01 Actually, many distributors are feeling quite anxious this year. On one hand, there is the endless pandemic; on the other, the external macro environment has unprecedentedly affected individual trading company owners. The Russia-Ukraine war has triggered global commodity price hikes, the US's excessive money printing has led to global inflation, raw material prices have risen, and the Taiwan Strait crisis—these global issues have inevitably impacted the consumer goods sector. At the national level, two pieces of news deserve attention: one is the Q2 GDP growth of 0.4% this year; the other is that on July 30, at the 2022 China Wealth Forum, Cai Fang, former vice president of the Chinese Academy of Social Sciences and a member of the Monetary Policy Committee of the People's Bank of China, stated that China's population is likely to peak this year or next, followed by negative growth. Returning to the industry, data from the National Bureau of Statistics shows that from January to May 2022, total retail sales of consumer goods reached 17,168.9 billion yuan, a year-on-year decrease of 1.5%. Among them, national online retail sales were 4,960.4 billion yuan, a year-on-year increase of 2.9%. Clearly, physical retail development is not optimistic. Additionally, incomplete statistics show that in the first half of 2022, nearly 2,500 offline stores across multiple physical retail formats announced closures, including well-known brands such as Walmart, IKEA, Hema, and RT-Mart. By format, the closed stores in the first half included 67 supermarkets, 18 department stores, over 118 restaurants, over 600 beauty stores, and 1,500 clothing stores. Source: Yilan Business

02 From the above data, we can draw some judgments:

  1. The global political situation will remain complex for a considerable period. The Russia-Ukraine war, Sino-US confrontation, Taiwan Strait situation, and global climate anomalies will cause significant fluctuations in commodity, food, and energy prices.
  2. In the Sino-US confrontation, decoupling is likely to become a high-probability event in the coming period.
  3. China's economic growth has shifted from quantitative high growth to structural slow growth. Affected by the pandemic, domestic economic downward pressure is significant, and consumer weakness will persist for a long time.
  4. The birth rate continues to decline, and China has entered an aging society. By 2025, China will enter a deeply aging society. The structural changes in consumption brought by negative population growth will gradually affect our market like a gray rhino over the next 5-10 years.
  5. Quantitative growth in consumer goods has peaked, and physical retail traffic continues to decline. Market competition has expanded from local market competition to omnichannel traffic competition, making industry involution the norm.
  6. Corporate labor costs have risen significantly, and marketing efficiency has greatly declined. The cost and threshold of digital infrastructure have dropped substantially, but in a sense, brand barriers are getting higher. Of course, we should not be overly pessimistic. We need to grasp key points from the external environment. Looking at cycles from a larger time scale, there are foreseeable structural trends in China's development over the next decade:
  7. China will become the world's largest consumer market, with vast market depth and numerous opportunities.
  8. China's per capita income will move from middle income to high income, and China's GDP will surpass that of the US around 2030. However, at present, the rise of 100 million new middle-class consumers and the consumption upgrade of 1.4 billion people are not well satisfied.
  9. The efficiency of production, supply chain, and distribution in traditional industries remains very low, with significant room for optimization.
  10. Data empowerment and new marketing dividends from new technologies (such as near-field e-commerce and interest-based e-commerce) are gradually emerging.

03 Quantitative growth in the industry has ended, and involution is inevitable for a considerable period. Therefore, distributors must rethink their survival and growth models in such an uncertain external environment. I believe that for distributors, survival is the primary factor. They need to reassess their basic business: What is your most competitive core business? Which product and channel contribute 80% of your gross profit? What is the current state of your team and organization? Is there room for optimization? First, ensure the stability of your basic business. Recently, I have had intensive conversations with some business owners and executives, and they expressed similar views: Corporate strategy: not conservative or aggressive, but adaptive. Some aspects should be conservative, but for certain new opportunities that are clearly promising, one should take action. Core products, core customers, core markets, core teams, and core distribution systems must be solidified. These cores are the primary tasks to defend during difficult times. Without a stable basic business, you cannot resist major external risks, let alone smoothly navigate through difficult periods. During the pandemic, incremental growth can only come from internal structural changes and seeking incremental space in the market. Solidify the foundation: optimize the team, improve efficiency, improve organizational processes, and strengthen business capabilities. Find breakthroughs: study the pandemic, study new growth models, and find new competitive strategies to achieve growth. Breakthroughs should also be made in new consumption trends, new consumer groups, and new consumption scenarios.

