Twelve months ago, most managers were hopeful; twelve months later, most are disappointed. They assumed the problems were all caused by the pandemic and that once the black swan flew away, everything would return to pre-2019. Clearly, this logic is untenable. As I have said, judgments without deep insight are blind. The current blind pessimism is as harmful as the blind optimism at the beginning of the year. It can only lead our teams and companies into the abyss of failure. Correctly understanding what era we are in and how it is changing is the starting point for all our business strategies and tactics.

Three Essences of the FMCG Economy

Describing an era accurately is not easy. For entrepreneurs and managers in China's FMCG sector, it is essential to deeply understand and recognize at least the following viewpoints.

First, the FMCG economy cannot be separated from the macro environment. Although FMCG is not as directly dependent on the macro environment as industrial goods, "when the river is full, the streams are full; when the river is dry, the streams are dry." If managers fail to correctly discern macro trends, they are highly likely to miss opportunities or fall into traps at the strategic level.

Second, the essence of the FMCG economy is population economy. Whether the population grows or declines, whether per capita purchasing power rises or falls, and whether brand awareness strengthens or weakens directly affect the development direction and environment of FMCG. Therefore, to study the changing trends of FMCG over a period, one must study changes in population and related factors.

Third, the essence of all innovation in FMCG is a revolution in cost and efficiency. FMCG is not high-tech. Through modern technology for large-scale production, brand owners continuously improve production costs and efficiency. Through continuously iterating and evolving channel models, brand owners strive to achieve the widest coverage at the lowest cost, making products accessible to consumers. This is also continuous improvement in cost and efficiency in product distribution. Of course, brand and new product development rely heavily on creativity and innovation. But the cost and efficiency of creativity and innovation also need continuous optimization, which is also an improvement in cost and efficiency. Tang Binsen of Genki Forest gave a special speech on this. The general idea is: for all manufacturers, the probability of a new product succeeding is as low as making a coin stand on its edge, and Genki Forest is no exception. But it has revolutionarily changed the cost and efficiency of flipping the coin; its cost per "flip" is only one-tenth of peers, and in the time peers "flip" once, Genki Forest can "flip" ten times or more. Therefore, the essence of all innovation in FMCG is a revolution in cost and efficiency.

The above three essences of FMCG are the strategic cognitions necessary for us to understand an era and win in an era.

Two Eras, Two Worlds: The Old and the New

"The autumn wind is bleak again, but the world has changed." All the pressure and discomfort we feel today have only one reason: "Sir, the times have changed." The "New World" is a new concept originally proposed by Mr. Hou Xiaohai, Chairman of China Resources Beer, in 2021. We believe that the "New World" comprehensively and accurately summarizes the tremendous changes of the new era we are entering, and it is a brilliant and classic concept. Each of the three essences of FMCG mentioned earlier has undergone profound, enormous, and irreversible changes in recent years. In the past, we may not have felt them much because the inertia of growth numbed our perception. Let us try to interpret them, and everyone can feel the strong pulse of the changing times.

First, the macro environment. We don't need to describe too much; in one sentence, it is what our leader proposed: "profound changes unseen in a century." At the national level, this "great transformation" refers to the global situation, including the shift in development momentum between East and West, challenges in Sino-US relations, the decline of the globalized economic model, and continuous geopolitical conflicts around the world. In short, the peaceful global environment is basically gone forever. The highest form of market competition is war; today, the shadow of war hangs over the globe and cannot be dispelled. Therefore, in most countries, especially superpowers like China and the US with GDP exceeding 100 trillion RMB, the future will definitely be more struggle than cooperation, and high economic growth rates above 8% are gone forever. At the industry level, this "great transformation" actually means that homogeneous production capacity in the FMCG industry is severely overcapacity. More critically, this overcapacity mainly meets consumers' low-level needs. Therefore, the largest-scale "involution" in the FMCG industry occurred in 2023. Whether it is low-price live streaming, outlet stores, or the sudden rise of discount chains, as long as you can ship goods, and ship in large quantities, you are a guest of honor for brand manufacturers. It is euphemistically called "everything for sales, everything for growth," but how long can this "blood-stained" growth remain bright?

Second, the population economy. The population economy characteristics of FMCG are mainly reflected in population growth, per capita purchasing power, brand penetration, and consumer preferences. China's population growth rate has been declining since 2013. In 2022, the population experienced its first negative growth since the founding of the People's Republic. As the birth rate continues to decline, the absolute value of negative population growth may continue to expand. Unless a brand is already among the top two, the primary strategic goal must be "scale first," otherwise the strategy is likely wrong. In the long run, per capita purchasing power will definitely increase, but in the short term, there is still considerable pressure. Through years of intensive channel cultivation, brand penetration in FMCG is already high, and the dividend is gone. For latecomers, achieving high brand penetration is costly, risky, and requires higher creativity; it is better to differentiate the brand. Consumer preferences, however, have shown strong trends of diversification, personalization, tribalism, and stratification. In more and more FMCG categories, the identity attribute of brands is increasingly important. For generations before Gen Z, "everyone likes it" was an important selection criterion, but now "I buy what I like" is becoming an increasingly important criterion.

