The FMCG industry is currently facing "unprecedented changes in a century": the old order built over the past 30-plus years is gradually collapsing, and a new order is being established. If we only look at isolated points, we see a series of seemingly unrelated hot news: snack discount stores with ten-thousand-store players, Pangdonglai's remarkable success in overhauling peers, Nongfu Spring's green bottle killing it... but we fail to fully understand why the industry is changing. We just feel that FMCG business has been tough in recent years. But beneath the tip of the iceberg, we can clearly see the entire trajectory of market changes. There are no changes without reason; only markets that follow objective social laws. Every link in the FMCG industry chain is iterating in a rational direction. This article will analyze the overall market changes according to the consumption paradigm of "consumer-retailer-distributor-brand/manufacturer," for the reference of all industry practitioners. Note 1: Most viewpoints are drawn from previous articles: "Talking about Brands: In the Shrinking Era, Stop Pressuring Inventory!", "Talking about Circulation: In the Retail Discount Era, Three Mountains Will Crush a Large Number of Distributors", "Talking about Retail: Hard Discount Has No Secrets", "Talking about the Past Two Years: Hard Discount Supermarkets That Can't 'Hard' Up". Here, we organize them systematically for coherent understanding.

Note 2: I'll set a flag: in 3-5 years, when we review, the overall logic of this article won't change much. The momentum for FMCG industry transformation has already emerged and will only gradually enter deep waters by inertia.

Let's start with conclusions: 1. In the shrinking era, consumers' income/expectations have both declined, leading to shrinking consumer demand and accelerating disruptive changes in market supply-demand relations, and consumers have shifted from consumption upgrading to pursuing cost-performance ratio; 2. To meet the demand for cost-performance, retailers must have an advantage in one of two areas: either sell better goods to consumers or sell goods more cheaply to consumers. This gives rise to two paths for retail enterprise development, serving different consumer groups, while traditional retailers stuck in the middle are gradually being cleared out; 3. Retailers change in response to consumer changes, and the chain reaction affects distributors: good goods may not need distributors, and selling goods cheaply squeezes distributors' business space. Those who seek change and find new business positioning have a chance to grow against the trend, otherwise they are easily cleared out; 4. Changes in retailers and distributors directly affect brands/manufacturers: how to co-create with retailers' game rules, how to reorganize the reshuffled distributor team, and more importantly, how to meet consumers' new needs are all questions brands need to think through in the new development cycle. The article is a bit long, so please be patient. The Starting Point of All Changes in the Consumer Market Is the Change in Consumers As consumers, I believe most people feel similarly: times are tough, and we're preparing to tighten our belts. To understand this result, we need to start from a more macro perspective; it's essentially an economic issue. China's past rapid development truly relied on production factors mainly land and labor, and it has always been so. Now, the marginal contribution rates of these two production factors are already very low, and we need to rely on new production factors to drive the entire economy's growth. Note: This is closely related to new quality productive forces, which involves new production factors, but we won't expand on that here. This replacement of production factors, reflected in individuals, has the greatest impact in two ways: on one hand, the repricing of old production factors; on the other, the replacement of old production factors by new ones. In simple terms, the marginal contribution rate of individual labor to economic growth has decreased, leading to a general decline in labor income. New production factors greatly improve efficiency and eliminate old ones (Robo-Taxi is a recent typical example), leading to a reduction in labor positions. As a result, most consumers have expectations of lower income or even unemployment. If we add existing debt, consumer demand is directly reduced to basic security levels. Note: Originally, this was a very long process, but the pandemic pressed the fast-forward button, causing what might have taken at least 10 years to happen within 3 years. Because of the sharp contraction in consumer demand, the market supply-demand relationship has undergone disruptive changes. This contraction in consumer demand due to income and expectations is a very representative turning point signal: The current consumer market is neither incremental nor stock; it is clearly a shrinking market. The supply side will gradually clear out excess supply as demand shrinks. The so-called basic security level of consumer demand does not mean no consumption at all, but rather no reckless consumption; people begin to focus on maximizing the utility of spending. Spending the same money to buy better products, or buying similar products at lower prices. In market language, consumers are pursuing "cost-performance ratio." However, for different consumer groups, the degree of demand reduction varies, and their reactions to cost-performance also differ. This leads to structural stratification of consumer demand.

