---
title: "In the Omnichannel Era, the Core Competitiveness of FMCG Enterprises Depends on Digital Operation Capabilities"
description: "In the omnichannel era, FMCG enterprises need to build digital operation capabilities to seize structural growth opportunities. As channels proliferate and consumption enters a stock or even shrinking phase, companies are increasing digital investment, but the industry's digital transformation is still in its early stages, facing obstacles in cognition, organization, and tools."
author: "任文青Andy"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-01-03"
language: "en"
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# In the Omnichannel Era, the Core Competitiveness of FMCG Enterprises Depends on Digital Operation Capabilities

> In the omnichannel era, FMCG enterprises need to build digital operation capabilities to seize structural growth opportunities. As channels proliferate and consumption enters a stock or even shrinking phase, companies are increasing digital investment, but the industry's digital transformation is still in its early stages, facing obstacles in cognition, organization, and tools.

**Introduction: In the omnichannel era, FMCG enterprises need to build digital operation capabilities to seize structural growth opportunities.**
In recent years, platform e-commerce, O2O, social e-commerce, live-streaming e-commerce... various channels have emerged one after another. To connect with more consumers, brands try to cover every new channel that appears. Against this backdrop, omnichannel operation has become a core topic for food, beverage, and alcohol companies.
This topic has become even more pressing given the slower industry and overall consumption environment. In 2022, China's birth population fell below 10 million, marking a negative population growth, and consumption entered a stock or even shrinking phase. Facing the reality of stock competition and channel fragmentation, FMCG enterprises have increased their digital investment, hoping to build new productivity through data and uncover structural growth opportunities. Although companies are talking about digital transformation, the industry's digitalization is still in its early stages, with enterprises encountering significant obstacles in cognition, organization, and tools. Recently, Tencent Smart Retail's "Retail Big Shots Talk · Technology Roundtable" invited Shang Zhihu, General Manager of Yili Group's Digital Technology Center; Liu Xiangming, Co-founder & Co-CEO of Titanium Media and Initiating Director of ITvalue; Zhao Bo, Founder of New Distribution; and Li Youxiang, Solutions Director for Vertical Industries at Tencent Smart Retail, to conduct an in-depth analysis and discussion on the current challenges and opportunities in the industry, as well as the experience of benchmark enterprises in building digital operation capabilities. "New Distribution" has extracted and shared the essence of the roundtable content, hoping to provide valuable reference and inspiration for food, beverage, and alcohol companies. Click to watch the highlights of the roundtable program.

#### **Upgrading Existing Operating Systems with Digital Tools**
#### **Is a Certain Opportunity**
In 2023, the intuitive feeling of all FMCG manufacturers is: terminal prices are getting lower, profits are getting thinner, and business is getting harder. There are several reasons behind this: **First, oversupply upstream.** Recently, New Distribution has been in contact with more than a dozen manufacturers, including first-tier brands, who have expressed willingness to provide customized products for channel needs, even offering OEM services. **Second, insufficient demand downstream.** The population has entered a downward inflection point, consumption is clearly structurally diverging, and consumer spending has become more cautious and rational. According to data released by Nielsen, over the past six months, the proportion of price-insensitive consumers has dropped from 29% to 15%. Meanwhile, the proportion of consumers seeking affordable alternatives and focusing on low prices for necessities has risen from 20% to 36%. **Third, consumer purchase scenarios are becoming more diverse, and FMCG companies are trying to achieve omnichannel coverage, but users are not retained, stickiness is low, and input and output remain seriously misaligned.** Of course, these factors have always existed, but they have become more severe after three years of the pandemic. However, in Shang Zhihu's view, behind the challenges lie opportunities. He believes: "Intense competition among enterprises is the norm; the key is to maintain sufficient sensitivity and reaction speed in a rapidly changing market, and this is something that must be solved by the enterprise's endogenous capabilities." Among these, several opportunity points deserve attention: **First, consumers have a greater demand for products with better price-performance ratio, which is an opportunity for companies with strong product innovation capabilities; Second, the overall incremental era is over, but from an internal structural perspective, a large number of personalized and scenario-based demands remain to be met.** **Of course, the most important point is that as consumers become increasingly digital, using digital technology to upgrade existing operating systems is a very certain opportunity.** Among these, offline stores are the main way for food, beverage, and alcohol companies to reach consumers and achieve sales. On the one hand, enterprises need to focus on achieving online presence for store terminals, i.e., small B-end; on the other hand, they also need to digitalize C-end consumers, such as consumer code scanning and consumer operations. In addition, the online presence of the entire chain's business, including products, inventory, orders, etc., are areas that require significant investment. From the consumer's perspective, Zhao Bo believes that omnichannel is not just about online and offline; in the user's full lifecycle, where they obtain information, where they purchase, and where they share, the integration of all touchpoints is extremely important for the enterprise. Whoever has this integration capability will seize the initiative.

