Click the image for details In an era of authoritative deconstruction, people eagerly watch the decline of giants. Between Uni-President and Master Kong, who is more likely to be the last survivor? Text/Liang Yulong Do not go gentle into that good night, old age should burn and rave at close of day; rage, rage against the dying of the light. —Dylan Thomas "I haven't paid attention to Master Kong for a long time." Not long ago, Hou Ronglong, general manager of Uni-President China, suddenly said this, bringing the two companies, which had been sidelined by public opinion, back into the spotlight. After more than 20 years of fierce battle, Uni-President and Master Kong have had many confrontations. But this time, the situation is different. Hou Ronglong's tone seemed to carry a hint of unease. The latest financial report shows that in the first quarter of 2017, Uni-President's after-tax profit was only 1.73787 billion yuan, a year-on-year decrease of 60%. When one is in dire straits, how can one have the mind to worry about competitors? Of course, Master Kong's days are equally tough: first-quarter net profit was 4.74867 billion yuan, with year-on-year growth almost stagnant. In fact, over the past few years, the entire FMCG food and beverage industry has been struggling in the mire. Kantar Worldpanel data shows that since the second half of 2014, the industry's growth rate has lagged behind GDP, averaging only 2% to 3%. Uni-President and Master Kong have always been the industry's barometer, and their current anxiety is a microcosm of the survival state of peers such as Wahaha, Huiyuan, Want Want, and JDB. But precisely because of this, the every move of the two "lead sheep" has become the focus of industry attention. And various signs indicate that they are not sitting idly by, but are each leveraging their strengths to plan a breakout battle in the new FMCG era. Breaking the Vicious Cycle of Innovation and Losses Master Kong and Uni-President are rivals in the same industry, but in terms of scale, the former left the latter far behind long ago. As of March 31, 2017, Master Kong's market value was 54.7 billion yuan, while Uni-President's was only 23.6 billion yuan. If calculated at historical highs, the former was 110 billion yuan, and the latter only 33 billion yuan. But scale does not equal leadership. Especially in recent years, Uni-President has been continuously innovating at the product level, attracting a group of followers, and Master Kong is one of them. This is an era where everyone talks about innovation, and Master Kong naturally does not want to degenerate. But innovation is not easy, especially in the beverage industry, which has larger scale and more segmented markets. In the past, beverage innovation focused mostly on taste, but now the scope of innovation is expanding and the difficulty is deepening. For example, in 2015, Uni-President launched the ready-to-drink tea product "Xiaoming Tongxue" (Little Ming Classmate). Imitators marveled at its bold packaging and focused on product appearance. In fact, this battle to occupy consumers' minds through product packaging is no longer a superficial appearance contest, but has evolved into a new gameplay of giving products personality and building IP through packaging. Before Xiaoming Tongxue hit the market, Uni-President conducted extensive research on the post-95s generation in collaboration with advertising agencies. In the end, whether it was the product name, packaging, or visual identity system, everything revolved around the personality positioning of "chuunibyou" (adolescent delusions of grandeur), with the aim of creating emotional resonance among young consumers. In April 2017, Uni-President also reached a cooperation with Tencent. Multiple QQfamily characters, including QQ, Duofu, and babyQ, will appear on "Xiaoming Tongxue" products, presented as a comic series of "32 Scenes of Comedy Theater." Subsequently, through QR codes on the bottle, users can enter multiple platforms such as Mobile QQ, Tencent Video, Interest Tribe, and Qzone for interaction. At this point, Xiaoming Tongxue is no longer just a beverage, but also an entry point for two-dimensional interaction. Xiaoming Tongxue is undoubtedly Uni-President's best-selling beverage in recent years. But the era of blockbuster products is gone, and with the current segmentation of consumption, companies must bloom in multiple places. Not to mention the earlier Hai Zhi Yan (Sea Talk), in the past year alone, Uni-President has successively launched mixed fruit juice with pulp "Orange PLUS Lemon"; lactic acid bacteria flavored water "Shui Qu Duo" (Water Fun More); a plastic-bottled orange juice drink that can turn into slush when frozen, "Ice Slush ICE"; and packaged classic Hong Kong-style desserts "Tian Mi Guang Nian" (Sweet Light Years), among others. Behind the dazzling innovation is an innovation mechanism different from the traditional one. In the past, Uni-President's new products mostly came from professional R&D departments. Market