Offline foot traffic continues to decline, an indisputable fact!

Is the importance of offline channels for FMCG brands diminishing? What problems have brand owners faced in KA (Key Account) management? What can leading FMCG companies' KA management teach the industry? Facing uncertainty, what is the real significance of doing KA management well? With these questions, New Distribution interviewed marketing expert Mr. Cao Yang to see what insights he would share. Wen Qing (left) in conversation with Cao Yang (right) Cao Yang has 26 years of experience in Fortune 500 senior management, marketing, and training management. He is an expert in Key Account and modern channel management, localizing world-class marketing experience and exploring industry transformation. From frontline to headquarters, he has served as Regional Manager, Key Account Department Manager, Group Key Account Director, and National Key Account Channel General Manager. He has managed a business of 3 billion RMB in Key Accounts and modern channels, providing strategic and tactical guidance to provincial and municipal KA teams and sales companies. He possesses both headquarters-level strategic planning and system-building capabilities, as well as frontline sales experience.

Whether for sales or promotion

KA is a position brand owners cannot abandon

Wen Qing: I noticed recent news that in the first three quarters of this year, Yonghui Superstores reported a net loss of 2.178 billion yuan, its first loss since listing 11 years ago. Of course, there are multiple reasons for Yonghui's loss, but under the impact of mobile internet, offline foot traffic continues to decline—this is an indisputable fact. In your view, under the impact of online channels, how should brand owners treat offline KA channels? Are they still worth heavy investment? Cao Yang: Let me answer first: KA is still worth heavy investment, that's certain. But first, we need to clarify the concept of KA. AC Nielsen refers to hypermarkets, large, medium, and small supermarkets, and chain convenience stores as modern channels. A common saying now uses KA to refer to hypermarkets. But in fact, KA is the abbreviation for Key Account, and its true meaning is key accounts. An FMCG company has multiple channels, such as modern channels including hypermarkets, supermarkets, convenience stores, and possibly foodservice channels, travel and transportation channels, etc. From these channels, the most important customers of each channel are grouped together to form a company's key accounts. The reason KA is seen as hypermarkets from one perspective is that 20 years ago, hypermarkets rose rapidly, and their sales accounted for a large proportion of brand owners' key accounts, for example, reaching 80-90%. At that time, hypermarket sales were roughly equal to KA sales, and later people gradually got used to simply calling hypermarkets KA. Wen Qing: So, when we say KA is still worth investing in, we mean offline channels, especially modern channels, are still very important. Cao Yang: Yes. Why are they very important? Let me give you several reasons. First, most of the business of traditional, large brand owners still comes from offline. Online retail has indeed impacted offline, but it will not completely replace offline business. This involves consumer choice. We are in an era of diversified consumption. Hypermarkets, supermarkets, and convenience stores correspond to different consumption scenarios. Sales weight may shift, but they will not disappear. If you relax investment in offline, a very realistic question is: can the increment you gain online make up for the sales lost in modern channels? Wen Qing: According to market research data, in 2019, the cost of customer acquisition on the internet in China was 486.7 yuan per person, while in 2010 it was only 37.2 yuan, an increase of nearly 10 times in 10 years. This shows that online competition is becoming increasingly fierce, and the competitive pressure seems no less than offline. Cao Yang: Yes, that's another reason. Modern channels are still worth investing in for another reason: in the past, modern channels were an important scenario for brands to communicate with consumers; they were the brand's promotional front. Of course, brands now have online promotional fronts, but truly big brands will not bet solely on online or solely on offline; they must choose a multi-channel development strategy. Moreover, offline is more direct and provides a stronger experience, which online promotion cannot match. Wen Qing: The presence of brands in offline channels is not only to drive sales but also to strengthen consumers' experience and awareness of them. Cao Yang: Whether for sales or promotion, modern channels are a position brand owners cannot abandon. Unlike the past, you need to use input-output analysis to ensure resources are allocated to stores with high sales.

