The Brand Owner's Dilemma The dismal performance of the FMCG market in Q2 2024 is evident to all industry practitioners. Many brand owners who were unprepared (including some major brands) have already lost their footing, falling into a growth dilemma: Products aren't moving at the terminal, brand owners face immense pressure to grow performance, and sales teams in every region are running themselves ragged without seeing any volume. In desperation, they resort to forcing inventory on distributors to meet KPIs, a short-term fix with long-term consequences. Many distributors are already reeling from the impact of retail discounting, their businesses severely damaged. When brand owners add to their burden, distributors find it impossible to make a profit, face the risk of inventory overflow, and may even go on strike. To meet performance targets, sales teams have to reopen accounts, but new accounts require communication and磨合, and may not effectively serve the local market. The likely outcome is that forcing a month's worth of inventory could cost the entire year's remaining business, ultimately leading to a decline in revenue rather than growth. When a brand owner's business contracts, investment in market resources inevitably shrinks. Under cost-cutting, reversing the growth dilemma becomes even harder. In an era of shrinking volume, the market's collapse is faster than many practitioners expected, making business difficult. Many brand owners struggle to maintain price systems in the existing market, afraid to embrace the new growth from discount channels. Caught in this dilemma, they are forced into extreme actions. But frankly, in this environment, there's really no need for brand owners to force inventory—because it simply doesn't work anymore!

The Root Causes and Transmission Chain of the Current Problem The most fundamental difference between today's market and the past is the complete reversal of supply-demand dynamics. In recent years, supply has outstripped demand, leading to capacity clearing. In the previous era of growth, market demand kept expanding, and inventory forced onto distributors eventually found its way through various "drainage" channels, always having a path to absorption. But times have changed. Consumer income and expectations have both declined, and the market has entered an era of shrinking volume. The market itself already showed signs of overcapacity. Combined with disorderly expansion during the pandemic, the oversupply situation has worsened, causing a large backlog of products in the distribution chain. In the past, when distributors couldn't absorb forced inventory, they would offload it through e-commerce platforms, a practice tacitly approved by regional sales. But now, many distributors report that their warehouses are full, and even e-commerce platforms are refusing to take more. This is a variable that affects the entire industry chain. As the overall business pie shrinks, someone has to be eliminated. It's not hard to understand that when consumer income and expectations both decline, retailers are the first to sense the crisis and make changes, focusing on survival and figuring out how to sell goods. In practice, they find that unless they sell exceptionally good products (membership warehouse model, differentiated product assortment), they must sell goods cheaply enough (discount retail model, efficiency-leading strategy). Note: Of course, some have tried to build large-scale channels for near-expiry products, but the model ultimately had issues. Unfortunately, no matter which approach retailers take to address new challenges, it's a disaster for most distributors. Good products are scarce, and only a few distributors can handle that business. Most distributors can't get a piece of that pie and are forced to find ways to sell goods cheaper. But discount retail itself optimizes the distribution chain; selling cheap means competing on cost leadership, which clears out those without cost advantages. This is one reason why distributors are having a hard time these days. Of course, if retailers and distributors are struggling, brand owners are no better off. It's the same issue: changes in supply-demand dynamics affect the entire industry chain. Brand owners face many problems; here are a few common ones. First, discount retail channels—this wave of discount snacks and the gradual emergence of discount supermarkets—directly impact brand owners' price systems. How to balance and maintain them? Beyond price systems, these channels also impact the business of distributor partners in the existing ecosystem. Many distributors are quitting because they can't make a profit. How to maintain the distribution system? Traditional offline retail channels are shrinking, and new growth is concentrated in new retail scenarios. How to learn the new rules of the game and embrace opportunities? Note: New retail scenarios here include not only membership warehouses and discount retail but also instant retail and community group buying (many may mistakenly think community group buying is dead, but many local groups have seen impressive growth in recent years). Facing such issues, brand owners need to make many changes. If they stick to old ways, focusing only on their immediate business and harming partners, the consequences will eventually backfire.

The Way Out for Brand Owners What strategies can brand owners adopt? Let's start with the conceptual. Based on the current environment, it's crucial to face reality. In an era of shrinking volume, not only demand contracts, but supply will also shrink, meaning a significant portion of brand owners will be cleared out. This is a process of competitive elimination. The rules of elimination are the same as those Wang Xing summarized when he was building Meituan: cheap beats expensive, quality beats inferior, serious beats careless, patient beats impetuous, diligent beats lazy, and reputable beats disreputable. This is why the term "quality-price ratio" has been repeatedly mentioned in recent years. Those who can continue to seek growth now must offer products that balance price and quality and can effectively reach consumer scenarios. If any aspect isn't executed to the extreme, they may be outcompeted by peers. Especially for those brand owners who have ridden the wave of the times but mistakenly attribute their success to their "brand power," this is a wake-up call: the current market no longer allows for unreasonable brand premiums. Mentally, they must also be open—openness has been one of the few consistently winning strategies over the years. Admittedly, China's retail transformation since the era of large supermarket chains has been turbulent, but each time, its impact on the overall retail landscape was limited. Many believe this time is no different. But we must not fall into cognitive inertia. At least in studying global retail changes, we see that discount retail is a completely different situation. Since ALDI's inception in 1946, this model, which has persisted for 78 years, has been penetrating markets worldwide. I've seen many bosses who rejected discount snacks, believing low prices aren't sustainable, and thus lacked the patience to study the real reasons behind channel changes, ultimately missing the best window to embrace the dividend. Later, even putting in ten times more effort to catch up proved futile. Now, let's talk about the practical side—several very specific measures to address current problems.

First, the most obvious issue is the impact of discount retail on price systems. This isn't the first time we've faced this; e-commerce already posed a similar challenge. The solution is clear—it's just a matter of whether you're willing to overcome inertia and act. Within the existing product system, the available tools are clear: differentiate in packaging, specifications, contents, and even flavors to avoid price comparisons as much as possible. New channels have their own rules; just answer the given questions. Note: As for profit, it's designed through the product itself; whether there's any, and how much, depends entirely on your internal capabilities. As for the impact of retail channel changes on the distribution system, there's no way around it—this will inevitably be a process of contraction and team restructuring. For distributors, this is also a test.

Second, trust the evolutionary capability of the industry chain. Any excellent distributor partner will adjust their business operations in response to market changes and find ways to sell goods. Most importantly, brand owners should avoid extreme inventory pressure, which drives away excellent partners... If brand owners still seek growth, they must return to the most fundamental product strength. After over 30 years of development, China's FMCG market has a very complete (and highly competitive) supply. Big single products have likely hit their growth ceiling by now, and new big single products are needed to sustain growth. Therefore, for brand owners to go further, they must have strong innovation spirit and capability, constantly trying to create good products that the market recognizes. In a shrinking market, the iteration happening at all levels of the supply side Of course, navigating cycles is not easy. But everything has two sides. Although the current competitive environment is extremely harsh, from another perspective, brands that survive and thrive in this environment, having passed the market's cruel elimination, are the ones with true product strength. Now is the best time to test a brand owner's internal capabilities.

From August 19-21, 2025, the "2025 7th China FMCG Conference" with the theme "New Demand, New Supply" will be grandly held in Shanghai. At that time, we will invite senior executives from leading FMCG brands and retailers, as well as regional major distributors, to discuss the following topics: the dilemmas and solutions for brand owners in the current market / how brand owners, distributors, and retailers can build a symbiotic relationship / the directions and paths for brand owners to achieve growth / and the transformation of brand owners' channel models in the current market.