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In 2008, during the financial crisis, traditional FMCG sectors such as daily chemicals, food, and beverages maintained strong double-digit growth, earning the label of essential goods. By 2015, Chinese consumer incomes had tripled from a decade earlier, and expectations were for continued growth. However, a strange phenomenon emerged: those once-thriving companies were falling into collective decline.
In the first half of 2016, Master Kong's revenue was 27.99 billion yuan, down 13.9% year-on-year; net profit was 614 million yuan, down 64.8%. Wahaha's performance plummeted from 72 billion to 49.4 billion yuan, a drop of 22.6 billion yuan; 49.4 billion was its lowest revenue in years, marking its worst year in recent memory. Super-century-old Procter & Gamble saw global sales continue to slide in Q1 2016, with a 12% decline, the largest in the past seven quarters.
Innovation has become a belief for many companies, with decision-makers viewing it as the essence of marketing strategy. However, large enterprises, constrained by their complex operations and management models, struggle to respond quickly to rapidly changing market conditions. So, how can P&G, Wahaha, Master Kong, and other former giants facing decline leverage their strengths to reverse the downturn and achieve sustainable growth?
This Issue's Topic Why Are FMCG Giants Plunging Off a Cliff? Duration: 12 minutes 27 seconds. Please watch on Wi-Fi.
Master Kong's Core Problem
Zhang Yun: The fundamental reason for the sharp decline of large enterprises is insufficient innovation. The macro environment has changed. In the face of change, if innovation is lacking, the company will inevitably be eliminated by the market. Master Kong is a leading enterprise in the instant noodle, food, and beverage industries. But in recent years, we see that although Master Kong holds a leading market position, it has completely failed to fulfill its responsibility as a leader or implement a leader's strategy.
Keywords: Market Leader, Responsibility, Strategy First, what should a leader do? It should maintain and sustain the health of the category. At a time when the instant noodle category is constantly questioned and affected by negative news, how to continuously push the category forward is something a leader must consider. But Master Kong has not made any innovation toward healthier instant noodles. Instead, when other brands innovated, it resorted to price wars to suppress them. For example, when Uni-President innovated with sauerkraut beef noodles, Master Kong continuously subsidized promotions, dragging the competition into a deteriorating situation. In the beverage sector, products like iced black tea, iced green tea, green tea, and bottled green tea are all areas where Master Kong has advantages. But in recent years, we haven't seen any truly breakthrough or innovative products from Master Kong; it remains stuck managing these old products. As consumers increasingly focus on health, these old products are bound to be phased out. That is the problem Master Kong faces.
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Wahaha's Rise and Fall
Zhang Yun: I think the four issues Zong Qinghou mentioned can partially explain Wahaha's problems. In fact, I predicted years ago that Wahaha had peaked and would inevitably decline. Why?
Keywords: Channel, Barriers, End Wahaha's success mainly relied on its strong channel capabilities in third- and fourth-tier markets, including distribution and shelf placement. It then replicated successful products and pushed them through these channels. But today, channels have changed dramatically, and most companies have begun to penetrate fourth- and fifth-tier township markets. This barrier has been broken, signaling the end of the channel-dependent era. On the other hand, in recent years, Wahaha has not developed any entirely new products or categories. Products it previously relied on, like Nutrition Express, have declined sharply. The root cause is not the four points Zong mentioned, but rather the differentiation of its categories.
Keywords: Differentiation, Product Imitation Consumers are increasingly health-conscious and will choose healthy products. This highlights Wahaha's weaknesses. I believe if Wahaha continues to rely on imitation—like launching an energy drink (Qili) or following with a kvass product—this approach will no longer work. If it doesn't change, Wahaha will continue to slide.
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Outdated P&G
Zhang Yun: The root cause, I believe, is still insufficient innovation. In a popular Chinese phrase, it has failed to keep pace with the times. For a large company like P&G, safety is paramount. The larger the entity, the longer its decision-making chain. As Facebook's founder said, the biggest risk is not taking risks. Innovation involves risk, so it is difficult for large enterprises. For example, take shampoo, one of P&G's core products. Ten or more years ago, when people earned 3,000 or 5,000 yuan, they used its shampoo. Today, when its core consumer group earns 30,000 or 50,000 yuan, using the same shampoo is clearly inappropriate.
Keywords: Consumption Upgrade, Low-End, Outdated As consumer spending upgrades, P&G's products appear low-end, common, and outdated. In this sense, P&G's sales decline is inevitable.
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How Can Large Enterprises Achieve Sustainable Growth?
Zhang Yun: For large enterprises—whether P&G or domestic ones like Master Kong and Wahaha—once they reach a certain scale and grow from small or medium-sized companies into large ones, their strengths are increased financial resources and more assets. But the weakness behind their strength is that innovation capacity inevitably declines.
Keywords: Strength Behind, Weakness When we studied the U.S. market, we found that many new categories, brands, and innovative products are launched by small and medium-sized enterprises because they are closest to consumers. In contrast, large enterprises have very long decision-making chains and must develop in mature markets rather than zero or very small markets. There are two models for brand investment: investing enough money or investing enough time. Small and medium-sized enterprises lack money but have time and patience. Large enterprises have money but lack time; CEOs have limited tenures and must achieve significant sales growth within their terms, so launching new brands or innovating is clearly not feasible. New categories need not just money but time and patience. This gives small and medium-sized enterprises the opportunity to truly innovate.
Keywords: Brand Investment, Money, Time, Acquisition Conversely, what should large enterprises do? I believe a good approach is to target new categories and brands that have succeeded in the market and have already invested sufficient time. They can use their money to acquire safe and reliable innovations, achieving sustainable development. This is a better strategy for large enterprises.
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