#### **Building Endogenous Capabilities through Digitalization + Private Domain**
In the past, channels were the object of retail, and they were two-dimensional. As long as an enterprise made good products, laid out channels, and drove marketing, it could gain market opportunities. **But in the omnichannel era, retail has entered a three-dimensional space, that is, on the basis of time and space dimensions, a new scenario dimension has been added.** This scenario includes both online and offline integration, as well as the user's full lifecycle. In this process, sales become extremely complex, and the enterprise's digitalization grasp becomes very important. **For Yili, the important grasp is digitalization + private domain.** Yili, as one of the earliest dairy enterprises in China to undergo digital transformation, has achieved remarkable results in private domain construction. For example, during the Double 11 period in 2022, Yili achieved nearly one million new customers through private domain operations without relying on traffic investment, and the retention rate increased to 28%. Yili divides its private domain into two categories. One is 100% private domain, such as mini-programs, where users are completely self-controlled by the enterprise. The other is called semi-private domain, such as the shopping guide communities that Yili builds together with channel partners. For private domain operations, Yili has built a 1+N private domain matrix, currently possessing 19 core brand mini-program private domain operation positions, achieving full coverage of 5 business divisions and new business segments. **In Shang Zhihu's view, the greatest value of private domain is that it can truly land on being consumer-centric and carry out product innovation around consumers.** In the private domain, Yili regularly conducts user surveys to understand user needs and make targeted optimizations, carrying out product innovation that better meets consumer needs. At the same time, it also conducts in-depth brand interactions with users. For example, for milk powder members, Yili provides professional science popularization from pregnancy preparation to the child's birth and growth stages. In addition, Yili uses stores as units, leveraging the store channel advantages and the connection capability of WeChat Work, to sink consumers into the shopping guide communities of each store, and then through mini-programs, WeChat Work, video accounts, etc., conducts more refined operations on consumers, including brand exposure and interaction, sales conversion, new product tasting and promotion, etc. In Yili's shopping guide communities, the shopping guide connects the brand on one end, able to receive real-time feedback from the brand headquarters in a timely manner, improving the transparency and accuracy of marketing resource distribution; on the other end, it connects customers, building a circle of familiar customers, enhancing user stickiness, and combined with other WeChat ecosystem tools, expanding the store's service radius and enhancing brand influence. Under the digitalization + private domain model, Yili can carry out actions from thinking to product innovation to consumer interaction and finally to the sales generated, achieving strong activity and conversion in the private domain. As of the end of 2022, Yili has achieved 100% cloud-based shopping guides, covering tens of thousands of shopping guides, with sales exceeding 100 million yuan.

#### **Leveraging Tools and Ecosystem Strength**
#### **Efficiently Achieving Digital Transformation**
In recent years, the concept of digitalization has been very hot. Both traditional food and beverage brands and emerging DTC brands have begun to explore digital transformation in the past 2-3 years. However, due to brands' insufficient understanding of digitalization and lack of efficient tools and methods, there are still many problems in the exploration of digital transformation. The main reasons are: **on the one hand, consumer connection is easy but operation is difficult, and the input-output ratio is not high; on the other hand, the retail enterprise's main market is still offline, and efficient linkage cannot be achieved.** To provide valuable reference for more enterprises' digital transformation, we have summarized several directions that enterprises need to focus on in transformation based on Yili's practical experience. **First, have correct digital cognition and strategic planning.** Everyone talks about digitalization, but very few do it well. An important reason is that in the past, enterprises could achieve growth through exogenous capabilities, such as investing in advertising and purchasing traffic. But now, with dividends peaking and involution intensifying, enterprises need to rely more on endogenous capabilities such as technology and data to drive growth, and technical capabilities cannot be improved overnight; they require long-term strategic planning and investment. Liu Xiangming believes: "Many of the troubles in digital transformation come from unclear direction, going east today and north tomorrow. If the strategy is not clear, uncertain, and unstable, this may be the biggest source of internal friction." **Therefore, in digital transformation, cognition is the premise, and strategy is the foundation.** Taking Yili's digitalization as an example, Yili has a dedicated strategy team that formulates transformation plans according to the logic of strategic engineering. Strategically, Yili's digitalization is divided into three stages: building the foundation, integrating data and business, and data-driven operations. Many FMCG enterprises attach importance to specific operations but neglect overall strategy and systematic planning, which often leads to stagnation in digital transformation. **Second, while upgrading their own capabilities, effectively leverage advanced technology and ecosystem partners.** In Yili's digital transformation process, on the one hand, it embraces new technologies and continuously upgrades its own capabilities; on the other hand, it continuously expands its digital ecosystem network. Taking cloud construction as an example, in the process of business development, Yili not only continuously improves its own technical team capabilities but also cooperates with Tencent Cloud to efficiently complete cloud platform construction. "For example, when we do a large number of operational activities, there are high requirements for the performance of the entire system, but these requirements cannot be met by our traditional IDC. This means that due to business needs, we naturally need to leverage external forces and upgrade some businesses to the cloud," said Shang Zhihu. Li Youxiang also believes that whether from a business or technical development perspective, using the cloud is a trend, and going to the cloud is also a trend. In the process of transformation, enterprises need to effectively use these advanced technologies to make transformation more effective. In addition, the strength of third-party ecosystem partners is also very important. **Taking Yili as an example, Yili has maintained long-term cooperation with Tencent Smart Retail in areas such as Tencent Cloud, private domain operations, and talent development. Tencent has always played the role of a third party in helping enterprises like Yili with digital transformation.** "From the top-level perspective, we have a very professional team to help enterprises with overall business consulting and planning. After planning, we also provide implementation and operation accompaniment; at the tool level, we also provide digital tools covering the entire chain of R&D, production, supply, sales, and service, including AI technology and IoT technology at the production end to help factories with transparent management, DRTM at the channel end to help enterprises with precision distribution, and at the C-end consumer operations, we also have hard digital products like CDP and MA to help enterprises achieve refined operations; at the bottom level, we also have technical foundations like Tencent Cloud to provide enterprises with very strong support and choices," Li Youxiang said.

**Final Thoughts** In the current structural changes in consumption, building digital operation capabilities is a required course for FMCG enterprises. Enterprises need to embrace advanced technology under the guidance of long-term strategy and systematic planning, and while building their own capabilities, effectively leverage third-party tools to efficiently implement digitalization.
Click to watch the full roundtable program.


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