"The five years since the First Session of the 12th National People's Congress have been truly extraordinary in China's development process." At the opening of the First Session of the 13th National People's Congress yesterday (March 5), "extraordinary" was the summary of China's development over the past five years.

The word "extraordinary" also applies to the FMCG industry. 2013 was a watershed year for FMCG: most leading FMCG companies faced sales ceilings, reaching historical peaks. By 2014, declining sales were considered the norm. In 2015, some companies began taking measures, such as structural adjustments and optimization upgrades. Meanwhile, the digital transformation of FMCG channels also began to sprout in 2015...

According to Kantar Consulting's "2016 China FMCG and Retail Report," many packaged food and beverage categories faced declining sales. Beverage sales growth slowed from 5.6% in 2015 to 3.2% in the first half of 2016, with negative volume growth for three consecutive years. The average selling price of beverages increased only 3.3% in the first half of 2016, compared to 6.2% growth in 2015.

Now, at a critical juncture of transformation and upgrading, the release of the 2018 Government Work Report (hereinafter "the Report") points the way for China's socio-economic development. Among its contents, five keywords are closely related to the development of the FMCG industry.

1. Advance consumption upgrading, and develop new forms and models of consumption.

Interpretation: Consumption upgrading is one of the most frequently mentioned terms in the FMCG industry. The trend of product structure adjustment and mainstream replacement is evident. Under this consumption trend, many food and beverage brands have responded swiftly.

From the performance feedback of domestic dairy leaders Yili and Mengniu in the first half of 2017, premiumization has become a key driver of sustained growth in the dairy market. According to a person close to Yili, Yili's revenue growth comes mainly from two aspects: volume growth and growth driven by structural adjustments. Similarly, Mengniu has spared no effort in developing premium products. According to its 2016 financial report, premium products accounted for 45% of Mengniu's revenue in 2016, and Mengniu's management has publicly stated its goal to raise this proportion to 50% within three years.

The Government Work Report also states the need to "provide rich spiritual nourishment for the people to live a better life" and "continuously enhance the people's sense of gain, happiness, and security." This is undoubtedly a national-level reflection of consumption upgrading.

2. Deepen supply-side structural reform and continue to eliminate ineffective supply.

Interpretation: In the past two years, there has been a clear trend in the FMCG industry: deeper research into consumers. Whether upstream manufacturers, distributors, or terminal stores, all are searching for "new products" and "hot products."

This is a positive trend, but the transformation process also faces many difficulties. Companies lack innovation and blindly follow trends, with the phenomenon of "going wherever the wind blows" prevalent. This leads to severe product homogenization and insufficient brand personalization, which clashes with the personalized needs of the new generation of consumers. This is precisely the contradiction between supply and demand. For example, the rise of the coconut juice category two years ago, with the brand Special Forces pioneering the fresh-squeezed category, was followed by dozens or even hundreds of fresh-squeezed brands flooding into the糖酒会 (national food and beverage trade fair).

Some have attributed P&G's declining performance to the traditional "big industry era disease" of "production determines consumption." In fact, a large number of companies and brands in the FMCG industry still face this dilemma: focusing only on scale, cutting costs, failing to grasp category trends, and not investing in product innovation and R&D.

3. "Internet+" is widely integrated into all industries.

Interpretation: The rapid development of the Internet has brought changes in consumer shopping habits. Online shopping is increasingly becoming an important lifestyle for the younger generation. This has also led to changes in traditional FMCG distribution methods, with major traditional brands and distributors embracing "Internet+" to transform traditional business models through information-based tools and means.

China's traditional FMCG distribution channels are complex and inefficient. Against this backdrop, FMCG B2B emerged. In particular, the entry of Internet giants like Alibaba and JD.com has further driven the digital transformation of FMCG channels.

On the other hand, new retail formats represented by Hema Fresh are developing rapidly. The integration of the Internet with offline physical retail is deepening, and the digital transformation of retail has become inevitable. This will undoubtedly be a focus of attention for the entire FMCG industry in 2018.

4. Innovate food and drug supervision methods, leaving no place for problematic products to hide, ensuring illegal producers and sellers cannot escape the law, and allowing consumers to buy with confidence and eat safely.

Interpretation: Counterfeiting and shoddy products have always been stumbling blocks to the development of the FMCG industry. From alcohol to beverages, incidents of counterfeiting and fraud are frequent. At the beginning of 2018, the media reported that Yongjia County in Wenzhou seized a major case of counterfeit Kweichow Moutai liquor. On-site, 929 boxes of liquor labeled with "贵州茅台" (Kweichow Moutai), "MOUTAI," and "飞天 (pattern)" trademarks were seized, totaling 5,574 bottles, with a value of nearly 10 million yuan. This is the largest trademark infringement case in terms of involved amount that the bureau has handled to date, and also the largest counterfeit alcohol case in terms of involved amount.

On January 1, 2018, the China Food and Drug Administration issued the "Notice on the Implementation Rules for Food Safety Supervision and Sampling Inspection (2018 Edition)," further clarifying the requirements for food safety sampling inspection work and accelerating the resolution of long-standing issues such as incomplete procedures and inconsistent requirements in food supervision and sampling inspection.

5. Implement the Healthy China strategy.

Interpretation: Under the Healthy China strategy, health and safety will become the focus of FMCG industry development, especially for dairy, plant-based protein beverages, and other categories, which will face greater market opportunities in the future.

New Distribution noted that Shi Jubin, a deputy to the National People's Congress and chairman of Haoxiangni Jujube Co., Ltd., put forward a proposal on "food nutrition." "Making food is about conscience. On the basis of food safety and hygiene, we must also ensure that people get nutrition from what they eat. My biggest concern this year is food nutrition," Shi Jubin said. He added that for people to be healthy, their diet must be nutritionally balanced and scientifically matched. Therefore, this year he will submit a proposal on creating a standard healthy food and lifestyle approach.

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