Shrinking volume is a reality that cannot be denied. Since 2013, when the FMCG industry began to see widespread volume decline, there has been over a decade of contraction. In 2023, almost all major FMCG categories, except the beverage industry, have fallen into volume decline. A decade of shrinking volume can truly be called an era of contraction. What is more frightening is that some people still harbor illusions about growth. Shrinking volume has indeed caused difficulties for manufacturers and distributors, but hoping that an economic upturn will end the contraction and restore growth is more dangerous than the contraction itself. This involves a basic judgment: Is the current shrinking volume normal? Accustomed to over 30 years of growth since reform and opening-up, encountering contraction for the first time, most would consider it abnormal. From 2013 to 2015, during the sustained contraction, most in the FMCG field thought so. After 2016, the launch of many "mainstream gear shift" new blockbuster products in various industries solved growth and temporarily made people forget the contraction. Achieving growth in the era of shrinking volume is the right path. The problem now is not the contraction itself, but the absence of new growth. Hence, the issue of shrinking volume has regained attention. However, many still believe that contraction is abnormal, and some think that as long as the overall economic environment improves, growth will resume. Recovery of growth is certain, but restoring incremental volume is difficult. I believe the era of shrinking volume is irreversible, and it is even an inevitable result of consumption transitioning from quantity to quality when the economy reaches a certain stage. Increment, excess, and contraction form the trilogy of sales volume. Contraction is a correction of "excess." "Excess" is abnormal; contraction after excess is normal. Excess refers to consumption beyond the body's normal capacity, such as high-salt and high-fat diets, which sow seeds for "three highs" (hypertension, hyperglycemia, hyperlipidemia). The factors affecting contraction, in order of importance, are: population structure, lifestyle, and the overall economic environment. The economic environment often gets blamed first, but population structure and lifestyle solidify the era of contraction and are the decisive factors for long-term sales. Important points repeated: Population structure and lifestyle have solidified the era of shrinking volume. Solidified! Solidified! Solidified! There is no going back. The solidified contraction is what we must truly address. Population Structure: The Fundamentals Are Shrinking Market = Population x Purchasing Power x Purchase Desire This is the basic principle of marketing. In reality, population is often treated as a premise that does not change much in the short term. However, the biggest change in China over the past decade is the structural change in population brought about by economic growth, making population factors surpass macroeconomics and once again become the decisive factor in the market. The impact of population structure on sales is reflected in the following three aspects: First, the cliff-like decline in newborns and population aging The cliff-like decline in newborns has a huge impact on infant and toddler categories, with some small categories nearly disappearing. This is irreversible. The question now is where the bottom of the newborn decline lies. Companies can only formulate strategies around this bottom. As infants enter school, society, and the workforce, gradually becoming the main consumer force, the impact on consumer goods will be even greater. Conversely, the peak birth cohort is entering retirement. In the past, retirees had poor consumption capacity. There is a joke that the ranking of household consumption capacity is: young women, young married women, children, the elderly, pets, and men. This is a joke about men, but also a reality. Recently, the consumption capacity of China's silver-haired generation has gained attention. For example, the off-season in scenic spots has become the peak season for silver-haired consumers. There is even a saying that retired Chinese elderly have become the main force for DSLR cameras. In the past, the concept of empty-nest families was rarely used in China; now, empty-nesters have become an important consumer group, but not in quantity-based consumption, nor in the past frugal style, but in new consumption patterns. Second, late marriage and late childbearing affect big-ticket consumption In 2023, the average age of first marriage in China was 28.67 years. In Shanghai, the average age for men was 30.6 and for women 29.2. According to the National Health Commission, the average age for women's first marriage and childbirth was 28.4. Marriage and childbearing consumption is big-ticket and has a long consumption chain. Late marriage and late childbearing delay big-ticket consumption. Third, the decline in urbanization growth rate Rural consumption has semi-self-sufficient attributes, while urbanization is based on division of labor and commodity exchange, increasing total social consumption. After rapid development over the past decade, China's urbanization has entered a period of low growth. In 2023, the urbanization growth rate was only 0.94%, falling below 1% for the first time. The space for urbanization growth is gradually approaching its limit. The decline in urbanization growth also affects another big-ticket consumption: the real estate industry. A decline in urbanization growth means a decline in housing demand growth. Real estate is big-ticket consumption with a long chain. Although there may be policy-driven or technical rebounds in the future, the decline in total demand is determined by population structure. The impact of population on consumption is reflected in three aspects:
First, changes in population size. China's total population is declining, which will certainly affect consumption.
Second, population structure. Population structure can be divided by different standards, and different structures have different consumption preferences.
