Source: China Business Journal Author: Sun Jizheng 2021 was a year of rapid growth for the internet celebrity economy and livestream e-commerce. With celebrities and key opinion leaders (KOLs) entering livestream sales, a large number of brands came into the public eye. Behind the "high price" of ice cream brands like Zhong Xue Gao, consumers gradually developed their own awareness of FMCG food and beverages. 2021 was also the year internet brands entered traditional tracks. Many internet brands shed their former internet celebrity labels and returned to channels such as hypermarkets. At the same time, traditional FMCG giants like Nongfu Spring and Wahaha were also catching up with trends. "In 2021, we saw traditional FMCG companies suddenly become 'internet celebrities,' and internet brands start doing ground promotion. This actually shows that in the FMCG field, there is no absolute distinction between online and offline brands. The low barriers to entry for products and channels still exist. Relying solely on one or two event-driven marketing campaigns is not enough to change the market status quo. Keeping up with consumer trends and ensuring channel transparency remain the survival strategies for FMCG companies," said Zhu Danpeng, a Chinese food industry analyst. ****Changes in Brand Marketing Approaches In 2021, the most important policy signal for FMCG brands was the state's stance on "fan circle culture." In June 2021, the Cyberspace Administration of China announced a two-month special campaign to rectify "chaos in fan circles" nationwide. The rectification of fan circle culture meant that FMCG companies, which had long been enthusiastic about fan culture and variety shows, faced a major shift in their marketing strategies. In recent years, many companies and brands have spared no expense in sponsoring and endorsing various talent shows, using fan circle economy and culture to boost brand popularity. Lu Shengzhen, an FMCG industry expert, told reporters that the fan circle consumption issues in recent years were mainly reflected in online marketing competition. Internet brands used numerous social platforms and KOL marketing to overshadow traditional brands in online exposure and traffic. To maintain their online presence, traditional brands had to sponsor a wide range of variety shows. Looking at the internet brands and leading companies that have become popular in recent years, inviting celebrities with fan bases to endorse, embedding products in hit variety shows, livestreaming on major platforms, and leveraging KOL word-of-mouth have become standard promotional methods, ultimately leading to "unbearably high costs." "The internet's target is never the mass market. The early groundwork is to focus on finding target consumers. Once target consumers are gradually stabilized, the brand will make these loyal consumers spend more on the brand," Sun Wei, a brand marketing researcher at Tsinghua University, told reporters. This is the inherent strategy of internet brands. At the same time, traditional companies have also quickly learned the thinking and tactics of internet brands. For example, Hankou No.2 Factory and Wahaha have used "guochao" (national trend) thinking to combine their products with currently popular IPs, winning favor from many consumers. In recent years, Wahaha has continuously launched crossover products with Zhong Xue Gao and Pop Mart. Especially at the end of 2021, after Zong Fuli, daughter of founder Zong Qinghou, became general manager of Wahaha, she announced a series of new product plans. Sun Wei believes that brands can convey more brand information online, but consumers can also express their opinions online. "In fact, internet marketing tactics are like 'difficult for those who can't, easy for those who can.' After extensive practice by internet companies, a feasible development path has emerged. The real issue lies in the thinking of the decision-makers," Sun Wei said. "In 2021, some brands experienced marketing mishaps of varying degrees, which actually reflects that consumers have developed a certain level of fatigue with internet marketing methods, or rather, consumers can now distinguish between so-called 'seeding' and 'soft ads,'" Zhu Danpeng said. When internet tactics begin to "fail," many brands shift their focus back to offline channels. ****The Battle for Traditional Channels Once upon a time, online platforms and new retail were the buzzwords for many FMCG brands. But in 2021, not only did traditional giants continue to deepen their traditional channels, but many internet brands also focused on offline. Looking at the entire online channel landscape, whether it's livestream e-commerce or e-commerce platforms, the overall customer acquisition costs and process costs have been rising year by year. Against this backdrop, many "digital natives" have been marching offline. According to insiders in the FMCG industry, in recent years, many emerging brands have begun to focus on the offline market. In 2021, Three Squirrels officially announced its entry into the offline distribution market, setting strategic goals of "3 billion yuan in distribution in 3 years, 10 billion yuan in 5 years." It established authorized agency partnerships with over 230 leisure food distributors with an average annual sales scale of over 65 million yuan, and confirmed dealer agency entry into 80% of China's top 100 chain supermarkets. Zhu Danpeng believes that the label difference between traditional and internet brands is not a criterion for distinguishing whether a brand is young or not. In recent years, Qiaqia Food has gained favor from many young consumers through various offline and online marketing and new product launches. From this perspective, if traditional FMCG companies can get suitable new products, their channel advantages will be more explosive than those of internet companies. "Previously, Nongfu Spring's Tea π and Uni-President's Xiao Ming Tongxue demonstrated that traditional companies can turn trendy new products into true blockbusters through channel advantages." Zong Qinghou once said publicly that Wahaha lacks new blockbuster products. This is actually what all established companies need. They have all created blockbusters before, so they understand their importance in the market. "We can see that offline, there aren't too many products on the shelves. Giant brands concentrate their main energy on one or a few products to achieve high returns," Zhu Danpeng said. "Online is an infinite shelf, so online products can serve not only the mass market but also niche and personalized needs. That's why we see many internet celebrity brands launch various products to cater to niche preferences. However, offline channel shelf space is limited and exclusive—if one product is there, another isn't—and products must align with mainstream consumer concepts," Lu Shengzhen said. For many online brands, the biggest challenge in going offline is accurately grasping the preferences of mass consumers, i.e., being able to create blockbuster or hit products, and the returns will be far higher than online. **In the view of industry insiders, it is precisely for these reasons that many brands with internet genes have started to enter the offline market. In 2021, Genki Forest also made a large-scale push offline. Founder Tang Binsen set a target of 7.5 billion yuan in marketing for offline channels. Over nearly two years, Genki Forest transformed from relying on online e-commerce scale to covering over 183,000 traditional channels. According to data disclosed by Genki Forest, its revenue in 2021 is estimated to reach 10 billion yuan. Some industry insiders revealed that Genki Forest's channel layout has now entered third- and fourth-tier cities. Genki Forest's rapid expansion quickly drew attention from giants like Coca-Cola, PepsiCo, and Nongfu Spring. Especially when Genki Forest announced its entry into bottled water offline, it directly targeted Nongfu Spring's main market. Competition between the two offline has become increasingly fierce, especially in areas like freezer placement. "Looking at the competitive landscape of FMCG in 2021, the industry once again shifted from concept competition to channel competition. I believe this has become a cycle in FMCG, especially in beverages. Every so often, a company will first propose a new product concept and gain a large number of consumers. But because the FMCG industry has low barriers and no so-called technical moats, many companies will launch similar competing products to grab market share, eventually evolving into channel competition among enterprises. Especially in traditional offline channels, the key test is the ability to move products and distribute in terminal markets," Zhu Danpeng said. Therefore, we see internet companies eventually transform into traditional companies, joining the market competition from online to offline. Are you "watching" me?