Let's first look at a report [Caixin Survey | Q1 GDP Growth May Be Below 5%, March Economic Activity Disrupted by Pandemic]. Under the influence of domestic pandemic resurgences and international geopolitical conflicts, China's economic growth in Q1 2022 may continue to stay below 5%, with major macro data declining in March.

As the saying goes, "The duck feels the warmth of spring water first." Many FMCG manufacturers have likely felt the pressure on Q1 sales and profits due to declining consumer spending. For most manufacturers, Q1 still has the Spring Festival consumption peak to sustain them; the real challenge is Q2, specifically April and May. As the market shrinks and competitive pressure intensifies, the FMCG industry should re-examine operational efficiency.

Understanding Efficiency from a Retail Perspective

Why understand efficiency from a retail perspective? Retail is the most fundamental unit linking FMCG sales and consumption, and it's the unit most familiar to industry peers. When we think of retail, three keywords come to mind: "people," "goods," and "place." Let's understand efficiency through these three terms.

1. The Former Sears Department Store

Over a hundred years ago, Sears pioneered the business strategy of "selling everything to everyone," leveraging the newly emerging railway network in the U.S. By establishing a massive mail-order operation center in Chicago (sending product information to customers, aggregating demand at the center, and delivering products to homes via logistics), it crushed smaller competitors.

Sears' IPO in 1906 was called the first retail IPO in U.S. financial history. Its revenue once reached 1% of U.S. GDP, and it grew into the world's largest department store retailer.

We can attribute Sears' success to improved "place" efficiency. Through postal connections, the combination of information flow, capital flow, and logistics gave users a more efficient, convenient, and satisfying experience.

2. The Former Prime Commercial Locations

Zhengzhou is the city where I live. Ten years ago, young people coming to Zhengzhou would definitely visit Erqi Square. The core shops there had the most expensive rents, reaching 3 million yuan per year for a few dozen square meters, and even then, it was hard to get a shop.

Why were rents so high? Because of high foot traffic, which is now commonly called traffic cost. Of course, some shops lost money. Why? Because sales couldn't cover costs.

One essence: despite high foot traffic, the conversion rate (in internet language, conversion rate) was insufficient; many people passed by but didn't enter the store.

Second essence: average transaction value was not met; customers spent little in the store, so even high margins didn't yield ideal returns.

Third essence: no repeat customers, low repurchase rate.

The era of "one shop supporting three generations" seems to have ended; prime locations are no longer thriving. We can attribute this to the fact that under this model, "people" efficiency cannot be improved, or it's very difficult to improve.

3. The Former Black-and-White TV and Today's Jinmailang Softened Water

In my memory, I first encountered a 14-inch black-and-white TV, then color TV, and now LCD high-definition. TVs have continuously been updated and phased out while bringing users better experiences.

This raises a question: why did some previously strong TV brands quickly decline? I think it's because their product update efficiency didn't keep up with trends. If product iteration lags behind competitors, failure is inevitable.

The above two cases can be attributed to "goods" efficiency improvements, including product iteration efficiency, production cost efficiency, and supply chain efficiency.

Summary: Each of the above efficiency improvements has given rise to something "new," which we call new retail. It can also be said that the history of new retail development is the history of operational efficiency improvement. Efficiency improvement is the crystallization of industry wisdom. In the face of progress, all practitioners cannot act like mantises trying to stop a chariot.

The pandemic outbreak will inevitably accelerate industry iteration and upgrading. FMCG manufacturers can only survive by continuously optimizing their efficiency.

Returning to Offline, Improving Channel Efficiency

What is a channel? The essence of a channel is to reach consumers with low cost, scale, high precision, and diversity.

For example, when a brand launches a new product, an efficient company can have the new product's targeted channels and outlets blooming everywhere within a month, reaching target consumers in a very short time. Inefficient companies drag on for half a year without meeting targets, until the new product is pushed to death lukewarmly.

Next, we'll elaborate on channel efficiency from four dimensions.

1. The Lower the Coverage Cost, the Higher the Operational Efficiency

Generally, the offline supply chain system of FMCG companies can be described as F2B2b2C. Apart from saving costs through meticulous budgeting at each link, we can think more about whether we can remove some links. After all, removing a link is like cutting off the fuel supply, giving up the profit of that link.

1) Remove B, becoming F2b2C: Jinmailang's "water not landing" has achieved this. The core idea is direct delivery from factory to outlets or wholesalers, with an agreed commission ratio for order placement. Softened water doesn't enter the distributor's warehouse but goes directly to sales points, thus cutting the cost of warehouse in-and-out, improving operational efficiency.

