high, making it too far off to become new mainstream.
Setting aside specific product features, I think new mainstream products generally have two indicators: first, they must be popular, aiming for the largest common denominator among consumers, still pursuing big single products. Some say there are no big single products in the internet age; I disagree. Just as it was said the internet age would decentralize, in fact it has become more centralized; second, they must seize the new mainstream price band. New mainstream products must be positioned in the new mainstream price band.
Mainstream shift means the price band moves upward. Whoever seizes the new mainstream price band will become the new mainstream.
For example, the current mainstream price for bottled water is 2 yuan per bottle; the new mainstream will be 3-4 yuan per bottle. Above 5 yuan per bottle is not new mainstream but future mainstream.
Another example: the current mainstream price for instant noodles is below 5 yuan; the new mainstream should be 5-8 yuan. Over 10 yuan is future mainstream and won't generate significant sales in the short term.
A brand has price band limitations. This is why many manufacturers, including industry leaders, are launching new brands alongside new products, some adopting dual-brand strategies. In short, products in new price bands need new images.
Once a company seizes the new mainstream price band, its position will be relatively stable for a period.
In the past, because companies all had "double-low products" concentrated in the lowest price band, there was little difference between brands, and they were highly similar. As the new mainstream price band continues to rise, in the future a brand may belong to a specific price band; beyond that band, the brand will lose value.
Currently, companies' transformation is still just about launching high-end new products; their awareness of seizing the new mainstream price band is not strong enough. In fact, this is the core, the key of keys.
**Liu Chunxiong's Tip**
I've recently written a series on marketing transformation; reading them together may be more valuable. Recommended reading order:
1. "2016: Industry Leaders Show Signs of Recovery, Initial Results from Mainstream Shift?" (this article), discusses how companies have gone from continuous decline to initial transformation results since 2014.
6. ""Live Toward Death" or "Live Toward Life"", discusses how Chinese companies can successfully transform. To be written.
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