Third, consumption values corresponding to the population. Different eras and groups have different consumption values, which shape consumption patterns. Lifestyle Changes: Solidifying the Contraction Lifestyle is the sum of behavioral characteristics of material and cultural life activities of groups and individuals in a specific period, including work, consumption, and social interaction patterns. Lifestyle changes affect consumption in three ways. First, screen-scrolling replaces shopping, and staying home becomes a new lifestyle This is a result of smartphone proliferation. Phones have become the "sixth organ" of humans, and daily screen time is still increasing. Screen-scrolling replaces shopping, leading to declining foot traffic in KA stores and supermarkets; screen-scrolling replaces TV watching, reducing the influence of TV dramas, programs, and TV ads. Second, lifestyle is linked to consumption patterns Where time is spent, money is spent, and consumption occurs. With income growth, consumption shifts more toward service consumption. In the chart above, among the 12 items consumers plan to increase spending on, only two are goods, and neither is related to FMCG. As China's GDP grows, FMCG is gradually being marginalized. Third, China becomes a nation on wheels, expanding living radius In 2023, China's automobile sales exceeded 30 million units for the first time, making it a typical nation on wheels. Cars expand the living radius and correspondingly change consumption patterns. For example, during the 2024 May Day holiday, suburban county outings became a highlight. The functional beverage industry's growth is positively correlated with car ownership. The decline in baijiu sales is related to car ownership and drunk driving. The increase in car ownership shows a trend from family life to outdoor life, with different consumption items. Fourth, changes in consumption values This has changed significantly, as shown below:
From quantity over quality to quality over quantity;
Brand disenchantment: from value-added products to cost-effective products; private labels are becoming popular;
As previously desired products and brands become commonplace, desire for goods and brands declines;
The categories for face consumption are narrowing; household goods have basically exited face consumption, only social items retain this attribute. Fifth, other lifestyle changes Lifestyle changes are usually slow, but the three years of the pandemic may have accelerated changes. For example, returning home for Spring Festival and visiting relatives. The 2023 Spring Festival was the first normal one after the pandemic. Many companies expected revenge gift consumption, but the pandemic changed lifestyles, and gift sales experienced an unprecedented decline. Another example: gatherings have shifted from drinking alcohol to playing Guandan (a card game), which has a non-negligible impact on baijiu consumption. Lifestyle changes are the result of accumulated income growth. The outcome is not the disappearance of consumption, but the transfer of consumption items, with one rising while another falls. However, physical goods consumption falls into the "this falls" category, while service consumption falls into the "that rises" category. Income Divergence: Dual Impact on Contraction The K-shaped divergence in income is probably a rare consensus. However, K-shaped divergence may point to contraction. It is certain that those with declining incomes will reduce consumption. But high-income consumers may also reduce consumption quantity, and together they contribute to contraction. For example, meat consumption: as income rises, meat consumption increases; but at a certain stage, meat consumption declines. However, protein-rich beef and mutton are growing. For example, the higher the income, the lighter the diet and the less seasoning used. For example, the higher the income, the less staple food consumed. For example, young women in cities increase snack consumption, but as they age and income rises, due to health concerns, snack consumption decreases. For example, in early stages of income growth, sugary drink consumption increases; with continued income growth, sugar-free drink consumption increases. Many categories show a trend of first increasing and then decreasing with income growth. Using economic principles to analyze the macro level is a common method for economists. But using it to analyze micro-level marketing is too simplistic. I have said before: economics sees the forest but not the trees; marketing sees the trees but not the forest. Each has its strengths and weaknesses. Economics treats the market as a gray box, while marketing treats it as transparent. The current macro situation includes both the impact of economic downturn on consumption contraction, which is simple contraction, and the impact of sustained economic development, which affects contraction while also driving growth in high-value-added consumption. This is the path to growth in the future contraction environment. The Problem Is Contraction; The Opportunity Is Blockbusters The era of shrinking volume is irreversible. K-shaped divergence points to contraction regardless of income changes. Population structure and lifestyle further solidify the contraction. Contraction is irreversible, but it has a bottom. Where the bottom is, that is the most critical judgment for the industry. For example, baijiu consumption has fallen from a peak of about 13 million tons to about 6 million tons now, with some experts predicting a bottom of 5 million tons. However, other experts predict that true solid-state baijiu is actually growing, from 3 million tons to over 3 million tons. Contraction is a fact; blaming any factor is futile and only provides psychological comfort. So, what is the solution? Recall the contraction starting in 2013; how was it solved then? After 2016, many industries launched blockbuster products, such as Ambrosial, Pure Zhen, Tang Daren, and Asamu, which solved growth problems for many categories during the contraction. These new blockbusters were clearly a level higher than the existing ones. Therefore, I call this "mainstream gear shift," not switching to niche products, but "changing the main course," i.e., the signature dish. Since contraction is certain, industry growth can only come from product structure improvement. When mentioning product structure, many think of high-end. In the baijiu industry, despite a 60% contraction from the peak, high-end and sub-high-end have grown rapidly. Recently, low-end bottled wine has upgraded faster. In the beer industry, despite a 40% contraction from the peak, the industry started from the 3-yuan price band, jumped through the 5-yuan and 8-yuan bands, and now enters a period of rapid growth in the 10-yuan and above band. Logicians say the first leap is from the concrete to the abstract, and the second leap is from the abstract to the concrete. Product structure is too abstract; I propose a concrete product structure concept: the new mainstream price-band blockbuster. Just like the "mainstream gear shift" after 2014, "new mainstream price-band blockbuster" is a life-saving concept. The mainstream price band is the price band with the largest sales volume. The new mainstream price band is the price band that will have the largest sales volume in the next stage. A blockbuster is a product with relatively large sales volume in a certain price band. New mainstream price-band blockbusters, such as Ambrosial, Pure Zhen, Tang Daren, and Asamu, were launched around 2016 and solved the problems encountered when contraction began in 2013. With the new mainstream price-band blockbuster as a banner, we can engage in more brutal internal competition in the mid-to-low end and also revive all price bands. We look forward to leading companies in various industries focusing on new mainstream blockbusters in the coming years to open the ceiling of industry growth. Perhaps it won't solve the contraction problem, but it must solve the growth problem. From August 20-22, 2024, the "2024 6th China FMCG Conference" with the theme "Navigating the Era of Shrinking Volume" will be grandly held in Shanghai.