Finally, the cost and efficiency revolution. Digitalization, and even intelligent digitalization, is the infrastructure for the cost and efficiency revolution in FMCG. We will devote a separate chapter to explain the revolutionary changes in cost and efficiency.

Market Competition

Primarily Competition in Cost and Efficiency

We do not call the digitalization efforts of FMCG manufacturers "transformation" but "revolution." Because the word transformation has a connotation of improvement; it's better if changed, but not changing is also acceptable, as if it can continue. But we believe this is a life-and-death revolution, the fundamental difference between enterprises in the old and new worlds. If the revolution succeeds, they are reborn; if not, they will dissipate. In fact, over the past decade or so, the digital revolution has largely been accomplished in most aspects and links of the entire FMCG industry. Advanced enterprises that succeeded in the digital revolution have drawn continuous growth momentum from it and have dominated the past few years.

1) Production level. Increasingly advanced automation and digital technologies are being used more widely. Now, a beer factory with only 100 employees, two-thirds of whom are non-production personnel, can easily complete an annual output of 500,000 tons of beer. That is nearly 5 billion RMB in output value, which in the past might have required two to three thousand people. Moreover, on a large scale, small-batch limited customization is possible. For example, beer can be customized in units of 10 cases, printing the consumer's desired message and images on the beer packaging.

2) Management level. The vast majority of FMCG manufacturers have achieved varying degrees of online management. Advanced enterprises have self-developed or professionally customized management systems; ordinary enterprises have at least achieved partial management online through standardized mobile office software. Unlike past informatization, which converted management information from paper to electronic media for easy transmission, today's onlineization realizes the online, real-time, and interactive management of processes, controls, audits, and resource usage. This is a revolutionary change in management cost and efficiency.

3) Supply chain level. Some excellent enterprises have not only achieved full connectivity in internal management but have also extended the flame of digital transformation to upstream and downstream supply chain partners. From supplier bidding and warehousing, to procurement resource publishing and response, real-time inventory material docking, and real-time logistics online, using digitalization to build an integrated supply chain centered on oneself is becoming a killer feature for many advanced enterprises in the next stage of competition. Some supply chain service companies have even built supply chain service platforms worth tens of billions or even hundreds of billions through digitalization, providing more flexible, smarter, faster, and lower-cost supply chain services for the entire FMCG industry. The profound changes in the FMCG supply chain are also a revolution in cost and efficiency.

4) Business level. Or we can call it the marketing level. In the past decade, almost all FMCG manufacturers with certain market influence have applied professional CRM and SFA systems. In fact, the application of these digital tools has greatly reduced the business management costs of FMCG manufacturers and improved marketing efficiency. The basic salary guarantee for a salesperson is an enterprise cost. The number of terminals he is responsible for, and the sales volume and profit he can achieve through market actions, are his output. For food and beverages, one salesperson responsible for 150 terminals is basically the limit; for mid-to-high-end liquor, one salesperson responsible for 30-50 terminals is also about the limit. What can be done to reduce costs and increase efficiency at the salesperson level? Certainly not by cutting wages. The SFA provided by digital service providers is an advanced "weapon" for salespeople to fight alone. Its basic principle is to use the system to calculate and handle all standard, repetitive, and numerical work, leaving salespeople to do only tasks that require physical presence, such as maintaining displays, customer relations, and market research. In the past, nearly half of a salesperson's work time was spent on actions not directly related to sales. The SFA system not only saves this half of the work content but also does it faster, more accurately, and better, and in turn uses data to empower and guide salespeople to do better. With the SFA system, the single-soldier combat range of the frontline sales team may increase from the current 100 terminals to 200, which is cost reduction. Salespeople focus on core business actions, achieving better results, increasing per-store sales, and faster terminal expansion, which is efficiency improvement. Of course, at the same time, the enterprise's marketing management cost and efficiency have also been greatly improved, which is a natural consequence and will not be elaborated further. Additionally, it is worth mentioning that these advanced weapons are constantly evolving. AI visual recognition, big data intelligent store expansion, intelligent early warning, and other powerful functions are being continuously applied in marketing digitalization, providing sustained momentum for FMCG manufacturers' business growth. However, there is still a deep-water area in marketing digitalization that has not been broken: the digital integration between manufacturers and distributors. The specific reasons are not analyzed in this article; what we need to understand is that once the digital integration between manufacturers and distributors is achieved, the chemical reaction it triggers may reshape the competitive model of FMCG marketing.

Final Words

Friends reading this article may have experienced multiple small industry cycles and accumulated coping experience; you may also have not experienced any cycle yet and are hesitant about the future. But in the face of the "New World," some past experience may be useful, while some may become obstacles to innovation; lack of experience may be a shortcoming, but perhaps precisely because of this, you can adapt to the "New World" the fastest and become a native of the "New World." Li Dazhao wrote in his masterpiece "The Victory of the Common People": "First, know that the birth of a new life must go through pain and risk many dangers. The creation of a new era is equally difficult. Such difficulties are necessary in the course of evolution; do not fear, do not evade. Second, know that this trend can only be welcomed, not resisted." I wish all friends reading this article a calm farewell to the "Old World" and a joyful embrace and dominance of the "New World."