research, proposals, development, and testing were all handled by professionals. But since 2014, Uni-President has adopted a more open new product launch mechanism in addition to this. Simply put, every employee can propose product ideas. Senior employees drawn from various departments form an innovation committee. After the committee and the proposer determine the product concept and gross margin, two independent teams develop the product simultaneously, and finally one is chosen. A "post-90s consumer review panel" recruited from society participates in the final vote. In contrast, Master Kong's innovation is somewhat lackluster. Currently, Master Kong's beverage segment still relies on Iced Black Tea, Iced Green Tea, and Jasmine Tea. These products have a history of more than 10 years. In the past three years, it has successively launched "Shui Yang" (Water Ripple), "Yi Ke Guan Qing Shuang Nai Cha" (A Moment of Refreshing Milk Tea), and "Hai Jing Ning Meng" (Sea Crystal Lemon). The first two have made no waves, and the latter is a benchmark product against Uni-President's "Hai Zhi Yan." Therefore, securities firm BOCOM International commented that Master Kong has "not progressed in ten years." But conversely, for Uni-President, as an innovation leader, "heavy is the head that wears the crown." This is because, on the one hand, frequent innovation itself is a drain. Zhu Danpeng, a researcher at the China Brand Research Institute, calculated that from R&D to production to promotion, launching a new beverage product requires about 60 million to 80 million yuan. Xu Xiongjun, an expert in FMCG food and beverage marketing strategy positioning, provided data showing that the survival rate of new beverage products used to be around 10%, but has now dropped to 5%. Calculated this way, behind the success of a beverage, the hidden cost of trial and error is staggering; On the other hand, the life cycle of new beverage products is getting shorter and shorter. This summer's "internet celebrity" may become outdated after the new year, so companies can only keep launching new products. The costs that were barely recovered are thus swallowed by the next product, and the hole of losses seems impossible to fill. Therefore, Uni-President has now adjusted its strategy. After entering 2017, Uni-President announced it would control the scale of new product launches and increase efforts on old products such as Xiaoming Tongxue, Hai Zhi Yan, and Tang Daren (Soup Master). The cooperation with Tencent is a manifestation of this new thinking. Combining incremental innovation and existing product innovation may be the way to break the vicious cycle of innovation and losses. Profit Matters More Than Sales Volume When an industry is in trouble, should one first solve sales volume or profit? Past experience was that solving sales volume would naturally solve profit. But now, the situation has changed. In recent years, both Master Kong and Uni-President have been moving toward the mid-to-high end. Because when consumption upgrades and market demand changes, adjusting the product structure is more important than maintaining growth. Xiaoming Tongxue and Ai Kua (Love Praise) successfully brought ready-to-drink tea and mineral water to the 4-yuan price point, giving Uni-President confidence to advance into the high-end market. Subsequently, management became bolder and successively launched multiple high-end beverages priced above 10 yuan (Wei Shi Ke, Lang Duo Coffee, Yang Sheng Corn Soup, Tian Mi Guang Nian, and the Natural Laboratory series). Master Kong, on the other hand, has also launched "Nong Nong Ning Meng Cha" (Rich Lemon Tea) to enter the 5-yuan market; the newly upgraded "You Yue" drinking water is shaping its mid-to-high-end image through product placement in "Ode to Joy 2." But compared to beverages, the high-end transformation of instant noodles is the hardest "tough bone" to crack. In China, instant noodles are considered representative of low-end, unhealthy food. Especially after the rise of the middle-income group and the awakening of public health awareness, they have become a target of criticism. But the continuous growth of the global instant noodle industry, and the popularity of Japanese and Korean instant noodles in China, have given Uni-President and Master Kong confidence. After all, instant noodles have no original sin. In fact, there is no such thing as junk food, only unhealthy ingredients and dietary combinations. As the birthplace of instant noodles, Japan's instant noodle market is clearly stratified, and both low-end and high-end products are popular foods. In South Korea, there are pots specifically for cooking instant noodles, restaurants specializing in instant noodles, and per capita annual consumption exceeds 70 packs. Therefore, for Uni-President and Master Kong, the giants that almost monopolize China's instant noodle market, changing consumers' stereotypical impression of instant noodles is more important than simply raising prices. Currently, in