On April 6, the "2023 (8th) China FMCG Innovation Conference" hosted by New Distribution specially invited Hou Xiaohai, CEO of China Resources Beer (Holdings) Co., Ltd., to deliver a keynote speech. Hou Xiaohai joined Snow Breweries as a professional manager in 2001, serving successively as Sales Development Director, Marketing Director, General Manager of Marketing Center, and General Manager of Regional Companies, and took full charge of Snow Breweries in 2016. After becoming Chairman of China Resources Snow Breweries, Hou formulated the "3+3+3" strategy, embarking on the path of "decisive battle for high-end, quality development" and building a "4+4" high-end brand portfolio. In 2019, Hou led China Resources Beer to achieve equity and brand cooperation with Heineken International, acquiring Heineken China, which was rated as the "2019 Best M&A Deal" by FinanceAsia. In 2021, Hou proposed the concept of "Great Transformation, New World," systematically elaborating that China is undergoing unprecedented changes, bringing many new variables to the FMCG industry. At the conference, President Hou shared some of Snow Breweries' practices and personal reflections under the theme "Braving the New World." What kind of world is the "New World"? Why did Snow propose the "New World"?
The following is the content of President Hou's speech (with deletions):
Why propose the "New World"?
In fact, Snow Breweries has undergone a long period of exploration. In 2017, when I first became CEO, the beer industry was in an era of scale development, with large volume but low quality. I advocated "quality development." After 2019, through three years of effort, Snow accumulated some strength, and we then proposed the term "Great Decisive Battle." Why call it "Great Decisive Battle"? After achieving quality growth, Snow wanted to engage in a decisive battle with major competitors. We felt we had the strength to engage in a struggle with them and achieve strategic victory. But at that time, we still felt we hadn't fully grasped the pulse of industry development. In 2020, when the pandemic hit, everyone was confused, but Snow quickly launched a counterattack in the market, seizing customers, terminals, and sales. After more than half a year of effort, Snow's competitive capabilities improved significantly. In October of that year, I proposed the "Momentum Theory," which posits that to carry out a great decisive battle through quality growth, there must be a theoretical foundation, namely the "Momentum Theory," to build up the momentum for the decisive battle. If we define this "momentum," I call it "standing on the right side of history." The momentum of Snow's development and the momentum of industry development are both on Snow's side. To achieve this momentum, we proposed "energy," the energy of kinetic energy. We believe that people's capabilities, organizational capabilities, brand competitiveness, channel network construction, and brand portfolio are all kinetic energy. If we fully develop "energy," the "momentum" will inevitably change, transforming from being against us to gaining decisive advantage. By 2021, we felt that the development of momentum alone was insufficient to explain the rapid changes in the industry. To achieve "energy" and "momentum," we must understand the world. Because we observe the world too little and change too little, we make mistakes, hesitate, lag behind, and get overtaken by competitors. So we proposed "Great Transformation" to gain insight into the "New World" under the great transformation.
The "New World" under the Great Transformation
What is a "transformation"? I think there are several aspects: First, people have changed. This is the most core aspect. We are in the business of people. If the objects we sell to change, then what we sell and how we sell will definitely change. We know consumers are changing, but we are not very clear about how they are changing, lacking disruptive thinking. So I think people changing is very important. When people change, the places they drink, the needs for drinking, the ways they purchase, and the places of purchase will all change. Second, technology has changed. Our living space is full of technology everywhere. Technological changes have reconstructed our entire world. In the past, FMCG companies were relatively traditional, with insufficient perception and follow-up. The development of current technology has made brand communication, organizational management, talent cultivation, and interpersonal communication, as well as brand communication, all different. Third, the entire economic society, the country, and the macro aspects have undergone major changes. Enterprises often do not study this enough; this is a political matter and a national matter. China has gone from independent development to embracing globalization after reform and opening up. Now it has entered a third stage, where globalization has entered a new journey. China's position in the world has fundamentally changed, and its relationship with the world has completely reversed. China's voice in the world is gradually increasing, and the operating rules of the consumer goods industry have been completely broken and reconstructed. This change has a huge impact on us. From the era of scarcity to the era of surplus, from the era of surplus to the era of quality, from scale economy to quality economy, and from quality economy to the future era of health and nature, the development is changing rapidly. Consumer goods must adapt to this macro-environment change and cannot just lower their heads to pull the cart without paying attention to the changes around them. The country has changed, people and technology have changed. So what has changed in beer? We have conducted a comprehensive review of the entire beer world. We believe the product has changed, from economic products to high-quality products, from low-value products to high-end products; the pursuit of brands has changed, requiring good brands; the way of consumption has changed, online has changed, offline has changed, and scenarios have changed. Most importantly, we have found that beer drinkers have shifted from Generation X to Generation Y and now to Generation Z. In the past, the entire industry, from production to products to sales to channels to networks, and even terminal management, followed the old rules. After this world transformation, we define it as the "New World of Beer." We believe this industry has entered a new channel and a new world. It has changed from scale development to quality development, from product era to brand era, from sales to experience, from doing business with customers to doing business with consumers, from general communication with consumers to occupying consumer minds. These changes are very important for Snow. We also hope that by clearly depicting the New World, everyone can understand what era we have entered and whether we can embrace this world.
