Jiaziguangnian Think Tank releases [In-depth Report] "Digital Transformation of Offline Distribution Chains in China's FMCG Industry 2022": The report discusses the following questions:
- What new adjustments have occurred in the rapid development of China's FMCG industry?
- The industry's sustainable development still heavily relies on offline distribution chains, but what difficulties does offline development face?
- How can the FMCG industry break through constraints? Developing digital capabilities is certain, but which digital approach is appropriate?
The pandemic has brought some uncertainty to the development of China's FMCG industry, but the fundamentals of China's overall economic development remain strong. With the steady increase in the middle class, continued urbanization, effective inflation control, and signs of recovery in the consumer market, more importantly, the state continues to implement proactive policies to promote the healthy development of China's FMCG industry.
Against the backdrop of deeper global economic integration and further development of China's economy, more and more foreign FMCG brands are entering the Chinese market. Meanwhile, domestic traditional first-tier and emerging brands are also developing rapidly, making competition in China's consumer market increasingly fierce. This competition is not only reflected in the scramble for end consumers but also in the competition for high-quality distribution chains. Moreover, this battle for market share has begun to extend from cities to towns and villages, the so-called "beyond the Fifth Ring Road."
The FMCG industry is undergoing a new tempering and transformation. To seek breakthroughs, brands such as Yili, Haitian, and Genki Forest are actively innovating based on digital operating systems.
What kind of transformation path will this typical traditional industry take with the support of "digitalization"? This report explores the following questions: ** 1. What new adjustments have occurred in the rapid development of China's FMCG industry? 2. The industry's sustainable development still heavily relies on offline distribution chains, but what difficulties does offline development face? 3. How can the FMCG industry break through constraints? Developing digital capabilities is certain, but which digital approach is appropriate? **
Core Views: 1. What new adjustments have occurred in the rapid development of China's FMCG industry?
- Since 2021, the growth level of the consumer goods industry has recovered and exceeded the pre-pandemic level. In the first quarter of 2022, the total amount of offline physical consumer goods was 8,340.18 billion yuan, with offline distribution chains accounting for 76.8% of total sales, making them the absolute pillar of total retail sales of consumer goods;
- Traffic dividends are exhausted, traffic is monopolized, and traffic growth is in a vortex. Online distribution chains are gradually hitting the ceiling, making it difficult to break through business development bottlenecks in the short term;
- More and more brands are beginning to re-examine offline channels. After being bombarded by numerous online strategies and tactics such as B2B e-commerce platforms, group-buying wars, and community group buying, all brands ultimately cannot avoid the market coverage capability and actual performance of offline channels. Even a "big brand" like Coca-Cola, after going from offline to online and back offline, its current strategy still focuses on offline distribution chains; San Zhi Song Shu, a representative of emerging brands, is even beginning to shift from online back to offline;
- In the post-pandemic era facing challenges, the FMCG industry needs to reorganize new ideas for offline distribution chain development, revitalize the offline distribution chains that account for the absolute market sales share, and take this as an opportunity to achieve coordinated online and offline development, seeking new channels for survival in adversity.
2. The industry's sustainable development still heavily relies on offline distribution chains, but what difficulties does offline development face?
- Offline distribution chains have unique advantages and characteristics that are irreplaceable for brands; however, the complexity of offline operations far exceeds that of online, making it difficult for the entire FMCG industry to achieve new breakthroughs. Looking downstream from brands, the entire offline distribution chain is full of black holes—unclear who are quality distributors and which paths can bring sufficiently efficient business returns; looking upstream from distributors, it is the same—whether to replace brands, how to choose categories, and which products to select;
- The development of online business, based on the acquisition and analysis of precise data, has gradually achieved "personalized recommendations for each user"; achieving ROI improvement and precise profiling of terminal stores is key to enhancing the efficiency of offline distribution chains and is also the key to forging "different stores for different customers" offline; 3) The traditional role of distributors is changing, and their value is being redefined. They have become the key to improving the efficiency of offline distribution chains, the crucial link connecting brands and terminal stores, and the hub for commodity circulation and value delivery.
3. How can the FMCG industry break through constraints? Developing digital capabilities is certain, but which approach is appropriate?
- The digital operating systems built around brands as the core have already exposed two key issues: the digital operating system built from "0" to "1" has a return on investment that is not lower than that of brute-force distribution methods. As brands expand their offline distribution chains, if the profits from channel expansion are insufficient to offset the costs of system construction and operation, an IT expenditure black hole will form, swallowing channel profits and causing losses; moreover, it is difficult for brands to grasp the actual business capabilities of distributors through self-built digital operating systems, making it difficult for brands to effectively utilize existing distribution chains or build new ones;
- To achieve more precise distribution in offline distribution chains, the FMCG industry needs a "neutral" third-party public infrastructure platform, rather than each brand building its own digital operating system to clarify distributor capabilities through its own efforts; a "neutral" third-party public infrastructure platform should sort out a clear profile of distributors, helping brands effectively use existing distribution chains or build new ones;
- Choose key entry points, starting with digital empowerment of distributors. As the hub of the entire distribution chain, distributors are the weakest link in digital capabilities and the black hole hindering data connectivity in offline distribution chains; moreover, if distributor capabilities are not up to standard, it also restricts brands from obtaining the data needed to practice "different stores for different customers";
- Systematically enhance distributors' capabilities based on digital operating systems: first, start with business support, improve distributors' basic business management capabilities, and seek value from business standardization; Second, enhance distributors' competitive capabilities, including comprehensive management of their existing business and internal and external collaboration, to achieve value based on business collaboration; Finally, help distributors improve their ability to seize business opportunities, including judgment of market trends and adjustment and optimization capabilities based on that judgment, fully realizing value from data.
Source: Jiaziguangnian (ID: jazzyear)