China's consumer industry is facing unprecedented changes. 2020 has arrived. As China's consumer market undergoes major transformations, where is the food and beverage industry headed? Perhaps a ranking list can offer some clues. In mid-December 2019, Hurun released its 2019 China Food and Beverage Brand Value Ranking, with the top five being household names like Yili, Haitian, Mengniu, Shuanghui, and Dali—true national brands. With the disappearance of demographic dividends and consumption upgrades, the food and beverage industry is also facing unprecedented changes. With consumer segmentation, fragmentation of communication channels, and the internet passing its dividend period, what will the future landscape of the food and beverage industry look like? One possible direction is that competition in the entire market will exhibit a more pronounced 'Matthew effect.'

-01- The 'Familiar Faces' on the List Brands are a comprehensive reflection of a company's and even a nation's core competitiveness, and they are also important factor resources in economic globalization. They are not just a company's business card but also a symbol of a country's soft power, even determining its voice in the global economic system. For enterprises, a good brand often makes people feel favorably toward the company producing the product, ultimately leading consumers to identify with the company's products, thereby enhancing the company's overall image. Robert Goizueta, former chairman of Coca-Cola, once said: "All our factories and facilities could be burned down tomorrow, but you could never shake the company's brand value. So brand is the core value of a company." However, with the fragmentation of communication channels brought about by the development of the internet, it has become increasingly difficult for a company to successfully build a nationally renowned brand. In April 2019, Chnbrand, a leading Chinese brand rating and consulting agency, released its "2019 China Brand Power Index" ranking and analysis report, which included brands such as Arawana and Daliyuan. In December, Hurun released its 2019 China Food and Beverage Brand Value Ranking, with 12 brands including Yili, Haitian, Mengniu, Shuanghui, and Dali making the list. The reporter found that the companies on the above rankings are all familiar faces. Most of these national enterprises in the Hurun list were founded or restructured in the late 1980s and early 1990s. Taking the top five as an example, Yili, Shuanghui, and Haitian were all established or restructured in the 1990s. These companies have continuously innovated their products while building strong brand power through nationwide brand communication and distribution channels. Take Dali Foods, a private enterprise giant not well known to many consumers, but its brands are widely recognized. Daliyuan, KEBICO, Haochidian, Heqizheng, Lehu, Doudouben, and others are all well-known national brands. "To be a leading brand, you must start from the height of the industry, study the characteristics and individuality of each industry, and make each brand a representative of its industry." At the 30th anniversary celebration of Dali Group, Dali Foods Chairman Xu Shihui revealed the 'secret' of Dali's branding. Chnbrand's 2019 national consumer survey results stated that the brand power of listed brands overall increased, with repurchase stability and brand relationships continuously strengthening. These remembered brands enjoy longer-term user value.

-02- Brand Scarcity Brings Higher Brand Premiums The chairman of a large real estate group once publicly stated that developing, establishing, and promoting a brand requires investment in people, resources, and materials, resulting in various costs. A good brand can bring premiums and create value for the company, serving as an intangible asset. This shows that brands, as intangible assets, cannot be built overnight but require long-term construction and accumulation. In the past, many national brands often chose to gain exposure through repeated strong advertising on central and other national media, then built awareness through nationwide distribution. However, in the current era of media fragmentation, audiences increasingly care only about their own small circles, with little large-scale intersection between these circles. Media advertising strategies also increasingly pursue precise audience segmentation rather than broad exposure. An industry insider said that currently, audiences only care about their own small circles, making it difficult to form large-scale intersections between circles, and it will become increasingly difficult for companies to build national brands in the future. Another industry expert stated that fragmentation makes brand building increasingly difficult, and consensus is harder to achieve. For companies that have already become national brands, this is undoubtedly a good thing. For example, Dali Foods, a Hong Kong-listed company with seven major brands including Daliyuan, KEBICO, Haochidian, Heqizheng, Lehu, Doudouben, and Meibeichen, these brands themselves are significant intangible assets beyond the balance sheet. Companies with such well-known brands will have increasingly better competitive landscapes. For newcomers, the importance of online channels is rapidly increasing. Many companies are increasing marketing and advertising expenses to prevent competitors from catching up, establishing their own natural barriers. However, traffic is difficult to control. For example, a large domestic cosmetics company previously abandoned such marketing due to the uncontrollability of viral marketing. Brand e-commerce platforms like Tmall serve dual roles of brand communication and sales channels, allowing companies to build national brands and serve as nationwide distribution channels. They have previously spawned a number of online brands, but in the future, they face the challenge of moving offline. The real touch and experience of products during shopping are services that online channels cannot provide. Online and offline need to integrate and complement each other. Online channels have rich data, while offline can face consumers more directly and provide better experiences. For consumer goods that require short-term decision-making in purchases, how to integrate online and offline based on online advantages is particularly important. Some industry insiders believe that in the future, moving from online to offline, and from first- and second-tier cities to lower-tier cities, may be the only way to build a national brand. But clearly, this requires time to verify.

-03- The Value of Offline Channels Becomes More Prominent Some argue that over the past decade or more, there has been a trend where consumers actively choose preferred brands at terminal sales points, weakening the recommendation role of terminals. Strong brands leverage their position in consumers' minds, and channel distributors often play the role of logistics providers. Among listed companies, including Yanghe in baijiu and Haitian in condiments, are typical examples of strong brands. Therefore, in the past, when major food and beverage brands launched new products, they were accustomed to high-profile advertising and strong marketing drives, with distributors only responsible for "ground" coordination. With consumption upgrades and market consolidation, after brand manufacturers have eaten into the share of miscellaneous brands, competition among brand manufacturers will become the main contradiction. Consumer choice has greatly increased, and with the lack of strong national media support, brand manufacturers are beginning to re-emphasize the role of distributor channels. After losing the "low-quality, high-profit" miscellaneous products, channel distributors are re-emphasizing brand products with thin margins but high volume. Brands that can provide more support to distributors will receive greater support. An industry insider said that in the past two years, a well-known liquor company lost a large share in key markets to Jinshiyuan because the latter offered distributors greater profit margins and a more stable price system. A domestic beverage company's previously most effective marketing strategy encountered new problems in 2019. A new beverage using celebrity endorsement saw sales rise steadily but then plummeted in August during the peak season due to poor terminal sales. With the increasing difficulty of brand building and the fading of online dividends, the advantages of offline channels will become more prominent. Taking Dali Foods as an example, supported by public data, Dali currently has over 5,500 distributors nationwide. As of June 2018, China had 3,185 counties. Excluding remote areas like Xinjiang and Tibet (which have about 130 counties in total), Dali may have 2 to 3 distributors in every county across the country. A strong distribution network ensures that every new product can be rolled out nationwide at the fastest speed and lowest cost, with extremely fast promotion. A brokerage report showed that Dali Foods' Meibeichen short-shelf-life bread series, launched in November 2018, opened more than 30,000 terminals in just a few months. Such channel advantages are undoubtedly a "moat" that most competitors cannot easily cross in the short term. Some say China's consumer industry is facing unprecedented changes. So, at a time when brands are increasingly difficult to build and online channel dividends are fading, a possible trend is that the 'Matthew effect' in food and beverage industry competition will become more pronounced.

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