The Leading Role of the "New World"
What is the "New World" for? As a term, the "New World" carries the mission of driving the company's strategy to continuously change, promoting the company's continuous progress, continuously shaping the enterprise's own competitive capabilities, and reshaping the organization and strategy. The "New World" also enables an organization or company, through the guidance of this concept, to reflect on its present, and to direct more business and vision toward the future and the direction of change to catch up and adapt. It is the basic assumption above strategy. Without this assumption, there is no good strategy and no good company. Only by defining the changes in an industry and a country as a new world can an enterprise be brave enough to enter the new world first, be brave enough to do things faster and better than others in this new world, and become a leader in this world, creating your products, services, and competitive capabilities, and establishing an overwhelming competitive position. At the same time, the "New World" can also bring us a method to let go of burdens and solve problems. Use the "New World" concept to observe, reshape products and brands. Otherwise, if you make many changes without the guidance of the New World, the resistance to change will be great, because people do not think your changes are correct. If you clearly depict the New World, everyone will know that we need to change; if we don't change, we will remain in the old world. After seeing Snow's practice in the New World, people will think: what kind of world is the industry and company they are in? I think you can think from the perspectives of the country, industry, people, technology, and the entire company ecosystem. Has this ecosystem undergone major changes? You depict a world that is forming now and in the future; that is your world. You can think about what things are not suitable for the new world, what things are not competitive in the new world, and what things are particularly important for the new world. By establishing your new world through thinking, you establish your superior position. This is also the role of the "New World."
Being an Explorer of the "New World"
In 2017, Snow established a very unique "3+3+3" strategy, formulated according to Snow's own development characteristics, leading Snow from a traditional enterprise to a modern enterprise, from a traditional beer company to an advanced beer company, and from product-oriented to brand-first. The first "3 years" solved development pain points. At that time, Snow did not have much money, employee income was relatively low, there were many factories, equipment was very backward, and production capacity was extremely unbalanced. From "quality development" to "great decisive battle" to "momentum theory" and then to "new world," Snow has been on a Long March. After the first "3 years," Snow quickly transformed from a huge traditional beer enterprise into a company capable of competing with others, relying on courage, boldness, and responsibility. The second "3 years" rapidly improved capabilities. We raised Snow's high-end volume to approach that of competitors. If the first stage was "removing burdens," then the second stage was "practicing skills" to make ourselves stronger. Last year, the second "3 years" came to a successful conclusion. This year is the third "3 years," where we must surpass competitors and become a world-class beer enterprise. Through the six years of "3+3," Snow achieved five changes: fundamental change from scale to quality; fundamental change in enterprise value and brand value; business growth in the basic market of China Resources Snow Breweries; improvement in management efficiency and cost control; and change in organizational culture. Achieving these five changes was not easy. As China's largest beer company, China Resources Beer has maintained stable growth over the past six years, with per capita efficiency and effectiveness always at the industry's leading level. It should be said that Snow Breweries is no longer the Snow of the past, and after another "3 years," it will be even less like today's Snow, because we have begun to be explorers of the new world of alcoholic beverages. I just talked about beer, but not yet about baijiu. Snow began exploring baijiu in 2019. Many people ask why we do baijiu?
First, the global alcoholic beverage industry is converging and integrating; multi-category integration is a trend. Don't view it with old-world eyes and think that a beer company can't do baijiu. That's wrong. Globally, beer companies are all doing something similar to Chinese baijiu.
Second, China's baijiu has vast development space and is irreplaceable. As long as Chinese people exist, Chinese baijiu will exist. So we think this is a very good track.
Third, China Resources Beer's entry into baijiu is important to practice the strategy of "dual empowerment of beer and baijiu, and mutual growth of baijiu and baijiu." The two-way empowerment strategy is our unique business model. Beer and baijiu empower each other in channels, customers, terminals, brand management, marketing systems, price control, sales team building, and key account platform management.
"Mutual growth of baijiu and baijiu" means that although baijiu companies can learn from each other, it is not as open as learning from the same company. If the three baijiu brands under us are all our own, our internal communication is borderless. We want to be explorers of baijiu. Why use the word "explore"? Because it integrates learning, innovation, disruption, inheritance, and creation. The reason we explore is that we want to find our own path. Only when we find our own path can we enter the stage of development and strengthening.
Trend Judgments of the "New World"
After discussing the great transformation of the new world, let's look at a few judgments: First, the future of Chinese consumer goods is definitely health and nature. In the past, there was not enough to eat, called the era of scarcity. Later, it became too much, with severe oversupply after thirty years of reform and opening up. Since the 19th National Congress, we have entered an era of high-quality development. In the future, all food and drink must be healthy, natural, and organic. The era of high-quality development is expected to have a dividend period of about ten years, and will soon transition to a healthy era. Zero-degree, low-calorie sugar will be standard for future products. Second, this new world does not mean that some enterprises are in the new world and some are in the old world; it means that we all enter a new world together and should all strive to achieve in the new world.
The last sharing is that the new world requires the entire industry to jointly build and achieve prosperity together. The beer industry has entered a prosperous era in the new world. It is not good if only Snow is good; everyone being good is the fundamental purpose of the new world. Whether it's your industry or your competitors, we must build a new world industry chain ecosystem. In the future new world, your enterprise, along with upstream enterprises, customers, and other stakeholders, must become a harmonious and integrated new world ecosystem. This new world ecosystem will make the enterprise nourished, moisturized, warm, able to withstand wind and rain, and able to weather storms. We hope to build an ecosystem for the Snow Breweries industry chain. We hope that key accounts, chain terminals, suppliers, and equipment providers can form a new world industry ecosystem that shares the same breath and destiny. My sharing ends here. Thank you!
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