"Mr. Ren, you're always out in the market—tell me, what's the market really like right now?" A few days ago, an industry friend suddenly asked me this.
To be honest, the question caught me off guard.
Low prices, involution, discounts, shrinking volumes—the market is bad. Isn't that already a consensus? Why would anyone ask such a question?
But his next words silenced me.
"No, Mr. Ren, everyone says it's bad, but is there an objective, overall reference that clearly describes the current market situation?"
That's actually a good question.
We talk about "the market being bad" every day, but what exactly does "bad" mean? At what level? To what extent? By what standard? When you think about it, it becomes unclear.
Look at macro data? GDP growth is 5%, which isn't low... Look at industry reports? They have different angles and limited samples... In reality, everyone perceives the market through "anecdotal statistics": ads aren't converting, stores are empty, customers aren't buying, bad debts are rising, profits are gone.
But even with "anecdotal statistics," we can't simply judge the market as "good" or "bad."
Some distributors are going under, while others are growing bigger. Supermarkets are struggling in a wave of closures, yet Pangdonglai and Sam's Club are packed. Traditional channels can't sell liquor, but instant retail is selling it out. Old-school snack specialty stores are having a hard time, while discount snack stores are thriving...
I'm increasingly convinced that the current consumer market can't be simply described as "good" or "bad." We need a new perspective to understand the essence of the market. My judgment is:
We are currently in a severe supply-demand mismatch phase. In this phase, merely competing on price or quality won't work.
What we really need to compete on is the ability to precisely identify consumer needs and quickly meet them!
Understanding this is extremely, extremely important!
What Lies Behind Consumption?
Why do I say this? I must start with the concept of "consumption."
We use this term so often—everyone says it, everyone thinks it's self-evident—but if you ask what consumption is?
Consumption is one of the three drivers of GDP, at the macro level. Consumption is people spending money at supermarkets or online, at the micro level.
But when we talk about consumption as an industry, as a market, what does it really mean?
Let me show you a picture first.
This picture shows red and blue circles, and the overlapping part forms purple. Or, purple is the overlap of red and blue.
What am I trying to say?
Consumption is like this purple.
When we talk about consumption, there are naturally two factors behind it: demand and supply.
With only demand and no supply, consumption cannot occur; with only supply and no demand, consumption cannot occur either. Only when supply and demand match can consumption form!
This seems self-evident, so why explain so much?
The supply-demand changes in the Chinese market started with supply less than demand, then both supply and demand flourished, and later supply exceeded demand. If represented graphically, many people's intuition is like this:
In fact, it's not! It's actually like this:
In the past, it was an incremental market where supply couldn't keep up with demand, so there was room to grow no matter what you did. Now it's a stock market with supply exceeding demand—but the essence isn't just "more," it's "mismatch."
The supply that doesn't overlap is surplus, or needs optimization.
The demand that isn't covered is unmet, or needs to be satisfied.
Whether it's Sam's Club, Pangdonglai, Hema NB, snack discounts, Laopu Gold, or Mixue Bingcheng, Pop Mart, instant retail—all the booming consumption phenomena are cases where "supply" precisely hit "consumer needs"!
Of course, the above diagram is still too general and abstract, but its significance is that when you think the problem is just "more," you'll say you need to compete on price or quality.
It's not that price and quality aren't important—first, after competing, everyone ends up similar; more importantly, if you can't match consumer needs, people won't care.
When you realize that supply and matching can't align, you know that what you really need to compete on is the ability to precisely identify "consumer needs" and quickly meet them!
What Has Changed in Demand?
So, what is "consumer needs"?
Let's look at another picture.
Source: McKinsey's "New Normal in Chinese Consumption" report
This is a chart from McKinsey's consumer trends report. When analyzing consumer groups, they segmented by dimensions like "age," "city tier," and "income." Based on this, they further divided into five major groups: rural elderly, affluent seniors in first-tier cities, middle-aged affluent in first-tier cities, low-income in first- and second-tier cities, millennials, and urban Gen Z.
What I want to talk about here isn't the consumption trends behind this analysis, nor whether this segmentation is reasonable—segmenting people based on multiple dimensions is a common practice in any current consumption research report.
What I want to talk about is: why do this?
You need to know that the past market didn't require this.
In 1979, with reform and opening up, we started the historical process of industrialization, modernization, and urbanization.
At the beginning, especially in the 1980s and 1990s, both durable goods and FMCG were in short supply. TV ads and channel distribution could create super bestsellers; back then, "the whole nation buying together" was the norm.
Now, even with such fine segmentation, sales aren't guaranteed.
Why?
Recently, I read Ning Gaoning's "Three Lives, All Things," and there's a line: "When you're hungry, you have only one problem; when you're full, you have many problems."
This inspired me a lot.
When everyone is worried about hunger, anything is fine. When everyone is full, various needs emerge.
China has transitioned from an agricultural society of material scarcity to a consumer society of abundant goods. I jokingly say that a consumer society is essentially "created by being full."
If we use the Engel coefficient (the proportion of food in total consumption expenditure) as a standard, we can see this more clearly.
Changes in consumption structure (Source: National Bureau of Statistics, CBNData, Mob Research Institute)
In 2023, our Engel coefficient dropped below 30%.
To meet people's needs, just "function + improvement" isn't enough; there must be something beyond that.
China has fully entered an era of "population differentiation, demand stratification, and diverse choices," and the phenomenon of "the whole nation buying together" is gone forever.
We now see some characteristics of consumption, such as:
Rationalization: more calculating, more value-for-money;
Stratification: not everyone pursues "the best," but "the most suitable";
Emotionalization: when function isn't enough, emotions fill the gap.
