From March 17 to 19, the 10th China FMCG Innovation Conference, the 4th China FMCG Hard Discount Conference, and the 4th China FMCG Distributor Conference, under the theme "New Order · Symbiosis," grandly opened in Chengdu. Zeng Yiguang, head of NielsenIQ's emerging business division, delivered a keynote speech titled "Channel Transformation Insights: Breaking Through Headwinds." Below is a transcript of his presentation (with some deletions), organized for our readers. What is the dilemma we face today? It is essentially the balance of supply and demand. On the left side of this chart is the total retail sales of consumer goods from the National Bureau of Statistics, which includes catering services and commodity services. These data clearly show an overall fluctuating downward trend. It's like throwing a pebble into a pond, causing ripples and oscillations. If a larger stone is thrown, it creates bigger splashes, and after it sinks, there is oscillation, then stabilization, and finally a gradual slowdown. This is what has been happening in the market over the past decade. We can no longer expect around 10% growth; now we face GDP growth of 3%, 4%, or 5%, which is a dilemma. If we break it down into catering and commodity categories, on the right side of this chart, there are only two green arrows, representing the two categories where growth is still accelerating: grain, oil, and food, and daily necessities. These are both essential categories. Other non-essential categories are facing decline or are in a process of fluctuation and adjustment. What is behind this? Have you ever thought about it? It is actually people, consumers, and channel transformation. China's population is about to be surpassed by India and other countries. Predictions, ranging from optimistic to pessimistic, suggest that by 2100, 75 years from now, the population will decline to between 400 million and 600 million. As we all know, Japan is an aging society. Our per capita GDP is continuously developing. Japan's present may be our future, so this is the dilemma we face. For the food, beverages, and daily necessities you are producing, consumers are not without choices; rather, choices are already abundant. They may have already purchased, either from your brand, from a channel, or from a competitor. These are the dilemmas we face. In the future, we will inevitably face several trends: aging population, low birth rate, and urbanization that has reached over 60%, approaching 70%. Every time you return home for holidays, you may lament how your hometown has become more developed. When I go back, I need to use GPS navigation to avoid getting lost. This includes the Spring Festival travel rush, where many cities have a siphon effect. The Sichuan-Chongqing region is a clear siphon effect circle. All these indicate that the people who should consume have likely already consumed. Returning to the data, after 2019, there was a "black swan" event. From 2019 to 2024, how much sales volume has shifted? How much has increased? Has the pie grown? The data in the upper left corner includes all channels covered by snack stores and those about to be launched. 100 is the baseline value for 2019, and by the end of 2024, it is 106, an increase of one point per year. An increase of one point per year is likely much smaller than the strategic targets set by most companies. Now look at these consumer goods, divided into the eight major industries on the right. Which are growing? For example, personal care and snacks have seen overall sales increase by about 38% compared to 2019. But there are also declining industries, such as dairy and maternal and infant products, because there may not be as many newborns, so consumption naturally declines. So, where is another dilemma we face? Why do we talk about supply-demand relations? On the left, again from National Bureau of Statistics data, is the growth rate of industrial value added and retail sales of commodities. Industrial value added can be simply understood as the overall supply chain: whether production has increased. Retail sales of commodities indicate whether sales have increased. It is not hard to see that after 2020, the blue line has been unable to surpass the orange dashed line, meaning that supply and demand have reached an inflection point from the same perspective. This inflection point has already arrived. So we are not facing blank-slate consumers; rather, your consumers may have already consumed in this category. They are thinking: is there a better alternative in this category, and why should I continue consuming? This is a difficult topic. However, there is good news. We monitored 6.24 million offline stores, including modern trade hypermarkets, large supermarkets, small supermarkets, convenience stores, and mom-and-pop shops. This number has increased by 6.3% compared to 2019, and the vast majority of this growth comes from convenience stores and grocery stores. These traditional small channels can continue to grow. When I first saw this number, you might have had the same question as me: is this number inflated? It is not. Perhaps this growth is happening in third- and fourth-tier cities and even townships that you don't see—the "last mile" of the capillaries. If you look at brands, how many brands are in a category? Some might say 200, 300, or even 2,000, but the answer could be as many as 10,000 to 20,000. Why are the latter invisible? Because when