the mid-to-high-end instant noodle segment, Uni-President has laid out multiple products such as Tang Daren, Ge Mian (Revolution Noodles), Champion List, Man Han Yan (Manchu Han Banquet), and Du Hui Xiao Guan (Metropolitan Bistro). The so-called "more children, more fights" means Uni-President hopes to cultivate and occupy the market through collaboration among its various products. At present, Tang Daren, priced above 5 yuan, is another star product for Uni-President after Lao Tan Suan Cai Niu Rou Mian (Old Tan Pickled Cabbage Beef Noodles). Reviewing the success of Tang Daren, another product, "Man Han Yan," played a crucial role. In early 2016, Man Han Yan was launched, and its price of 29.9 yuan caused an uproar. Especially when people found that it did not go beyond the experience and taste of ordinary instant noodles, it was met with ridicule. But just like the division of labor between tanks and marksmen in "Honor of Kings," Man Han Yan absorbed all the damage in front, while Tang Daren, hiding behind it, benefited. Through comparison, Tang Daren, which was more expensive and had been ignored, suddenly became more approachable. At this point, public opinion suddenly realized that Man Han Yan was just a smokescreen to educate consumers. In the end, Tang Daren achieved double-digit sales growth in 2016. To change consumer minds, Uni-President sacrificed not only "Man Han Yan" but also diluted the golden signboard of "Uni-President." In the past, when people mentioned Uni-President products, they would say "Uni-President Iced Black Tea," "Uni-President Fresh Orange Duo," "Uni-President Lao Tan Suan Cai Niu Rou Mian," etc. But now, influenced by product advertisements, people say "Tang Daren," "Ge Mian," including "Xiaoming Tongxue" and "Shui Qu Duo," without the "Uni-President" prefix. Each product has its own positioning and attributes. If the brand image of "low-end" and "common goods" is hard to reverse for the time being, then it is better to abandon the consistent prefix. Uni-President's approach can be described as a desperate measure. On the Master Kong side, the mid-to-high-end product matrix composed of "Hei Bai Hu Jiao" (Black and White Pepper), "Jin Tang" (Golden Soup), "Jiang Tang" (Craft Soup), "Ai Xian Da Can Sheng Ji Ban" (Love Fresh Big Meal Upgraded Version), and "Tang Da Shi" (Soup Master) is equally formidable. And to make young consumer groups accept their "persona," Master Kong has realized the importance of online marketing. The "Black and White Pepper Series" is Master Kong's main product positioned in the mid-to-high end. Considering the popularity of the online variety show "Qi Pa Shuo" (U Can U Bibi) among young people, "Black and White Pepper" sponsored "Hei Bai Xing Qiu" (Black and White Planet) under the big IP of "Qi Pa Shuo." In the show, "Qi Pa Nv Wang" (Queen of Oddities) Ma Weiwei frequently used exaggerated spoken lines like "Black and white pepper shoulder to shoulder, spicy views soar to the sky," vividly presenting the product temperament of "Black and White Pepper Instant Noodles" as breaking tradition and unconventional. For Weibo marketing, Master Kong hired the well-known singer and "joke teller" Xue Zhiqian. One day, a close friend of Xue Zhiqian had a new baby, and Xue went to visit. During the process, the tone suddenly changed, and the two actually ate Black and White Pepper instant noodles together, and surprisingly, 800,000 Weibo followers came to watch. This is an era dominated by mobile internet, where young people receive information in increasingly fragmented ways, requiring companies to boldly try new channels in marketing. In terms of content, in the pan-entertainment communication context, "unserious" communication methods like those of Ma Weiwei and Xue Zhiqian are more likely to resonate with young people. So, in laying out the high-end market, Uni-President and Master Kong each have their own tricks. But no high-end brand can be built overnight. Just as the success of Tang Daren took eight years of cultivation. Uni-President and Master Kong, deeply mired in the mud, will now compete in patience. Channel Is King in the New Era Some say that for FMCG, the importance of channels is no longer what it used to be, and that continuously growing innovative products are the core competitiveness. Those who hold this view often cite Uni-President as an example. But data does not lie. With its consistent channel advantages, Master Kong is not only larger in scale than Uni-President but also relatively stable in the face of market turmoil. Moreover, channels can also be innovative, and the barriers they build are much higher than products. Master Kong was one of the first FMCG companies to propose channel sinking. Around 2000, it expanded its sales network to prefecture-level cities and townships. It is said that it can complete the distribution of new products nationwide from big cities to mom-and-pop stores in townships within two weeks. In contrast, Uni-President's reach is not as wide or dense; it basically