Farewell to Increment

The FMCG industry has no increment, and it has been that way for a long time. Since 2013, sales volumes in most FMCG sectors have been declining. Even if there is an occasional rebound in a certain year, it is only a sideways movement, not a reversal. The biggest tragedy of the FMCG industry in the past decade is the stubborn belief that there is still increment, and it has spent ten years on this. As long as sales growth is not achieved, the external environment is blamed. The macro environment has problems, policies have problems, and the internet has problems. In short, as long as there is no growth, there are problems. Over 30 years of continuous growth has fostered a habitual dependence on increment. Only by stepping out of the dependence on habitual increment can enterprises usher in true growth. Increment, Excess, and Shrinkage Only by saying goodbye to increment with confidence can the FMCG industry achieve valuable growth. Yes, farewell to increment, and then we can embrace growth. The sales volume changes in the FMCG industry can be divided into three stages: increment, excess, and shrinkage. I. The period before 2008 was the increment stage. The reasons for increment were the improvement of income levels and changes in lifestyle. In the past, due to low income levels, consumption was suppressed. Simply put, people wanted to buy but had no money; when they had money, they bought quickly. This logic is easy to understand. Lifestyle changes mainly refer to urbanization. Rural consumption always had a semi-self-sufficient state, while entering the city meant entering a market-oriented transaction with professional division of labor. II. The period from 2008 to 2012 was the excess stage. What is consumption excess? It is consumption that exceeds the normal physical capacity of the human body. Note that it is not income capacity, but physical capacity. For example, the World Health Organization recommends an average daily salt intake of 6 grams per person. But in China, according to provincial statistics, the lowest intake exceeds the recommended standard by 50%, the highest by 150%, and the average exceeds by about 199%. In this situation, how can the condiment industry expect increment? Most condiments contain salt, and increment in condiments means an increase in salt intake. Can the Chinese body bear it? China's per capita meat consumption is over 70 kilograms per year, with a daily per capita meat intake of 164 grams, far exceeding the recommended intake of 40-75 grams per person per day in the "Dietary Guidelines for Chinese Residents." In this case, how can the sales of meat products grow? Sales growth would mean harm to human health. In fact, most FMCG industries experienced consumption excess before 2013, such as baijiu and beer. Why did consumption excess occur? First, income was growing, and purchasing power was no longer a problem. Second, before that, insufficient consumption had created a hunger phenomenon. For example, people previously had no money to drink, so when they had money, they drank desperately; previously, they had no money to eat meat, so when they had money, they ate desperately. Insufficient consumption and malnutrition can cause disease. Consumption excess can also cause disease, such as the "three highs" diseases. III. After 2013, the shrinkage (reduction) stage began. The reason for shrinkage (reduction) is not insufficient consumption power, but a correction after excessive consumption, with consumption returning to normal levels. It is strange that the overall shrinkage of the FMCG industry coincides with the explosion of the internet. Many people blame the internet for diverting sales, but even without the internet, sales would have declined. Because the causal relationship of the decline was not understood, no correct and effective measures were proposed. The baijiu industry has seen sales decline by 55% over the past decade, and the beer industry by about 40%. Only a very few industries are still growing, such as dairy products and mineral water. There are too few industries still in the increment stage. Farewell to increment, what should enterprises do? The most frightening thing is that enterprises are still immersed in the inertia of increment, blaming the macro environment for affecting increment. When an industry becomes so competitive that only giants remain, a terrifying balance among giants is formed, and internal competition no longer generates increment. Some say to go high-end. But high-end sales are too small. We must find a marketing path that can stabilize quantity and solve quality growth. I think it is to seize the new mainstream price band. Special attention should be paid to the fact that only the new mainstream price band has both quantity and quality, and only the new mainstream price band can meet the growth needs of industry leaders. What is the new mainstream price band? How to seize the new mainstream? We need to start with two other concepts: ecological niche and price band. Ecological Niche Ecological niche refers to the spatial and