you add up these brands, they may only account for 1%-2% of the category share. They are thriving and rapidly metabolizing, but they could also be fleeting. So, in terms of brands, supply has never been lacking. Finally, look at category innovation. Take two examples: gummy candies and coconut water. Both are growing well. Gummy candies are no longer just candy; they are more like health supplements in candy form. Why is there still growth in these categories? The logic behind it is successful innovation and increasingly finer, smaller segmentation. If we put these innovations into the overall category, do they bring effective incremental growth? Not necessarily. Would you drink coconut water and then also buy a bottle of milk tea? Probably not. This is the dilemma we face now. So we have already reached a supply-demand inflection point, with supply exceeding demand, and the market has to shift to a buyer's market. So, if a company plans to grow by 10% this year, there are only two paths. The first path: increase the sales target by 10%. For example, if last year's sales volume was 1 million units, this year set it at 1.1 million units, a 10% increase in volume. The second path: keep the volume unchanged at 1 million units, but through new products, adjust the product mix and structure through metabolism, so that the average unit price rises from 1 yuan to 1.1 yuan, naturally achieving 10% growth. There are only these two paths. But the first path will eventually hit a dead end; perhaps we can only take the second path. Now let's see what the effect of the second path is. Here is the price index from 2022 to 2024, with 2021 set as 1. It covers over 60 FMCG categories online and offline, including food and non-food. The eight major categories we just saw are all included. On the right, it is broken down by city tier, including first- and second-tier cities, and also by category. The phenomenon behind it is simple: the average unit price has not risen significantly. Except for a few categories like snacks, across all categories, the average unit price has not increased. Why is that? Behind it is still the consumer. Let me ask everyone: is there anyone here who does not compare prices online and offline at the same time? All of you are brand owners, retailers, supply chain providers, distributors, and at the same time, consumers. You have many items in your shopping basket for a long time. When you go to Sam's Club or a snack store, you know very well what the price of this product should be and when to buy it. So this trend is increasing; consumers are very good at comparing prices. So even if manufacturers, brand owners, and channel partners work together to push the average unit price from 1 yuan to 1.1 yuan, it will be smoothed out by consumers' cross-channel and cross-time choices. We see that 25% of consumers, to save money, are increasingly patronizing discount stores, value stores, and low-price stores. What about e-commerce and instant retail O2O? In this scenario, do they bring new incremental growth? We once thought maybe yes, because they are indeed growing, and the pie is growing. The shape of the pie and who gets each slice are also constantly changing. Both factors are changing. But now, looking at traditional e-commerce from 2018 to 2024, such as Taobao, Tmall, and Pinduoduo, they are all supported by "people finding goods," similar to the underlying operational logic of offline stores. Content e-commerce, like Kuaishou and Douyin, uses the logic of "goods finding people." Let's look at their competitive dynamics. It's not hard to see that when one rises, the other falls. This is the dilemma mentioned earlier: Has consumption volume increased? Are people eating more, buying more, spending more? If not, these increments are actually transfers, not growth. Now look at how picky consumers are. 85% of Chinese consumers are very accustomed to combining offline physical stores and online shopping, compared to 77% in the Asia-Pacific region and 69% globally. Over 85% of consumers will compare prices. And there is a counterintuitive fact. Look at the chart on the right: households with a monthly income above 20,000 yuan are actually the group that visits the most channels. Most people visit more than 3 channels, online or offline. But the new middle class with monthly income above 20,000 yuan visits 3.6 channels. This means the higher the income, the more they want to compare prices. This is another dilemma everyone faces. Perhaps it's not that consumers have no money; they still have money in their pockets, but they are unwilling to spend. Now look at how fragmented the channels are. The dark blue on the right is the channels NielsenIQ has already monitored and covered; the light blue is about to be covered; the gray is unable to be fully covered due to various technical reasons. Many clients in daily communication are discussing that the retail market is becoming more dispersed and diversified. This is the challenge we face. How to cover these channels is also a difficult problem for us. But no matter how difficult the problem is, this is the current situation. There are fast-growing ones like snack stores and membership stores, and also local catering. There are also those with stagnant growth, like hypermarkets. Some small stores may not grow well, but the number of convenience stores and grocery stores is definitely increasing. This pie will become more fragmented. So