Click the image for details Why should Uni-President be a model to learn from? The old pickled cabbage and soup master are things of the past, already fully discussed by the industry. This time, I have listed Uni-President as a learning target because of their 2017 'three new policies': 'zero-based budgeting,' 'channel reform,' and 'food and beverage integration.' These all stand in opposition to the original mainstream sales measures, and there is no shortage of questioning voices. It can be said that in adapting to the changing new environment, Uni-President has already woken up, but most companies are still sleepwalking. Although Uni-President's 'new policies' have already begun, they may not necessarily succeed. If we wait for others to succeed before learning, it will be too late. Uni-President's exploration in the new environment has already taken the lead, so we should analyze and study it. This article attempts to analyze why Uni-President's 'three new policies' are the direction now and how they can succeed. If we understand Uni-President clearly, we will also understand 'what to do' in the new environment. Uni-President's 'new policies' are benchmark-worthy. 1. Is integration really the direction? Uni-President's integration is the merger of food and beverages, which some call 'food and beverage integration.' Integration has never been the mainstream for Chinese companies; most integrations have failed. Last year, many companies adopted the 'split' approach. So why does Uni-President want to integrate now? What are the prerequisites for integration? Let me first tell a case from the 'old calendar.' I remember before 2000, there was a comparative case of 'split and merge' in the home appliance industry. At that time, the home appliance industry was relatively difficult, and Midea and Kelon adopted completely different methods. Midea adopted 'split,' dividing into numerous business units by product category to leverage the initiative of each unit; Kelon adopted 'merge,' i.e., integration, where all products were integrated and coordinated. The integration of Kelon was led by consultants from a multinational company, following the multinational approach. Midea's product segmentation was advised by Qu Yunbo, who was consulting for Midea at the time, though it's unclear if it was his idea. Because the segmentation worked well, Kelon later hired Qu Yunbo as vice president of marketing. As everyone knows, integration led to the company's downfall; business unit segmentation, on the other hand, brought out the company's vitality. Coincidentally, during that period, I was working at a company. At that time, to boost sales of a new category, I strongly advocated splitting it off and establishing a new sales department. After the split, the new department's sales grew fourfold. After two years, we proposed merging again. At that time, some questioned, 'Splitting was your idea, and merging is also your idea. How come you are always right?' I said, 'Splitting is to boost sales, merging is to boost profits. ' This is not my words; I borrowed it from Stan Shih, the boss of Taiwan's Acer. It is this sentence that points out the environment and goals of 'split and merge.' ▲ 'The general trend under heaven is that after a long division, there must be union; after a long union, there must be division.' The opening of 'Romance of the Three Kingdoms' says, 'The general trend under heaven is that after a long division, there must be union; after a long union, there must be division.' Many people are familiar with it, but few may understand the principle behind it. Generally speaking, when there is significant room for sales growth in the industry, splitting can mobilize enthusiasm and lead to rapid development. To be precise, sales grow faster, but resource utilization efficiency is relatively low. Before 2014, the FMCG industry was generally still in the stage of sales growth. At this stage, activating more business units and adopting a 'split' strategy was appropriate. The current overall state is a decline in total volume, a shift in mainstream products, and cost compression. At this time, integration can achieve better results. However, the above is only one prerequisite for integration. Another prerequisite is integration capability, i.e., strong management and control capabilities. If splitting emphasizes activation, integration must have strong management and control capabilities to truly achieve effective resource utilization and cost savings. During integration, besides utilizing resources and saving costs, structural adjustment is also an important goal. In this regard, it can be said that Uni-President is already a benchmark. Overall, the market environment requires integration, and Uni-President's internal factors are conducive to integration. 2. 'Zero inventory' is the direction After the Spring Festival, I proposed that 'controlling shipments is the top priority for 2017,' which was welcomed by many companies, and some are already doing it. Of course, there are also doubts, which is normal. However, Uni-President proposed the concept of 'zero inventory' as early as the first half of 2016, which is rare. If 'zero inventory' can truly be achieved, it indicates that sales are very healthy. It has three effects: first, it greatly reduces the funds occupied by channels; second, it greatly increases the freshness of goods, which aligns with our concept of freshness marketing and indirectly reduces the rate of returns and exchanges. It is worth noting that in recent years, returns and exchanges have been squeezing profits significantly, accounting for several percentage points; third, it greatly increases channel profits, indirectly boosting channel confidence. 'Zero inventory' is a goal to pursue, not necessarily true zero inventory, but the 'channel process reengineering' carried out around the pursuit of 'zero inventory' is the real essence of changing corporate marketing. If 'zero inventory' increases channel profits, it will undoubtedly play a strong role in promoting Uni-President's product structure adjustment. 3. 