temporal position and functional relationship of each individual or population in a population or community. If the above definition is still unclear, let me give some examples. For instance, many well-known international brands have entered China, including Coca-Cola, Procter & Gamble, and McDonald's. Note that they are just national brands (NB) of the United States. National brands are not high-end brands; they are just mass brands with the highest awareness and large sales volumes. At the beginning of reform and opening up, we looked up to them as high-end brands. In 1992, I went to the first Western fast-food restaurant in Beijing, Qianmen KFC. A set meal cost over 20 yuan, and my monthly income at that time was about 100 yuan. More than 30 years have passed, and the price of a set meal has only risen to 30-50 yuan. KFC was very high-end then, but now it is very mass-market. Similarly, when I first tasted Coca-Cola, not only was the taste unfamiliar, but the price also made me grit my teeth. Over 40 years of reform and opening up, Chinese residents' income has increased a lot, but the prices of Coca-Cola, Procter & Gamble, and McDonald's have not risen much. Now the prices of well-known Chinese beverages are roughly on par with Coca-Cola, and there is even a meme circulating online that Chinese beverages are "collectively saying goodbye to the 3-yuan price band." The biggest change is that the ecological niches of multinational national brands and local national brands have changed significantly. Simply put, an ecological niche is a company's brand value, what it can do, and whether the business ecosystem accepts it. The ecological niche is determined by a series of factors, including national brand (e.g., developed countries), regional brand (e.g., Wall Street finance), corporate brand (e.g., Huawei), and personal brand (e.g., Musk), which together determine the discourse power of a corporate brand. For example, Coca-Cola itself is a famous brand, but the influence of the country where it was born also plays a significant role. Another example is Huawei. After its founding in 1988, it was initially a low-end brand. This was related to Huawei's own capabilities and also to China's national strength. Now Huawei has become a world-renowned brand, related to both Huawei's efforts and China's rise. When I saw Lei Jun say that Xiaomi wants to make high-end phones, my first reaction was: Xiaomi's cost-performance ecological niche, will the high-end ecosystem accept it? Unless Xiaomi's ecological niche changes. Enterprise development, of course, requires accumulating sales and scale, but also accumulating the qualification for future actions. This qualification is the ecological niche. Summary: At the beginning of reform and opening up, weak local Chinese enterprises competed with multinational companies on the same stage, first showing differences in ecological niches. Multinational companies played high-dimensional against low-dimensional, firmly occupying the high-end price band. Chinese enterprises happened to occupy the low-end price band with the largest sales volume. Although Chinese enterprises were often criticized, they occupied the ecological niche with the fastest growth and largest sales volume. And as the strength of Chinese enterprises grew, they always occupied the price band and ecological niche with the largest sales volume. Therefore, special attention should be paid: it is not simply that multinational companies had brand advantages in the early days of reform and opening up; multinational brands also brought the advantages of their home countries, giving them ecological niche advantages. Having ecological niche advantages means having high-dimensional competitive advantages, playing high-dimensional against low-dimensional. Mainstream Price Band China's rapid development is also a period of rapid changes in the mainstream price band. What is the mainstream price band? It is the price range with the largest sales volume in that period. Some might say, shouldn't the largest sales volume be the lowest price? Wrong! The price band generally follows a normal distribution. Centered on the mainstream price band, the farther away from it, the smaller the sales volume. Occupying the mainstream price band means occupying an era. For example, in the mineral water industry, the early mainstream price band was 1 yuan per bottle. Ten years ago, the mainstream price band became 2 yuan per bottle. Now it is slowly entering a new mainstream price band of 3-4 yuan per bottle. When 1 yuan per bottle was the mainstream price band, the mainstream brands with the largest sales were Kangshifu, Binglu, etc. As 2 yuan per bottle became the mainstream price band, Nongfu Spring and C'estbon had the largest sales. As 3-4 yuan per bottle becomes the new mainstream price band, brands like Ganten and AQUA are rising. Brands have different discourse power at different price bands. This is the influence of the ecological niche. Market growth is the process of new mainstream price bands continuously rising, and accordingly forming new business