the opportunity I bring to you today starts here: how to understand the increasingly fragmented Chinese retail market, especially in terms of channels. No matter how you classify them—hypermarkets over 6,000 square meters, convenience stores open 16 hours a day, traditional e-commerce, or content e-commerce—their underlying logic for large channels is one-stop shopping and stock-up shopping. Consumers don't go to a hypermarket just to buy a bottle of cola. To buy a cola, they go to a convenience store, where the cola is colder and there are newer varieties. Hypermarkets are for stock-up shopping, and the shopper represents the family. That's the large channel. Small formats are simpler: they are for immediate shopping. They are close to neighborhoods. Wherever there is a new residential development, the first to enter are not hypermarkets but convenience stores and small supermarkets like Hongqi. They are the "last mile" of the capillaries, and they have an artery-capillary relationship with hypermarkets. Traditional e-commerce has now entered a bottleneck of existing stock. How to tap into existing stock is their next topic. Content e-commerce is truly achieving a closed loop, where consumers see planting content and also complete purchases there. The current situation for large formats: adjustment and reform. These "Pangdonglai-style" stores have reduced their sales area, optimized product structure, and focused more on high-margin or single items, bringing consumers a better experience. We see the results. In terms of results, overall sales have roughly quadrupled, fresh food has increased sevenfold, and packaged FMCG has roughly doubled. These numbers are astonishing. Behind this, there are new dynamics in categories like packaged liquid milk and yogurt. You will see that emerging concepts like fresh or healthier options bring significant improvements. But we found that the ranking of the top 1 to 5 in the industry has completely changed. Only those local leading companies that have achieved extreme offline distribution can survive in stores before and after the Pangdonglai reform. For example, in the juice category, the top 1 to 5 have completely changed. So Pangdonglai-style hypermarkets have realized this innovation, and this is an opportunity to seize in "Pangdonglai-style stores." Small channels are growing through the growth of the stores themselves. What is behind the growth of the stores themselves? This is the opportunity we should seize. Small channels have always been a topic of research for distributors, a problem that brands cannot overcome, and it is also where brands rely heavily on distributors to break through. What is happening in traditional e-commerce? "Double 11" and "6.18" are getting longer. Over 30 days, they account for 24% to 25% of annual sales, a 1% year-on-year increase. Is this 1% increase due to higher sales? No. In fact, "6.18" and "Double 11" sales are almost flat or even slightly down compared to last year. The 1% increase in share is because the market itself has shrunk slightly. Last year, there was news that Tmall and Taobao had integrated Alipay and WeChat Pay, with both payment systems fully interconnected. Was this really driven by the Ministry of Industry and Information Technology? Of course, partly. But more importantly, these companies realized that this is a stock market, and they need to huddle together for warmth. You integrate WeChat Pay, and I integrate Alipay. Because the consumer logic is "people finding goods." Whether through search engines finding stores or products, or offline supermarkets displaying all products for consumers to choose, it is always the logic of "people finding goods." But content e-commerce like Douyin and Xiaohongshu is different; they use the logic of "goods finding people." How long do you spend looking for a toothpaste among a dazzling array of products? Offline, you have only 13 seconds to see the selling points, brand, and packaging of so many products. Behind those 13 seconds is a lot of effort. But as an online streamer, would you only spend 13 seconds to put a link up? No. So the underlying logic of "people finding goods" and "goods finding people" is to occupy more of the consumer's attention and time, and to clearly explain the product's selling points. But they may attract consumers, and consumers compare prices. That's why so many streamers focus on whether their product price is the lowest during Double 11. If not, they only complete the task of attracting consumers, but consumers will still go to other channels to buy. This is what content e-commerce like Xiaohongshu is doing. In fact, Douyin is ahead in content e-commerce, with 60%-70% having completed the closed loop. But Xiaohongshu is catching up, and the future growth remains to be seen. In summary, the dilemma we face today is the inflection point of demand and supply. Supply has exceeded demand, so we need to be smarter in supply. We can still find growth tracks like functional gummies and coconut water, which are niche tracks. On the other hand, the traditional market will also face fragmentation, but behind the fragmentation is not the phenomenon itself; rather, these stores ultimately have their own operational logic. These operational logics may not break through the current growth dilemma in the short term, but only by understanding the logic behind them can we cooperate better and find opportunities for success.