Brand owners are not under-investing in KA channels

They are over-investing, or rather, input-output mismatch

Wen Qing: You have worked in KA management for 26 years. By your standards, what problems do many domestic companies have in KA management? Cao Yang: This includes two aspects: one is insufficient strategic attention, and the other is insufficient organizational capability. The reasons behind this are: In the hypermarket, supermarket, and convenience store formats, chain retailers are very professional. On the contrary, brand owners, when facing these professional customers, have many opportunities for improvement in customer management concepts and professional operating methods, which leads to various problems in new product placement, annual contracts, consumer promotions, display, and accounts receivable. This often leads to a result where brand owners say: I invested a lot of resources, but problems keep arising. Why am I not making money, or even losing money? Wen Qing: They invest, but the results are poor, which in turn leads to insufficient recognition of KA's value. Is that the understanding? Cao Yang: Yes, problems in the ways, methods, and capabilities of solving problems lead to further contradictions and conflicts between suppliers and retailers. Brand owners' negative impressions of KA customers, including hypermarkets, supermarkets, and convenience stores, deepen, greatly damaging the foundation of cooperative relationships. Wen Qing: So, insufficient strategic attention is partly caused by insufficient organizational capability. Cao Yang: That's right. If we look in detail, there is another reason at a different level. Many brand owners, to maximize efficiency, operate these modern channel KAs through distributors, handing over store execution, order and delivery, and account settlement to distributors. But distributors' professional level is limited, and retailers are strong, which causes many problems among brand owners, distributors, and retailers, such as store execution, promotion execution, contract execution, and overdue accounts. These situations give brand owners a headache. Wen Qing: KA management is a very professional matter. Many brand owners lack the concepts and professional methods of KA management, causing various problems. This leads to insufficient attention and investment in KA. Cao Yang: On investment, on the contrary, many brand owners say, I spent so much money, but I didn't get corresponding sales and profits. It's not under-investment; in a sense, it's over-investment, or rather, input-output mismatch. This depends on the brand owner's KA management level. In fact, if a brand owner has a professional customer management team and uses professional methods, their performance and fee rates will be much better than average brand owners.

5 Indicators and 3 Principles for Brand Owners to Do KA Management Well

Wen Qing: Speaking of differences in KA management, how do you evaluate a company's KA management level? Cao Yang: To measure a company's KA management, we look at the following 5 indicators: ** Sales revenue, market share, operating profit, store execution, and order fulfillment rate. These five indicators are indispensable. Doing all five well requires a professional team and professional methods. First, sales revenue growth rate Is your growth rate faster than the industry level? For example, if the industry grows 5%, how much do you grow? Or in a hypermarket, does your growth rate exceed the category average? Does it exceed the customer's growth rate? For example, if overall growth is 2%, are you at -2% or +4%? Data easily shows the problem. Second, market share In a channel or hypermarket, compared with competitors in the same category, has your market share increased or decreased? Is your share growing faster or slower than competitors? Third, store execution rate In a category, market execution rates vary. In the same customer system, is the execution rate the same in first-tier city stores and third-tier city stores? Fourth, profit rate If you sell 100 yuan of products to a customer, after deducting various expenses and costs, are you profitable or losing money on that customer? What is the profit rate? How does it compare with the company's overall profit rate? Fifth, order fulfillment rate This indicator reflects the brand owner's comprehensive service capability in production, warehousing, logistics, marketing, sales, and finance. To truly do KA management well, you cannot just do one or two indicators well. I see a common phenomenon where only sales and market share are emphasized. In fact, these five indicators interact and balance each other. You need not only high sales growth but also profitability, good market performance, high market share, and high customer service levels. This requires the company to have good customer management concepts, professional operating methods, and a team that understands KA operations. Wen Qing: Using indicators to measure a company's KA management level, my understanding is that these indicators are actually results. The key is how we achieve such results, right? Cao Yang: Exactly. Offline channels are still worth heavy investment. To do KA management well and improve input-output ratio, I think the following three aspects are important: First, the company's management needs a change in its concept of customers. We need to think clearly: Are these key accounts enemies or friends? Are they partners doing business with you, or rivals fighting for gains? To achieve performance goals, the contribution of key accounts is indispensable. In a normal business environment, based on over 30 years of industry development, "cooperation for win-win" is an objective law to follow. Second, you need professional people. In cooperation with hypermarkets, supermarkets, and convenience stores, you need professional people who know how to deal with customers. In practice, we find that some people are naturally suited to KA management, while others are not. Based on business needs, we can summarize a capability model to systematically describe the required capabilities. Here, we are not talking about individuals who know how to communicate and negotiate, but a team that masters a complete set of professional methods. Third, you need a complete set of professional operating methods. The reason professionals are professional is largely because they have professional toolkits. We have different processes and tools in the business operation chain. Wen Qing: Besides concepts, teams, processes, and methods, how does expense investment differ from the past? Cao Yang: Expense investment should follow the company's overall strategy. In fact, if you have a professional team and professional methods, expense investment can yield corresponding returns. This takes time, and it is even possible to achieve high investment with high returns! If your previous fee rate was high, say 40%, reducing it to 20% or even lower takes a process, but through methods, you will definitely achieve a relatively satisfactory input-output ratio. Wen Qing: KA management is a complete set of professional concepts and methods. How can brand owners use it to deal with specific large customers? Cao Yang: Here we need to mention the concept of the "Joint Business Plan." As mentioned earlier, brand owners' concept of large customers must change; they are partners of brand owners, partners who create performance and profits together. This is actually the concept of the "Joint Business Plan." The "Joint Business Plan" is a complete set of professional operating methods that requires mutual cooperation between brand owners and retailers and professional people to operate. The concepts, talents, and methods mentioned earlier can all be reflected in this plan. Through this plan, both parties set common goals, such as sales, gross margin, or even market share. Both parties reach an agreement, use mutually suitable market operation methods, coordinate, and achieve good output, with results satisfying both sides. Wen Qing: That is to say, based on the underlying concepts, logic, and methods, the "Joint Business Plan" can be operated in a targeted manner. Cao Yang: Yes. Brand owners can do "Joint Business Plans" with retailers of different levels, sizes, and scales. The difference lies in the level of goals, the number of KPIs, and the difficulty of operation. For example, one customer has 51 stores, another has 300 stores; one customer covers a province, another covers the whole country. The underlying things are the same. The number and level of participants differ, and the cooperation content is simple or complex, depending on the partner's capabilities, coverage, etc., as the specific situation dictates.

