The 5th FMCG + Internet Conference, hosted by New Distribution, was grandly held from March 15 to March 18 at the Chengdu Longemont Hotel! The event attracted thousands of industry professionals, including distributors, manufacturers, and internet companies from across the country, with a full house and unprecedented scale.
The following is the speech delivered by Mr. Cao Jun, CEO of MoLi Hutong, at the Brand Channel Digitalization Special Forum on March 16, organized by New Distribution for readers.
I usually don't attend forums for two reasons. First, we all have a common problem in learning: we only learn the part where "the thief eats meat," not the part where "the thief gets beaten." Because only when a company does well does it attract attention, and only then are people willing to learn. But what we should really learn is the process of getting beaten. Second, the speaking time is short, and I'm afraid of incomplete statements that might mislead you. For example, Mr. Shi from Unilever said earlier: Scale and precision—first scale, then precision. That's for large companies. For small companies, you might die before you achieve scale, so many things need to be viewed dialectically.
Back to the theme "The Thinking Logic for FMCG Companies to Achieve Counter-Trend Growth": In the past decade, we haven't served many clients, but we are fortunate to have led some clients to truly achieve counter-trend growth. Now I'd like to share insights from these ten years.
Why is channel digitalization so difficult for FMCG companies?
First, why is channel digitalization so difficult for FMCG companies? There are two issues: Are your distributors willing to share data with you? Are your distributors willing to adopt systems? 99% are unwilling. Second, are employees willing? 99% are also unwilling. So the first point I want to make is: Digitalization is not the answer! We all talk about digitalization, but true digitalization should use digital tools to achieve a transformation of the business model.
We often talk about digitalization but lose sight of the original intention of performance improvement. I believe digitalization should revolve around performance improvement, using technological means to think differently about business operations. The value of technology is to enable this unique business model! So the core issue is whether we change our management logic once we have technological tools. Can we see things that were previously unclear? Now with systems, you can see clearly—can you create new management methods? So the core is transformation, and the transformation issue lies in the unique business model. Technology is what makes this unique distribution model truly land, and these management models ultimately achieve performance improvement.
Speaking of innovation, my view is that innovation often lies not at the heights but at the origin. Musk recently talked about the "first principles"—the first principle is that the existence of anything and the occurrence of any phenomenon are not without reason; there must be an essential cause behind them. This principle was proposed by Aristotle. The core of first principles is to trace back to the essence of things and rethink how to do things.
So, first, let's talk about what a system really is.
Past systems were built on processes. The FMCG process is a sales-centric process. Can sales be solidified? Sales itself is a subjective process. My point is that all systems on the market are designed based on processes. So-called sales management systems are actually sales process systems and sales monitoring systems. But sales itself is flexible, which creates a contradiction, making it difficult to support performance improvement. Of course, some things don't change: the logic of achieving sales doesn't change. When building your system, you should first think about what the performance improvement logic is for your industry, and then look at the system.
What exactly is "FMCG"?
Second, what exactly is "FMCG"?
FMCG are products with short usage life and fast consumption. From my understanding, this may not be the essence of FMCG. Last year, we saw OPPO and vivo had good sales. Where did their performance come from? Channel sinking and deep cultivation! Phones don't seem like FMCG, but they actually exhibit FMCG characteristics. I believe the first characteristic of FMCG is "homogeneity"! Whether it's Mengniu Telunsu or Yili Classic, ignoring packaging and brand, there's no difference for consumers. Homogeneity is an unavoidable precondition for manufacturers and distributors. Homogeneity is the first issue we face in sales: consumers can buy from you or from others. Homogeneity brings "substitutability" in purchases, which is why brands exist.
What is the second characteristic of FMCG? Low involvement! Have you noticed that for FMCG purchases, compared to high-involvement products like cars, consumers don't research before buying. Low involvement causes consumer behavior to be "action" first—buy first, then feel or learn. So we need to make products visible and available. Because of substitutability, we also need to clearly communicate our product's differentiated value, whether it's price or a specific consumption reason.
Under the traits of homogeneity and low involvement, your orders are "grabbed"!
Because of substitutability, do outlets have to stock your products? Because of low involvement, do consumers have to buy your products? No! So "grabbing" orders is the core! Today there are B2B and new retail platforms waiting for outlets to place orders. It feels like Jiang Taigong fishing—those fish are hard to catch. Since we know orders are "grabbed," who grabs orders for us? It's the frontline employees. Many companies' digitalization fails because when they put systems in place to monitor employees, would employees be happy? "My performance made this happen, and then you put a system in place—it's like a salesperson hanging a noose around their own neck." So no one likes adopting systems.
Why do manufacturers and distributors both like to have people adopt systems?
China has a culture of "group blindness." What's the core logic of making money? If the boss pays me 2000, and I only work half a day, I earn more per hour—that's the group blindness culture, so managers want systems. Also, there are the "eight steps." The premise of the eight steps is that people follow rules. But looking around, do we follow rules? After explaining this clearly, I hope you can understand and think in reverse.
Over ten years, we've found that salespeople have a unique trait compared to other roles. All executives here can see the boss every day or every two or three days, but can salespeople? Yet these are the people who are the backbone of your company's performance. Have we paid attention to them? No. Second, all FMCG companies here know process management, but what do you talk about in meetings? Performance! Not focusing on process—is that the employees' fault? No! Training talks about process management, but meetings talk about performance. After three times, employees will say "process management" isn't important; performance is. Those who sell well may not be hardworking, and those who sell poorly may not be lazy. So, adopting systems is about restoring the truth of employees' actual work. Many times when we adopt systems, we ignore the emotional attributes between people. We use systems to monitor people, not to care for them.