Excerpt from Lu Xiuqiong's "In the Post-Pandemic Era, Brands Need the Determination to Cross Cycles"

The population will show an M-shaped differentiation trend

It is the changes in consumers that constitute the most obvious characteristics of the current market: 1. Disruptive changes in supply-demand relations, shrinking consumer demand, and surplus supply will be cleared; 2. Consumers pursue cost-performance, but consumer demand shows clear stratification. These two characteristics will fundamentally rewrite the order of the FMCG market. Adapting to Market Changes Retailers: Left or Right Facing changes in consumers and the market, the most direct link is retail, so retailers are the first to respond to the times. Consumer demand is shrinking, the overall business pie is shrinking, and someone has to exit. For retailers, the result is also clear. Those who will not be cleared out are those who can still sell goods and sell better than competitors. Since consumers pursue cost-performance, it's natural to follow consumers' wishes. So we see the two most representative development directions: 1. Selling better goods to consumers (differentiated product strategy) — represented by Pangdonglai's overhauls of peers; 2. Or selling goods cheaply enough (efficiency leadership strategy) — represented by discount snacks. Retail is developing in two directions, clearing out traditional models that lack competitiveness. It just seems that the current retail market development is very fragmented, with involution and upgrading seemingly developing on two tracks. It's just serving different levels of consumer groups in response to cost-performance demand. Different paths require different methods. To sell better goods to consumers, besides exhausting the market's products for selection, it inevitably leads to intervention in private-label products. The flourishing of private-label products is a product born out of the FMCG industry reaching a certain stage to further meet consumer needs. Retailers are closer to consumers than brands, can better洞察 needs, and naturally know better what good things consumers want. Of course, this requires extraordinary capabilities, requiring retailers to be compatible with the product development capabilities that brands possess. To sell goods more cheaply to consumers, it's natural to remove unnecessary costs and pursue extreme price advantages while maintaining reasonable profit in the business model. This gives rise to the aggressive discount retailers who, to pursue achievable extreme price advantages, transform the circulation methods of the industry chain and eliminate redundant links. Note: Regarding discount retail, I've written special articles before: "Talking about Snack Hard Discount: Entering the Market for 2 Years, Watching It Rise" and "Talking about the Past Two Years: Hard Discount Supermarkets That Can't 'Hard' Up". But in these two paths, we can see that retailers are all working on their product assortments, whether in quality or price. Compared to the offline retail system built over the past 30-plus years, which rented out shelves to brands as a sub-landlord, current retailers think more from the consumer's perspective. They clearly know the answers to two questions: 1. Which consumer tier do we serve? 2. With so many shopping channels now, why should they come to us? I believe that once they think clearly about the answers to the above questions, those traditional retailers who don't want to leave will gradually start their own revolution, pushing this industry chain reform in the shrinking era into deep waters. Distributors: A Brutal Survival Battle Of course, it's not just retailers who need to revolutionize themselves; distributors even more so. Distributors' customers are retailers, and most traditional retail sales are now dismal. If the brand side is stronger, distributors doing traditional retail customers are lucky to break even. The only ones that can move goods now are mostly the retailers mentioned above: 1. those selling better goods to consumers; 2. or those selling goods cheaply enough. Good goods are scarce; the distributors who can do this business are necessarily a minority, and most distributors can't get a piece of this meat. They are forced to find ways to sell goods cheaply together. Unfortunately, selling goods cheaply (like discount retail) itself optimizes circulation links, competing on cost leadership and clearing out those without cost advantages. This greatly compresses distributors' living space. Corresponding to retail customer changes, the distributor group is also undergoing changes with a mapping relationship. Again, consumer demand is decreasing, the business pie is shrinking, and someone has to exit. This is an inevitable situation in the current market and cannot be changed. This FMCG industry chain transformation is a brutal survival battle for distributors. Looking at 3-5 years, possibly 50% of distributors face the risk of being cleared out. What they should consider is how to adapt to new business rules to survive. It has been proven that a group of distributors around me who realized the seriousness of the problem have, in the past year, cut losses, transformed