Professional Management of Brand Owners' KA Channels

Is an Everlasting Topic

Wen Qing: Retail industry changes are extremely diverse, especially with various new retail formats emerging. We have visited a large number of companies, and we can clearly feel their anxiety. Cao Yang: Online has impacted offline, but it is not a substitute. Many companies have come to their senses. Embracing new opportunities is not wrong, but you need to know what you really need to do well. Offline channels need to be done well again. Wen Qing: Doing offline channels well, KA management is an important part. Cao Yang: That's one aspect. On the other hand, what I want to emphasize more is that KA management is a set of professional concepts and methods. Retail industry changes are extremely diverse and varied. Mastering these concepts and methods allows you to better respond to future changes. Why? We say KA is key accounts. In enterprises, key accounts have always existed, but the list of customers will also change with market changes and the passage of time. The customers from the early days of reform and opening up may no longer exist now. For example, around 2000, there was a customer called PriceSmart, which was a key account at the time but later went bankrupt. Another example is Trust-Mart, which was also a key account but was acquired by Walmart and no longer exists, disappearing from the key account list. From the perspective of hypermarkets, supermarkets, and chain convenience stores, the proportion of hypermarkets has declined year by year, while the proportion of convenience store channels has risen. Later, gas station channels emerged, and PetroChina and Sinopec became key accounts. In the internet era, your online business can also enter the key account list. As the saying goes: "Iron-clad KA, flowing customers." Wen Qing: That is to say, retail forms will change, but key accounts will always exist. The key is to master the concepts and methods of KA management. Cao Yang: Yes. KA management is a set of professional concepts, methods, and a matching professional team. This is the basic skill that enterprises must do well and can do well. Whether offline or online, or future new forms, only when enterprises have the capability to manage key accounts can they remain invincible in fierce competition and change in different periods and market environments.

Final Thoughts:

"No more dividends, business is hard," is the real feeling of many companies today. Why do they feel this way? Because in the past few years, various new retail formats have almost drawn all consumers into various consumption channels. With continuous increments, performance can grow naturally, and companies can enjoy the so-called "traffic dividend." But when increments have all become stock, "no more dividends, business is hard" becomes inevitable. But, is the "dividend" really gone? In stock competition, if you do better than others, you can seize others' share. With various new retail formats emerging, everyone is busy embracing them. Chasing the new is important, but holding the basic market is more important. Holding the basic market relies on intensive cultivation and upgraded management. This is the "dividend" brought by management. For FMCG industry enterprises, KA management is an important part of the management we talk about. Next, New Distribution will join Mr. Cao Yang to launch a series of practical content on KA management, providing reference for industry enterprises. Stay tuned! Are you "watching" me?