only does business in cities above the prefecture level. Because of this, although Master Kong is not as innovative as Uni-President in products, it can always imitate and use its channel advantages to strike later. Master Kong's Lao Tan Suan Cai Niu Rou Mian imitated Uni-President's Lao Tan and took away nearly half of its market share, which is the best proof. But for Uni-President, the good news is that with the high-end trend of products, the main battlefield of channel competition is increasingly focused on first- and second-tier cities. At this point, the gap between the two is no longer so obvious. In recent years, convenience store channels have become a must-fight place for mid-to-high-end FMCG products, and Uni-President and Master Kong cannot be indifferent to this. Currently, Uni-President operates 7-11 convenience stores in Shanghai and holds 55% of the shares of "Uni-President Silver Plaza" convenience stores in Shandong. Master Kong's parent company, Ting Hsin International Group, holds 50.5% of the shares of FamilyMart convenience stores in mainland China. Since FamilyMart stores are currently mainly concentrated in Shanghai, Master Kong and Uni-President are evenly matched in the convenience store channel. However, the channel competition is not purely a scale competition, but also includes the ability to understand and utilize channels. For example, also in Shanghai, Master Kong, together with PepsiCo, signed a multi-year strategic alliance agreement with Shanghai Disney Resort as early as 2014. After Disney opened, visitors in the resort could only purchase beverages from PepsiCo and Master Kong. For Master Kong, this is not just a "special channel" with an annual flow of 10 million people, but also a high-value ground for Chinese FMCG. Disney visitors are mainly mid-to-high-end consumers, and the space is relatively closed, so Master Kong can boldly conduct new product experiments there, and after success, use the influence of these people to bring a trend to the whole country. In addition to using existing channels to serve its own products, Master Kong also maximizes its channel advantages through alliances. Currently, all of PepsiCo China's beverages are produced by Master Kong. Factories are the origin of channels. Master Kong currently has more than 100 factories across the country, which greatly facilitates PepsiCo's distribution in various places. Similar partners include Starbucks. Starbucks launched bottled coffee, but its weakness lies in channels, while Master Kong happens to excel in channels. In May 2017, Master Kong added another partner: Ovaltine, the famous dairy brand under Associated British Foods. Cola, functional drinks, coffee, and dairy products are all Master Kong's weaknesses. But it did not choose to stubbornly fill these gaps; instead, it clearly knows where its advantages lie and used channels to improve its product line. Especially in the current situation where its own product sales are sluggish, production lines are underutilized, and channel merchants are uneasy, this approach is more conducive to the stability of the entire system. Master Kong's channel advantages are so strong that its parent company Ting Hsin also has more than 100 Master Kong Private Beef Noodle restaurants and 2,300 Dicos fast-food outlets. So, when Uni-President created a "new product launch mechanism" focused on product innovation, Master Kong seemed unmoved, but in fact, it established the Master Kong Holdings Channel Innovation Center (referred to as "Master Kong GiC"). Currently, Master Kong GiC is conducting research on the "Retail Store with Temperature" project. Smart cabinet IoT technology, in-store Wi-Fi access, product labeling, AI technology (emotion sensing), big data precise profiling technology, etc., will in the future serve both FMCG companies and retail terminals. Similar efforts are already underway by many global FMCG or retail giants, such as Coca-Cola researching how to use big data to formulate beverage flavors; and Amazon Go, which opened in the United States last year, can record the number of times each product is picked up, decision time, and purchase probability. From product innovation to channel innovation, and now even targeting black technology, can FMCG food and beverage companies represented by Master Kong and Uni-President finally get out of the mire? The road ahead is still foggy. The more thorny issue is that the consumption scenarios for FMCG food and beverages are being eroded. The invaders come from outside the industry, namely the increasingly developed food delivery and tea shops. The experience is more convenient, healthier, and stronger, and the invaders are coming fiercely. So, for now, the efforts made by Uni-President and Master Kong above are still on conventional paths. Next, how innovation revolves around building new consumption scenarios and new consumption demands is the key to the survival and revival of the old FMCG giants. Source: Business World Magazine (ID: shangjiezz) -END-