The just-concluded 2016 saw China's economic transformation significantly impact the consumption patterns of Chinese shoppers. The decline of old FMCG products has become the norm.

Since 2011, instant noodle sales in China have fallen for five consecutive years, with a sharp 12.5% drop in 2015. Beer, from January to October 2016, saw a 1.4% year-on-year decline in the Chinese beer industry. After more than 20 consecutive months of decline, it only stopped in November. Beverages also declined: Uni-President's 2016 interim report showed a 2.4% year-on-year drop in revenue and a 0.9 percentage point decline in gross margin, primarily due to its beverage business. Master Kong's first-half revenue fell 13.94% year-on-year, with its beverage segment down 14.4%. Coca-Cola's Q2 2016 revenue fell 5.1% year-on-year to $11.54 billion... What is causing these manufacturers' sales to keep declining? It's the consumers who have changed! In an era of material scarcity, as long as your product had acceptable quality and a low price, consumers were willing to buy. Thus, competition in China's FMCG market was essentially channel competition, giving rise to uniquely Chinese marketing tactics: deep distribution and intensive channel cultivation. Companies used multi-tier distribution and a human-wave strategy to achieve broad product placement, front-loading inventory, and good merchandising. As long as products were close enough to consumers and supported by advertising bombardment, good sales could be generated. With rising incomes, materials shifted from scarcity to abundance. Consumers have grown tired of the monotonous packaging and single flavors of basic consumer goods in supermarkets. They have the ability and are more willing to pay for new, ever-changing products that suit their tastes and cater to their individual preferences. Coincidentally, the advent of mobile internet has connected all merchants and consumers at all times. Consumers can simply open their phones to access tens of thousands of products and services 24/7, meeting their needs and making consumption more convenient. For consumers, the biggest change in the internet age is the significant reduction in the cost of obtaining supply information, lowering the risk of making mistakes in consumption. In fact, the power of choice has irreversibly shifted to consumers. And consumers are no longer the ones who can be won over by channel monopolies and special promotions. Manufacturers' reliance on deep channel penetration and category monopolies to drive sales has become ineffective. In the future, niche products that are more segmented, more personalized, and better aligned with user scenarios and needs will gain increasing popularity among consumers. Despite the upgrade, traditional distribution channels remain important. Consumers have merely shifted their spending; existing stock is declining but not disappearing. China's market is vast, and consumption upgrades from T1 to T6 markets may take 5-10 years or even longer to complete, giving FMCG companies ample time to adapt, transform, and upgrade their products. The role of channels is to present the right products to consumers at the right time and place. However, the combination of China's per capita income exceeding $10,000 and mobile internet has not simply led to the rise of the middle class; rather, consumers are rapidly stratifying, and the once homogeneous demand has become highly fragmented. Residents in the same community may have vastly different product needs. Yet when manufacturers launch personalized new products using the old flood-irrigation distribution method, they fail to gain good market feedback, waste resources, and cannot effectively reach target consumers. In short: they wear new shoes (new products) but walk the old path (existing channels). As Weng Yinuo mentioned in CEIBS Business Review: "In the past, channels served producers and suppliers; in the future, channels must serve consumers more. The marketing economy will gradually transform into a selection economy. Returning to the essence of retail, it is about meeting consumers' ever-changing needs on the basis of efficient supply chain capabilities." Original basic consumer products needed to satisfy the demand of being available to everyone. Brand owners used multi-tier distribution systems (distributors, secondary wholesalers, wholesale markets) to achieve product coverage. This distribution model suffers not only from low logistics efficiency and multiple handling, but crucially, all channel strategies are essentially blind. Market conditions are collected manually, terminal store information lags, market spending is imprecise, and all marketing actions rely on experience and forecasts. Because there is a game between brand owners and distributors, the results—such as inventory levels, daily shipments of each distributor and secondary wholesaler, pricing systems, who bought what, and new product turnover—are vital for corporate decision-making and market advancement. However, in traditional channel models, low informatization, excessive layers, and manufacturer-distributor games prevent companies from obtaining this data accurately and efficiently. In the future, for brand owners to find target customers in a stratified market, precisely distribute products, and reach target consumers, a fundamental prerequisite is reducing channel gaming, increasing channel transparency, and achieving data-driven and intelligent operations. To achieve these three points, the integration of supply chain and retail will be an overall trend in channel transformation over the next five to ten years. It should be noted that companies can never achieve transparency, data-driven operations, and intelligence through upgrading or reforming existing channels. To achieve precise distribution, they cannot just upgrade; they must reconstruct! When reconstructing channel models, brand owners must achieve the following three elements:

  1. Build a new channel distribution system supported by big data.

  2. Establish a rich and effective operating system that mixes online and offline.

  3. Implement cross-platform, multi-channel brand promotion targeting specific audiences. Channel informatization will become one of the core competitive advantages for brand owners in the future. Supply chain integration (B2B) essentially meets manufacturers' needs for channel transparency, data-driven operations, and intelligence. B2B platforms are using new technologies such as online transactions, online payments, and unified warehousing and distribution supported by WMS/TMS to make the entire channel more transparent and efficient. In the future, B2B platforms will leverage big data to help companies achieve real-time business monitoring, promotion optimization, store management, and precision brand marketing, completely changing the old blind marketing approach. From a data perspective, B2B platforms have four advantages over traditional distributors: 1. Data-driven management of channel inventory Most B2B platforms use WMS for inventory management. For companies, the difference between cooperating with distributors and B2B is that B2B platforms allow companies to accurately understand all product dynamics and data in the channel in real time without leaving their offices. This is crucial for coordinating production, dispatching transportation, reducing product stagnation in the channel, improving market response speed, optimizing product mix, and adjusting sales rhythm. More importantly, B2B platforms are willing to share this data with brand owners, helping them efficiently and accurately grasp real-time product dynamics within the channel. 2. User profiling of terminal stores based on big data The value of B2B platform systems goes beyond helping companies achieve precise channel data. Through the accumulation of large-scale transaction data, they can also help companies profile small store purchasing behavior: store type, repurchase rate, monthly active frequency, etc. These data help companies make more precise, effective, and timely action plans in marketing decisions. Especially in the distribution of personalized products, companies can go beyond physical market coverage and place different types of personalized products in different store types, meeting diverse consumer needs and driving new growth. 3. Precise and efficient resource allocation Companies invest heavily in channels each year to ensure product visibility and gain competitive advantage, but the effectiveness of resource allocation and waste have always been headaches for brand owners. Through B2B platforms, all promotional resources, display activities, and other customized terminal activation activities—including ground promotion, store owner incentives, and consumer promotions—are tracked daily with real-time data. This helps companies monitor activity execution progress and compare the effectiveness of different promotional formats, not only eliminating the information lag of manual feedback and layer-by-layer reporting in traditional channels but also providing a data foundation for optimizing resource allocation. 4. Real-time control of category trends Companies launch new products every year, but in traditional channels, new product promotion often suffers from blind, rushed distribution, leading to poor terminal sales, while stores with genuine purchasing needs fail to get effective distribution and display. Another advantage of B2B platforms is that they not only analyze the brand's own category situation but also combine other categories and the overall market trends in the region, including store distribution, sales trends, and category ordering behavior. This enables systematic evaluation of the store's shopping population, providing effective guidance based on the purchasing power and shopping preferences of consumers in the area. It offers valuable business insights for brand distribution opportunities, product selection optimization, promotion planning, and new product launches. It is certain that future market competition, like warfare, cannot rely on human-wave tactics, a single idea, a decent product, a group of distributors, and a large sales force to achieve rapid product sell-through. For companies, the channel distribution of personalized new products must be reconstructed, and the original channel model must be changed. B2B is already an irresistible trend. B2B platforms, through the flexible combination of central warehouses and forward warehouses, will soon be able to meet the efficient distribution and turnover of products in the channel. Some may argue: if everyone transitions to B2B platforms, who will handle in-store promotion? Who will do terminal merchandising? Who will handle defective product returns? Who will solve the capital/warehousing coordination issues during off-peak and peak seasons? Who will solve market competition? These issues do exist. As mentioned earlier, existing stock is shifting, not disappearing. Traditional distribution models will still exist for a while, and after adjustment, they may even thrive. China's consumption upgrade will take three to five years, or even longer, to complete. For existing products, the traditional channel model remains the most efficient across the entire chain. But for incremental products, efficient and precise distribution supported by big data is definitely the trend. Under the background of consumption upgrade, two subtle changes are occurring in the relationship between products and channels:

  1. A major feature of consumption upgrade is increasing brand awareness. Products will be positioned more towards functionality, emotional appeal, and sociality. This means brand owners must integrate products into consumption scenarios and behaviors. Three Squirrels sells not just snacks but a leisure culture. For high-frequency products, category branding will become increasingly concentrated in the future. Additionally, due to over-concentration of branding in ultra-high-frequency products, brand owners gain increasing channel power and will inevitably become dissatisfied with the profit-sharing, inefficiency, and same-category competition of intermediaries and retailers. Naturally, they will build their own channels. In Japan, Coca-Cola is the top brand for vending machine placement. In China, Nongfu Spring, Wahaha, and other brand owners have also begun large-scale vending machine deployment in the past two years, clearly indicating that brand owners building their own channels is inevitable.
  2. After consumption upgrade, low-frequency products will concentrate towards retail branding. Examples of retail branding for low-frequency products: the successful rise of chain stores like Miniso, Bestore, and Laiyifen, and the widespread emergence of community convenience store chains, all indicate that after consumption upgrade, retail has shifted from large and comprehensive to small and beautiful, from selling products to selling services. Consumers increasingly accept the convenience brought by retail chain branding. Against these two major trends, you will find that the role of traditional intermediaries is diminishing, and the functions they carried, as mentioned earlier, will gradually weaken as sales of major single products shrink. If distributors fail to achieve scale and informatization transformation in the coming years, they will soon be replaced by B2B platforms that bypass them with advanced technology. It is not the internet that defeats distributors, but high efficiency that will inevitably replace low-efficiency models. This is the future trend of channel development. -END- ★ Click the blue text below to view recent popular articles ★ Click the blue text below to view recent original articles FMCG industry's most professional and practical knowledge base 【 Reply with the yellow number in the background to view the corresponding keyword content 】 | 001 Excellent article selection | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brands | 016 Distributor B2B transformation |