their businesses, and even seen rapid growth against the trend. The path is very clear; they basically did a few things: 1. Transform service customers, find truly high-quality retail partners under the new order; 2. Form supply chain alliances/B2B platforms, focusing on their strong product assortments and combining with others' strong assortments; 3. Transform to develop wholesale-retail models, with the ability to export supply chain capabilities regionally. Even when other distributors in the same region can't hold on and vacate business space, they can take over that business. But for distributors, the key is to rethink and find their ecological chain value, achieving absolute advantage. They can't still think of making money only through the simple functions of advance payment and logistics distribution. Once low-value things start to involute, there will eventually be no profit. Under the new FMCG order, it's not that distributors are not needed; it's that distributors who cannot create extra value are not needed. Now is the Best Stage to Test Brand Power In the overall shrinking environment, brands/manufacturers face no fewer problems than distributors and retailers. Here are a few very realistic problems: 1. Many discount systems require direct cooperation with manufacturers, and terminal prices are cheap; how to maintain the price system? 2. Retail sales are sluggish, many distributors can't meet sales targets, or even lose money; how to maintain the distributor system? 3. If traditional channel sales are too large, discount channels are not fully embraced; once embraced, sales are held hostage by discount systems; what to do? Of course, the problems to face are far more than these; these are just new business rules that need to be adapted to under the alternation of old and new orders. Moreover, in the e-commerce era, there is already experience in dealing with this: use all possible differentiation methods to isolate and stabilize the system. The essential issue is that the real customers brands/manufacturers serve are consumers, and consumers now care about cost-performance. This is what brands truly need to think through, because it's the fundamental feature changing the consumer market order. Over the past 30-plus years, the consumer market has always believed in the big single product strategy, to build brands and earn excess premiums. But under the current new order, obvious problems have emerged: 1. Consumers are seeking to eliminate premiums, especially unreasonable ones; 2. Big single products have hit obvious bottlenecks after years of development; in the past two years, companies with product matrices have fared relatively well. In the past consumption upgrading era, market supply was average or even scarce; as long as the product was good, a slightly higher premium was acceptable and recognized by consumers. But now, with disrupted supply-demand relations, consumers compare prices and are extremely price-sensitive. This means for brands, the original product pricing strategy and even system need major adjustments; the constraint of price on product power has reached a very refined level. It's hard to go from extravagance to frugality. It's not that consumers don't recognize brand value; it's that some brands have earned 'brand premiums superimposed on era dividends,' and the market is clearing out unreasonable premiums. The recent high-profile Nongfu, launching a small green bottle and returning to purified water, is a good signal (it can make a giant overturn its decision from over 20 years ago, showing how big this change is). Excerpt from "Future Consumption: Nongfu Spring Is Really Panicking" This is also a problem most brands/manufacturers need to examine now. As for the big single product strategy, there's no denying it still has strong lethality. But in the shrinking era, there's a very realistic problem: after successfully building a brand that represents a category, if the entire category stagnates or even shrinks, the brand's days will inevitably be tough. Big single products have likely hit their growth ceiling at this point. There's no absolute right or wrong in choosing between a big single product strategy and a product matrix strategy. It's just about which is more suitable for enterprise development at different stages. The past 30-plus years of FMCG development have already created many category kings; perhaps the era most suitable for the big single product strategy has passed. The new order being established in the FMCG industry requires brands to step out of self-imposed constraints and use product innovation to meet more diversified market demands. Excerpt from "Wine Talk: Don't Be Superstitious About the Big Single Product Strategy | Debate" Dialectically, this is not a bad thing. This is the process that truly tests brand power in crossing cycles. Finally, I wish all FMCG practitioners to think clearly about the future during this unprecedented industry reform. Find your new positioning, and may your business continue to rise as before. __PS: Click Read Original to view more about the 6th China FMCG Conference & 3rd China FMCG Hard Discount Conference & 3rd China FMCG Distributor Conference...