The core of a new FMCG supply chain is the combination of cost and efficiency. Neither can be missing.
A New Consumption Cycle and a New Model of Growth
Our era is undergoing changes without precedent in recent business history. That is a point on which most managers agree.
After three decades of global expansion beginning in the 1990s, the economy still could not escape the cycle of crisis. Deglobalization had intensified over the previous three years, and amid wider instability, neither China's economy nor Chinese consumption could remain unaffected.
For decades, the central force in China's economy was satisfying consumption: first the rising material needs of Chinese consumers, then demand from consumers around the world.
That force was powerful enough to support forty years of rapid growth. Today it is changing fundamentally. China's economy and consumption have entered a new cycle.
The transition between old and new cycles made 2023 a dividing line in the growth models of consumer-goods companies.
In the old cycle, enterprise growth came primarily from external tailwinds. It was horizontal growth.
Horizontal growth meant that a company could produce more products, develop more channels, buy more advertising, and run more promotions. The products would sell and volume would continue growing.
That model depended on expanding market space, a population dividend, and sustained real economic growth.
Nothing grows forever. The economic conditions supporting horizontal growth have reached their limit.
Growth in the new cycle must be vertical growth built on the company's internal capabilities. In China's policy language, this structural shift is often described as quality growth.
What Quality Growth Means
It would be unfair to say that past growth contained no quality. But the broad model was extensive and relatively low-level, with scale expansion as its central objective.
When demand had substantial room to grow, horizontal expansion was both rational and inevitable.
In the new cycle, basic market demand is barely expanding. Companies must move from external tailwinds toward quality growth built from within.
At the level of the national economy, quality growth is technological, low-carbon, connected to people's welfare, and sustainable.
At the level of company operations, it is lean, efficient, profitable, and sustainable.
What is the path toward that kind of growth?
Many companies have already accumulated experience, but the industry still lacks one mature and universally accepted transformation roadmap.
Those experiences nevertheless offer useful lessons.
After reviewing the transformations of a number of strong brands, New Distribution identified three central capabilities: new marketing, new supply chains, and digitalization.
Digitalization Is the Foundation
Digitalization has transformed how people obtain information and communicate. It has also changed how they buy and consume.
Every business model built around efficiency now depends on digital capabilities. Manufacturers and distributors alike will find it difficult to survive and develop without them.
The core of digitalization is connection efficiency.
If an information exchange or process once required one week and five organizational handoffs, and the company can now complete it in a moment, that is meaningful digitalization.
Digital capability forms the foundation of overall competitiveness in the new cycle.
New Marketing Means Profitable Omnichannel Growth
New marketing—or marketing transformation—is omnichannel marketing for the digital era.
The greatest marketing change in the new cycle is the rise of omnichannel operations.
The barriers among traditional channels are disappearing. Some classic channel concepts have lost their original meaning.
Near-field retail and other new channels are integrating supply chains across society. The number of channels keeps increasing while the share controlled by any single channel becomes smaller.
Almost every brand must now confront omnichannel operations.
From a sales perspective, omnichannel growth can appear synonymous with quality growth. But the two are not the same.
Omnichannel volume counts as quality growth only when it is profitable and sustainable.
Managers once worried most about the absence of sales growth. Today, growth without profit creates an even more difficult problem.
In a complex omnichannel market, fulfillment complexity and cost rise sharply. It is not unusual for a company to lose money on each incremental order.
Profitable omnichannel growth therefore requires the support of a new supply chain.
Why Supply Chains Determine Growth Quality
Consider beer e-commerce. Why did so much of the category operate at a loss?
Logistics costs were extremely high—around 40 percent of order value across the industry. Some practitioners joked that beer e-commerce companies had become little more than GMV manufacturers.
That did not make profitability impossible.
Tsingtao Brewery's e-commerce business generated tens of millions of renminbi in annual profit and continued to grow. That is quality growth.
The company had performed strongly in marketing innovation, but its growing profit also depended on order fulfillment and deep cooperation with capable supply-chain partners such as Annto.
Digital capability is the foundation of enterprise competitiveness in the new cycle.
New marketing is the company's primary capability for creating quality growth.
The new supply chain is the mechanism that protects growth quality amid complex omnichannel marketing.
From Isolated Vertical Chains to Shared Ecosystems
Among digitalization, new marketing, and new supply chains, the supply chain is the heaviest and most difficult capability to build. It is also the one that most directly determines the quality of growth.
Tsingtao Brewery's e-commerce profitability depended in part on Annto's unified omnichannel inventory and integrated business-to-business and business-to-consumer fulfillment services.
In FMCG, logistics and supply chain represent one of the three major cost categories alongside production and marketing.
Reducing logistics cost by one percentage point can create the same profit contribution as roughly ten percent sales growth.
That is why the new FMCG supply chain must improve both cost and efficiency.
Point-to-Point Strength Is Not Enough
Annto emerged from Midea Group's supply-chain transformation. Its background gave the company experience with brands, commercial flows, and business-customer requirements.
Compared with a conventional production-logistics or sales-logistics provider, it approached supply-chain service across the full chain.
Production logistics and factory-to-distributor transport are usually point-to-point full-truckload operations. Competition focuses on network coverage, dispatch speed, and service quality.
But point-to-point transport alone cannot reduce cost and improve efficiency across an omnichannel business.
The broader model can be summarized as follows: strength from point to point, specialized capability across the full chain.
In full-truckload logistics, scale and nationwide warehouse and transportation coverage create room to optimize price and speed.
In one-to-many urban distribution and unified online-offline inventory, the more distinctive capability is network design.
Based on the brand's business footprint, the provider can design a scientifically distributed DC warehouse network, support unified inventory for online, offline, business, and consumer orders, and use digital systems to connect fulfillment across channels.
Inventory and delivery choices can then be optimized for each order.
With the system connecting the chain, logistics can extend from raw materials through factory, distributor, and retail outlet, while also serving consumer orders nationwide.
Whatever the channel or fulfillment requirement, the goal is the shortest path, lowest cost, nearest inventory, and fastest delivery.
The Future Supply Chain Is a Network
The supply chain of the future will not remain isolated, vertical, and linear.
It will become a shared network built by brand owners, distributors, and service providers.
China has already constructed much of the physical infrastructure needed by society's supply chains. But those facilities developed separately, leaving national warehousing and transportation assets underused.
The future FMCG supply-chain system will be led by brands and enabled by the systems and management capabilities of professional third parties.
It will be an ecosystem based on joint construction, shared use, and mutual benefit.
Quality growth in a new consumption cycle depends on that integration:
- digitalization connects information and processes efficiently;
- new marketing creates omnichannel demand;
- new supply chains fulfill that demand at a cost and speed that preserve profit.
Only when all three work together can a company turn sales expansion into lean, profitable, and sustainable growth.