04 After discussing the external environment, let's consider from the perspective of the owners themselves. Many distributor owners, when business is tough, tend to look for external investment opportunities. However, in an environment with such capital surplus, opportunities to make money are essentially decreasing. For distributors, focusing on and doing their own trading business well is already quite challenging. So, my first suggestion to distributors is: in the current environment, you must focus! Focus! And focus again! Focus on cost and efficiency optimization, focus on market and business team building, and actively do subtraction, engaging in actions that create value and compound benefits. A few days ago, I heard a speech by Zhou, the founder of Best Logistics. He made a point that I think is particularly correct: a company can only do well what the boss cares about, so the boss must focus energy on the core strategy. Second, I believe that organizational and team building is becoming increasingly important in today's market environment, especially as traffic becomes more fragmented and channel operations become more complex. An excellent team and organization are the distributor's greatest core competitiveness. Therefore, distributors must attach importance to organizational capability building and invest more effort in team culture, skills, communication, and institutional safeguards. Third, today's market, whether in consumption scenarios, media communication, or distribution channels, has undergone significant changes compared to before. Therefore, distributor owners must maintain an empty-cup mentality, be willing to learn, observe more, listen more, get out more, expand their information exposure, and stay keenly aware of changes in the external world. Fourth, technology is definitely the primary productive force. Prioritize using technology to continuously iterate your capabilities. Be willing to invest and optimize in digitalization and technical tools. Through various digital technologies and tools, gradually transform the company from a logistics company that moves goods into a platform company or marketing company. Use B2B and other means to achieve automated transactions as much as possible, minimizing human involvement in transactions. Finally, a company's boss must stay true to the original aspiration and have the courage and determination to start over. Only then can you survive in a complex and fiercely competitive external environment.

05 From a business perspective, I think there are several directions to pay attention to: 1. Shift from quantitative growth to structural growth. Optimize product structure, profit optimization, and market channels through structural adjustments. Invest in areas with high growth potential and high gross profit contributions; but for chicken-rib businesses or those that cannot create barriers, do not hesitate to abandon them decisively. 2. Shift from volume-driven scale business to quality organic business. Focus on core areas such as products and channels, dig deep, and improve operational quality. 3. Shift from relying on brand resources to relying on your own professionalism in scarce areas and building competitive barriers. In areas with certain professional capabilities such as O2O, new retail, community group buying, and live-streaming short videos, quickly enhance your professional capabilities, and shift from begging manufacturers to having manufacturers come to you for cooperation. 4. Actively make competitors feel the pressure. Although the macro environment is involuted and market supply is excessively saturated, you still have relative competitive advantages and weaknesses in local markets. Therefore, distributors do not need to defeat Douyin or Pinduoduo; just outcompete your peers, and you will still have good growth space.

Summary: The hardest days of the first half are over. In the short term, the second half should be better than the first half. So, seizing growth, increasing sales, and making up for the tasks missed in the first half are topics emphasized by almost all brand owners. However, as distributors, you must clearly see that K-shaped consumption has become prominent, and in the long cycle, there will still be many uncertainties and structural risk factors. Solidify the foundation and stabilize the basic business; focus on efficiency and technology, and do your own business well; learn more, observe more, communicate more, and expand your cognitive radius; inventory people, products, and channels to determine your growth radius; invest less, act less, take fewer risks, and reduce your action radius; survive, outlast competitors, go out, and expand your survival radius—these are the key work priorities for distributors in the second half of the year. As for how to proceed in the second half, we also suggest that distributors get out more, see how peers are judging and viewing upcoming market changes, which will help guide their business for the second half.

August 31 - September 2, 2022, the 7th China FMCG Channel Innovation Conference is confirmed! At this conference, there will be two parallel forums for distributors: [Distributor Model Transformation] and [Distributor Business Growth], to be held on September 2. We have invited Qin Xian, founder of Rongcheng Yigou; Li Bingyuan, founder of Anyang Sanjun Trading and Youtuan; Li Yong, chairman of Shenzhen Yataixuan Supply Chain and president of Guangdong Distributor Innovation Alliance; Yang Qiming, CEO and founding partner of Kuaile Zhaohu and other distributor owners and industry executives to deeply discuss the growth logic of distributor business at the conference. Don't miss it!

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