ecosystems. In the new business ecosystem, where is your ecological niche? In the mainstream price band or the marginal price band? The changes in China's mainstream price band have roughly gone through four rounds. Round 1: No local mainstream brands, low-end mainstream price band From the reform and opening up to the 1997 Asian financial crisis. Basic characteristics: Market demand exceeds supply, low entry barriers, rapid growth. Multinational brands only did business in first-tier cities, local enterprises had no well-known brands, the industry had no giants (the leader was not big), and enterprises clustered in the low-end price band. Scale was not large, but profits were not low. Round 2: Local leading brands occupy the mid-range price band From the 1998 Asian financial crisis to the start of industry shrinkage in 2012. Basic characteristics: Multinational brands were still regarded as high-end, and local leading brands occupied the mid-range mainstream price band. Local leading brands achieved a better ecological niche and increased brand discourse power. At the same time, they prepared for the next step of occupying the new mainstream price band. Round 3: Local leaders and multinational national brands go hand in hand Starting in 2013, still ongoing, expected to end in 2028. Basic characteristics: Sales volume peaks, entering the shrinkage stage, the new mainstream price band is basically on par with developed countries' NBs, and even slightly exceeds in some categories. Multinational NBs are no longer regarded as high-end but as true mass-market NBs. At the same time, Chinese enterprises have gained an ecological niche in the world business system. Going overseas replaces export as a new trend. Going overseas is not product export, but enterprise going overseas, marketing going overseas, and brand going overseas. The prerequisite is overseas recognition. This is the new ecological niche for Chinese enterprises. Just like multinational brands entering China in the early days of reform and opening up, they have high-dimensional advantages. The third round of mainstream price band is a period of extremely difficult marketing. On the one hand, the industry shrinks severely; on the other hand, price band upgrades face a tug-of-war, and many leading brands cannot cross the ecological niche. For example, they are used to cost-performance and cannot establish a value brand image. They always want to gamble on the internet and cannot grasp low-price sales. In this regard, dairy enterprises are worth learning from. Round 4: Seize the new mainstream price band The fourth round of mainstream price band has changed significantly compared to the previous three rounds, mainly in three aspects: first, the industry total enters a sideways stage, no longer declining significantly; second, retailer private brands impact seriously, especially the low-end price band becoming the private domain of private brands, and a large number of small and medium-sized enterprises abandon the low-end field; third, only super large single products can survive the supply chain revolution. Because of direct supply from manufacturers, the number of SKUs is greatly reduced. At this time, besides going overseas, the way out for leading enterprises is to seize the new mainstream. Summary: The mainstream price band is the price band with the largest sales volume. The mainstream price band is constantly moving forward. Grasping the changes in the mainstream price band can not only maintain stable or growing sales but also bring value growth. Especially after entering the shrinkage stage, when the new mainstream price band arrives, the original mainstream price band becomes marginalized. Therefore, efforts in the old mainstream price band can neither maintain sales nor have a future. Continuously seizing the new mainstream price band becomes the source of sustained growth for enterprises. In contrast, multinational national brands remain unchanged no matter how China's mainstream price band changes. As a result, they have gone from being regarded as high-end to now being on par with or even slightly lower than local Chinese national brands. Seize the New Mainstream For example, the 5-yuan price band of Nongfu Spring's Oriental Leaf is the new mainstream, and the 5-yuan price band of Genki Forest is the new mainstream. If 5 yuan is the new mainstream price band for beverages, then why did Evergrande Spring Water fail when it was launched at the 5-yuan price band? Oriental Leaf was launched in 2011 and was once rated as one of the "five most unpalatable drinks." However, it exploded in 2023, with annual revenue exceeding 10 billion yuan. What is the new mainstream price band? How can the new mainstream price band succeed? This is the purpose of this article. The upcoming new mainstream price band is slightly higher than the price band of developed countries' national brands. The baijiu industry, tobacco industry, and beverage industry have all proven that a price band higher than that of developed countries is highly possible. So, what remains is how to