2) Remove b, becoming F2B2C: Community group buying has achieved this. Setting aside capital-backed groups, the essence of community group buying is improving FMCG operational efficiency. The core ideas are pre-sale, next-day delivery, and self-pickup.

Pre-sale models can greatly reduce product losses due to sales uncertainty, especially for fresh products—if not sold today, they're thrown away tomorrow, and the waste must be borne by consumers. Next-day delivery greatly satisfies consumers' urgency for products. Self-pickup can greatly reduce logistics and delivery costs.

So FMCG manufacturers should learn to accept new things, participate in normally operating community group buying tracks, optimize away some b, to reduce coverage costs and improve operational efficiency.

3) Remove B and b, becoming F2C: Many brands are doing direct sales using internet platforms. This model can fill the gap in online supermarkets, meet the shopping needs of homebodies, and cut two intermediate links to improve operational efficiency. However, it's worth reminding to pay attention to price control to avoid losing big for small gains.

Summary: Channel coverage cost is also one of the core competitiveness of brands. It can effectively improve manufacturers' profitability and well reflect the brand's ability to control market cost-effectiveness.

Reducing offline coverage costs is an important choice for optimizing operational efficiency. So FMCG manufacturers should not reject it in attitude, nor should they repeat the history of workers smashing machines to replace labor with machines over a hundred years ago.

We can only follow the trend of historical development; laws are irreversible. Secondly, there are many and few ways to reduce coverage costs. Many because there are many channels; few because for each channel, it's just the combination and optimization of B and b in F2B2b2C.

2. The Higher the Degree of Scale, the Higher the Operational Efficiency

Common channel models are no more than the following four forms:

a. Traditional channels: Brand → Distributor → Outlet → Consumer b. Social channels: Brand → KOC → Community → Consumer c. E-commerce channels: Brand → KOL → Platform → Consumer d. AI channels: Brand → Content seeding → Algorithm push → Consumer

The process from single-channel reach to omni-channel reach is the scaling of channels. Only with scaled channel reach can we break through the last line of defense of "stubborn" consumers' purchase decisions.

So channel scaling can better reach consumers' full-scenario, omni-channel, all-weather, all-category, and freely satisfied consumption needs. Brands shift from passive sales to active sales. Wherever consumers' attention is, your product appears there, thus continuously improving operational efficiency.

Summary: Channel scaling is also one of the core competitiveness of brands. It can effectively improve manufacturers' ability to manage customer relationships. The higher the scale, the higher the requirements for the sales team, especially the traditional channel business team. Improving omni-channel capabilities should be acted upon immediately.

3. The More Precise the Target Consumers, the Higher the Operational Efficiency

Consumer profiles need to be expressed digitally. Returning to the "people," "goods," and "place" in retail, we've described the "people" factor a lot above. Before improving precise traffic, conversion rate, average transaction value, and repurchase rate, there is a core factor: a precise target consumer profile.

Case 1: If your product's main consumers are urban white-collar women, don't mistakenly build channels in villages; it doesn't have precise traffic sources. The more you invest, the greater the loss.

Case 2: Don't give your target consumers a 100-yuan Rolls-Royce voucher; such a promotion has no effect on conversion rate. It doesn't meet precise conversion rate requirements and wastes money.

Case 3: If you sell affordable beverages, don't create a 10,000-yuan beverage package; it won't help increase average transaction value and may backfire. The package doesn't meet precise average transaction value needs.

Case 4: To improve repurchase rate and increase consumer stickiness, many brands issue electronic vouchers, but with too many thresholds, even requiring forwarding to Moments. This won't bring repurchase rate; it will only bring consumer resentment. It doesn't meet precise repurchase rate elements.

Summary: The "people" factor is the most complex, but it boils down to this: the more precise the target consumers, the more specific the work around them, and the higher the operational efficiency.

4. The More Dimensions of Consumer Reach, the Higher the Operational Efficiency

What is diversified consumer reach?

For example: If you run out of rice at home, ten years ago you'd go to a grain and oil store or supermarket. Now you might still buy from original channels, or from Tmall and JD Super, or in a Douyin live stream, or through a recommendation from a big V or a friend.

Summary: The core of reach is to use every possible means to accurately convey brand concepts or product information to target consumers, so they can think of, see, and buy your products anytime. Diversified consumer reach is also one of the core competitiveness of brands. It's the last meter at the end of the channel and the most critical link to check channel success.

Final Thoughts:

Efficiency issues are not limited to the above, but they must be taken seriously at this stage. What I want to express is that traditional business thinking should not be discarded, but must keep pace with the times, see the essence through phenomena, and discover the underlying logic of growth. The times are developing; FMCG cannot stagnate. After the pandemic, like the shore after the tide recedes, it will be clear who is swimming naked.