These seem contradictory, but behind them, demand is being differentiated, and increasingly finely.
In a true consumer society, "I just like it" and "I just want it" become core purchase reasons.
One trick for all? That no longer exists.
Today, what we need to do isn't a business of "everyone buys," but a business of "precisely serving a certain type of person."
Look at current hit consumption phenomena:
Pop Mart targets Gen Z emotions;
Laopu Gold serves middle-aged women's self-pleasure;
Sam's Club carries the sense of order in middle-class family life;
Instant retail satisfies young white-collar workers' need for instant gratification...
People come before products; needs define supply.
If you don't study people, you won't know what to do; if you don't understand needs, you'll hardly be chosen.
But the current problem is that the demand side raises questions, yet the supply side can't answer them well!
Where Is the Supply Problem?
Why can't the supply side answer well? The reason lies in—game theory!
You need to know that supply isn't a point but a chain. It consists of three parts: production (factories/brands), distribution (distributors/wholesalers), and sales (retailers).
Together, these three form a complete supply system—what we often call "production-supply-marketing."
But in reality, the relationship among production, supply, and marketing has always been awkward—not collaborative, but adversarial.
Upstream production, midstream distribution, downstream sales—the chain is long, and each link is "thinking for itself," each party is "calculating its own accounts," making manufacturers and retailers the main conflicting parties in the industry.
This model could still work in the incremental era because demand was high and fault tolerance was high; but once it enters a stock or even shrinking market, this "each fighting for itself" mechanism directly fails.
You can see many real phenomena:
Upstream brand manufacturers worry about meeting sales targets, desperately seeking incremental channels, forcing distributors to stock up;
Midstream distributors are overwhelmed by high inventory and bad debts, all asking where the way out is;
Downstream retailers see dwindling foot traffic and have to consider discount transformations and adjustments.
The final result is: production, supply, and marketing are all working hard, but internal friction and game-playing are increasing!
In the past, we talked a lot about "overcapacity," and everyone had the awareness of "survival of the fittest," thinking it was enough to stay at the table.
But now we must point out that the more critical issue is the matching between supply and demand.
We need to re-understand the word "supply." It isn't "what to produce" or "what to sell," but: production-supply-marketing collaboration, precisely identifying "consumer needs," and truly building an ecosystem that quickly meets needs.
This involves several topics:
Transformation of retailer-supplier relationships Retail aggregates demand, but its advantage isn't R&D or production; meeting consumer needs requires supplier cooperation. Retailers have data advantages; manufacturers have R&D and innovation capabilities. In the past, manufacturers and retailers had adversarial relationships; in the future, they need to form ecosystem collaborative relationships (in many scenarios, through intermediary service providers).
Transformation of manufacturer-distributor relationships Manufacturers and retailers are both in the millions, so intermediaries are indispensable. Small distributors are exiting, and the trend toward large distributors is accelerating! And they must transform into operational service providers. Manufacturers should value communication and collaboration with large distributors, working together to provide good products to retailers! Empowerment, sharing, and joint operations are the core of future manufacturer-distributor relationships.
Integration of production, supply, and marketing Demand is like gravity, accelerating supply from a "push" order to a "pull" order. From an industry chain perspective, the future is the integration of production, supply, and marketing. Integration means manufacturing, distribution, and retail are in a "symbiotic" relationship, serving consumers together.
The future of supply isn't "I give you what you choose," but "I can do what you want, and faster and better than others."
Today, we see many phenomenal companies, such as Sam's Club and Aldi, already doing these things. We also see more companies striving to push forward, like BiuTe and Zhenshimei Supply Chain.
New Demand, New Supply
Finally, let's return to the beginning of the article: we need a new perspective to understand the current market, not simply "good" or "bad."
This is the perspective of China's complete shift from an agricultural society of material scarcity to a consumer society of abundant goods.
This is also a broader historical perspective of East-West comparison: China has completed in 40 years what took the West 200 years of consumption evolution, fully entering a consumer society.
Current consumption isn't just functional satisfaction; it's also an alignment of values and lifestyles. As times change and needs evolve, supply must keep up.
Previously, it was "whether it exists"; now it's "whether you're chosen."
Previously, it was "products screen people"; now it's "people screen products."
With more choices, more transparent information, and failed standards, even the biggest brands can be rejected by consumers.
With so many choices, why should they choose you? This is a must-answer question for all supply-side players (including production, supply, and sales)!
Future successful brands won't be those shouting slogans or buying ads, but those who understand people, penetrate deeply, and hit accurately, achieving emotional resonance.
Future successful intermediaries won't be those providing capital, distribution, or shelf placement, but those who are terminal- and consumer-oriented, offering efficient supply chains and product portfolio services.
Future successful retail won't be "selling shelves" or "selling goods," but "matching specific consumer groups" and collaborating with upstream to meet consumer needs.
Writing this, I want to be more direct:
The next competition isn't "how much cheaper you are," "how much better your quality is," or "how many ads you've run," but—do you have the ability to discover new needs and aggregate new needs? Do you have the ability to build new supply?
This is also the theme of our August China FMCG Conference in Shanghai: New Demand, New Supply.
It's not a slogan; it's the core business logic for the next five years.
From "competing for resources" to "competing for consumer groups"; from "cutting costs" to "improving matching efficiency"; from "watching sales figures" to "watching insight and response speed."
The clearer you understand it, the faster you adjust, the more firmly you act, the more likely you are to ride through cycles and seize real growth opportunities.
This isn't sentimental chicken soup for anxious times; it's a must-answer question in the business world.
In August, in Shanghai, let's face this question together.
Welcome to join us!
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