succeed? Price, timing, and rhythm are the three keys to seizing the new mainstream price band. First, the new mainstream price band. The changes in the mainstream price band are regular. Therefore, predicting the next mainstream price band is crucial. For example, if 3 yuan was the old mainstream price band for beverages, then 5 yuan will be the new mainstream price band in the future. Therefore, it is necessary to invest resources in building the new mainstream price band at the right time. Next, timing and rhythm. When will the new mainstream price band explode? It is difficult to predict accurately. Therefore, only by early layout and waiting for the opportunity. I particularly appreciate a saying: Ride the horse, wait for the wind. Tang Daren was launched in 2008 and exploded in 2016. Oriental Leaf was launched in 2011 and exploded in 2023. This is a typical "ride the horse, wait for the wind." Early layout means no sales, so how to survive? This is the most frequently asked question. This problem can be verified according to the MVP logic (if you don't understand MVP, I won't popularize it here). Survive through special channels, not through mass channel explosion. This is the basic skill of early layout. There are always some channels that are relatively high-end and suitable for the future mainstream to survive. The most terrible thing is to hope for an explosion immediately after launch. Evergrande Spring Water made this mistake. Mineral water at the 5-yuan price band is not yet the mainstream price, let alone 10 years ago. Uni-President's AQUA water is in the 4-yuan mineral water price band and has been laid out early. Now sales in Shanghai are good, and it is dormant in other cities, waiting for the opportunity to come. These are all correct postures for seizing the new mainstream. Finally, the marketing approach. As long as you enter the national brand price band, it is definitely not function-oriented, not cost-performance-oriented, but value-oriented. Being able to output values is itself a manifestation of the ecological niche. This is an important reason why I put the ecological niche first. As for how to output values, that is another question. This article cannot expand on it. Farewell to Increment, Win Growth There is no increment because the macro environment is bad. Such public opinion is normal but incorrect. I have experienced the economic troughs of 1989, 1997, 2008, and the COVID-19 period. Every economic cycle trough is dominated by pessimistic voices, which in marketing manifests as consumption downgrading and prices moving downward. But when the market recovers, it is precisely those enterprises that moved prices downward that disappear, and those that entered the new mainstream price band and seized it become leading enterprises. This almost becomes a law. So, what is the logic hidden behind the law? In fact, the cyclical trough is also the time when traditional models fail. Because traditional models fail, new business models need to be converted. At this time, a large number of enterprises trapped in the inertia of traditional models find it difficult to continue. When enterprises that seize the new model and the new mainstream rise, they enter the new mainstream price band. After all, China's development trend has not changed overall, so how can we talk about the economy going downward? The deeper the cyclical trough, the more we must seize the upward force. This is my reflection after experiencing so many economic cycles, and it is precisely because I have been doing this that I have remained active on the marketing front for over 30 years. For the FMCG industry, the total consumption of people is limited, but China's development is unlimited. The demand for physical goods is limited, but the demand for psychological needs is unlimited. We must use unlimited value needs to solve the problem of limited physical demand. Use growth to solve the problem of difficult increment. Don't talk about increment, only talk about growth. Perhaps in the end, we will reap increment. The deeper the cyclical trough, the more we must seize the upward force, and this force comes from this revolutionary trend! From March 14-16, 2024, the 9th China FMCG Innovation Conference, the 2nd China FMCG Hard Discount Conference, and the 2nd China FMCG Distributor Conference will be grandly held in Chengdu! This conference will revolve around the theme of "Supply Chain Revolution". Over 3 days, there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, more than ten sub-forums and closed-door exchange meetings, and the first major debut of the [Extreme Supply Chain] Brand Factory Direct Procurement Fair. It will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu, continuously brainstorming, and jointly discussing the challenges and opportunities, changes and ways out in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. I hope every participant will still have a place in this wave, and I believe this will be a conference worth attending! For conference business cooperation, please contact: 🔺Scan the code for ticket consultation🔺