Second, what do employees care about most? Chinese people are very strange. If I'm a salesperson in a branch and I see a partner who is the branch manager's relative, would you be happy? He gets a good territory, and if my performance is poor, the boss blames me. The most core thing is fairness. Think back—is it fair? Achieving fairness is very, very difficult. You need a set of logic to clearly show employees' value. After having attention and fairness,
The third topic is incentives. In the domestic environment, we ignore fairness and attention and go straight to incentives. The boss is always blind. You distribute incentives, but only the employees below know you gave them wrongly, and then they resign. We often talk about employee stability, but it's not about the employees; it's about whether you truly care. Finally, of course, is learning.
Earlier, I covered two themes. The first was returning to the essence of FMCG: because of homogeneity and substitutability, we must do well in outlets, displays, visits, and sell-through. The second was how to empathize and do well in FMCG operations by caring for employees.
The core of outlets is competition in convenience and display. Second is display: display must highlight competitiveness. So in actual display, precision isn't about making things detailed but about doing valuable points. How should I display so that consumers choose me when purchasing?
Third is visits: regular visits. Many companies require visits. 6.8 million outlets are 6.8 million positions. Today it's yours, but that doesn't mean it's yours tomorrow. Rent is getting more expensive. 7-Eleven restocks the same shelf position three times a day to maximize sales per square foot. So the logic isn't regularity for its own sake, but how to hold the position and bring benefits to the outlet.
Finally, I want to talk about truth. Many people-management systems truly haven't achieved this. They tell companies and clients that they achieve 99% truth, but in my experience, 99.99% is told to the boss. As long as there's a 0.001% loophole, employees can exploit it. Sometimes adopting systems is absurd: no data is better than fake data. Many employees, forced by the system, create fake data for you. So, if the system has just a 0.001% loophole, the boss sees 100% fake data.
There's an old Chinese saying: "Rewards and punishments must be clear." Truly good, I reward you; wrong, I punish you. To make data truthful, my biggest feeling is: only in a truthful environment can your company have a future and positive energy.
Let's talk about specific management methods. In our system, there's data: before adopting the system, basically each company's salesperson worked about 1.92 hours a day, but you paid a full day's wages. That's the original intention of bosses adopting systems. After using "Aiyingli" (our system), after about 6 months, it reached over 6 hours; after 1 year, 8 hours. After adopting the system, an interesting thing happens: what do we manage? If you manage that employees must work 8 hours a day, that's the second pitfall!
Adopting a system has a central idea: There's an old saying: "What the boss wants, you assess." I'd like to change that to: "What the boss wants, you incentivize."
No outlets, no sales. No vehicles, no outlets. So you need to open outlets. All companies compete for outlets and do outlet work every year, but they never do it well. Why? In all our management logic, there are only goals and slogans, lacking methods. We need to think: why would distributors adopt? Too many executives and bosses make resolutions for next year, but they're all slogans without methods.
How to turn slogans into methods? You need to see problems from the market, opportunities from users, and threats from competition. That's what I want to say: if you don't do these three things well, you have no methods, only slogans, and your system is useless. With performance goals, you create management indicators. Originally 1.92 hours, now with the system, you must work 8 hours, and each store must have a certain number of hours. Think back: with systems or eight steps, how many can actually improve performance? Does an employee at an outlet guarantee sales? No! So the eight steps are easy to learn. Where's the problem? You have methods, but you must convert them into execution standards. Only with execution standards can you have incentive standards, then frontline execution, then management checks, then management standards, and then performance.
Abstractly, we summarize 12 characters: outlets, displays, visits, sell-through—this is process management. Sell-through actually has two logics: one is orders, the other is inventory. Orders are precisely the starting point of our process management. Today, there are distributors present. Many distributors have adopted systems. Are your accounts accurate? Are your data accurate? When you truly understand financial systems, the Chinese group blindness culture is interesting. Originally, when goods go out, you settle accounts. Finance usually doesn't process immediately; they wait until delivery returns, then settle. The salesperson brings the order back three days later, then settles. This avoids red reversals if there's inconsistency. We see that even with systems, accounts are still unclear. We made an innovation here: for a sale of 10 with 2 free (10+2), and 2 boxes as display fees, the bonus should be converted, and then the gross profit per SKU is accurate. The 2 boxes for display should be recorded as expenses. Third is standards, truth, checks, and incentives. Management systems don't manage; they turn management into incentives. I want to say that the true realm of management systems is not management but incentive.
Companies hope distributors go all-in because products are homogeneous and there's competition; they need distributors to go all out to help sell. But do companies sign century-long contracts with distributors? No! Distributors are making wedding dresses for companies; whether they sell well or not, they may be canceled. Distributors and companies are in a game of strategy, where balance is mutual respect. Companies respect distributors, and distributors respect companies. I believe traditional big brands have suffered from KA (key accounts), and you certainly don't want to suffer from internet giants' new retail. If you don't respect this fact, because the logic is wrong, companies can only get a pile of fake data. The core of solving channel digitalization is not adopting systems or capturing data, but how to make salespeople and distributors earn more money.
Finally, what I want to say is: Whether it's internal or external information systems, the most important thing is that IT doesn't understand business, and business doesn't understand IT. We used to say IT supports business. Only when you understand the business better than the company can you use IT to lead business. Thank you for your time.