'Direct operation to customer operation' is a return to normalcy Around 2000, competition in central cities intensified, and many leading companies, in order to gain market share in central cities, occupied large terminals at all costs, especially in the instant noodle industry. Manufacturers could afford to pursue ambitious goals at all costs, but distributors did not have that capability or desire. Therefore, in the process of occupying large terminals at all costs, distributors in central cities gradually felt overwhelmed. Some major brands either formed joint ventures with distributors for central cities or switched from 'customer operation' to 'direct operation.' The phenomenon of switching from 'customer operation' to 'direct operation' was not very common, mainly in certain fiercely competitive industries and among large enterprises with strong rivalry. Currently, super terminals are on a downward trend, industry growth has peaked, and the intensity of competition has also decreased. Competition during structural adjustment is often off-position competition, unlike the high-intensity investment competition during homogenization. Therefore, Uni-President's switch from 'direct operation' to 'customer operation' in some regions is not really a new policy, but rather a return from abnormal to normal, i.e., 'customer operation' is the norm. 4. 'Zero-based budgeting' is a good cut 'Zero-based budgeting' refers to a method of preparing cost and expense budgets without considering the expense items or amounts incurred in previous accounting periods, but starting from zero for all budget expenditures, proceeding from actual needs and possibilities, reviewing item by item whether the content of each expense and its spending standards are reasonable during the budget period, and preparing the expense budget on the basis of comprehensive balance. Budget issues are problematic in almost all companies, but they are difficult to correct. Even if wrong, they are wrong in a reasonable way. For example, if sales are high, shouldn't expenses be higher? Past expense budgets roughly followed five principles: first, historical budget, basically acknowledging the rationality of the past; second, sales targets; third, the crying child gets the milk; fourth, company politics; fifth, special market goals. The biggest problem with marketing expenses is not these, the real problem is that expenses are used to reduce the workload of salespeople. Problems that should be solved by people are solved with money; money that should be used to solve market foundation problems is used to solve sales. In my view, 'zero-based budgeting' means that what expenses are used for must be clear. First, what they must be used for; second, what goals to achieve. It neither acknowledges the rationality of the past nor is used to solve problems that should not be solved with money. Of course, without more unified information, this is just my personal judgment on 'zero-based budgeting.' 5. What does Uni-President want to do? Uni-President is one of the earlier companies to transition from a 'sales-oriented' to a 'profit-oriented' approach. In 2015, Uni-President's revenue fell by 1.72%, but profits increased by 192.26%. In recent years, many companies have been somewhat confused because there are too many 'big variables' affecting them, such as the internet, industrial structure upgrades, declining industry volume, and rising costs, leaving companies at a loss. No matter how things change, the pursuit of profit has not changed. Profit sources are nothing more than sales volume, product structure (price system), and expenses. The past mindset was to increase volume at all costs, which usually worked. Now, no matter how much you push shipments, growth is hard to achieve, and even if sales increase, profits do not increase. In the past, you could tell investors that expense growth is an investment in the future. Now, investors won't believe such statements from bosses. The new logic is: first, adjust product structure; second, improve efficiency and save costs; third, sales growth. It can be said that in the eyes of bosses, the logic of profit formation is changing. Uni-President's new policies are precisely a reflection of the profit logic in the new environment. 6. Uni-President is a benchmark In the past, I have raised the issue of who to learn from. Twenty years ago, we were not qualified to learn from multinational companies; at that time, multinational companies were our dream, too far from reality. So, I opposed learning from multinational companies. The book 'Chinese-style Marketing' was actually intended to solve the problem of who to learn from. ▲ In defending the Chinese market and the marketing game with multinational companies, Chinese-style wisdom is fully demonstrated I advocate learning from benchmarks, which are learning targets that can be applied. They are neither too far from us nor too close. We can learn and catch up. Uni-President is currently such a benchmark company. Since Liu Xinhua began leading instant noodle marketing, Uni-President has turned the tables in an industry where the pattern was almost set, winning with big single products. Besides the well-known advertising, Uni-President is a company that takes terminal promotion to the extreme after terminal sales. I have strongly promoted 'terminal promotion,' but because internal management is extremely difficult and techniques are complex, there was almost no response. Uni-President is one of the few companies that does 'terminal promotion' vigorously, and even many insiders in marketing have not noticed this. Another point that convinces me is that before 2000, Uni-President began making Soup Master. This kind of foresight is too rare, and I admire it very much. Uni-President's new policies, to put it bluntly, are to solve the profit problem under the condition of declining industry sales, and while solving the profit problem, in turn solve the sales problem. In the past, everyone thought that solving the sales problem would solve the profit problem. Now, only by solving the profit problem can we solve the sales problem. I don't know how Uni-President will do in the future. There are indeed many people worrying about Uni-President now. But I think Uni-President's thinking and starting point are correct. Usually, when something fails, there are two possibilities: one is that it should not have been done at all, i.e., it was impossible; the other is that something that could have been done was not done well. These two situations should be distinguished. -END-