---
title: "The FMCG Industry Has Fundamentally Changed"
description: "With just over a month left in 2024, this year's business is nearly over. If one word were to sum up this year's FMCG industry, it would be 'difficult.' Retail channel transformations have come one after another, with intense competition both online and offline, including supermarket overhauls and the aggressive expansion of snack stores. Brand owners have also struggled, with financial reports showing severe declines, having been held hostage by e-commerce in the past and now by new retail. Distributors face even greater challenges, squeezed by upstream and downstream players in the past, and now facing abandonment by them, with the trend of big fish eating small fish becoming increasingly evident."
author: "周群"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-11-21"
language: "en"
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# The FMCG Industry Has Fundamentally Changed

> With just over a month left in 2024, this year's business is nearly over. If one word were to sum up this year's FMCG industry, it would be 'difficult.' Retail channel transformations have come one after another, with intense competition both online and offline, including supermarket overhauls and the aggressive expansion of snack stores. Brand owners have also struggled, with financial reports showing severe declines, having been held hostage by e-commerce in the past and now by new retail. Distributors face even greater challenges, squeezed by upstream and downstream players in the past, and now facing abandonment by them, with the trend of big fish eating small fish becoming increasingly evident.

With just over a month left in 2024, this year's business is nearly over. If one word were to sum up this year's FMCG industry, it would be 'difficult.'
Retail channel transformations have come one after another, with intense competition not only online but even more so offline, including supermarket overhauls and the aggressive expansion of snack stores.
Brand owners have also had a tough year, with financial reports showing severe declines one after another. Having been held hostage by e-commerce in the past, they are now held hostage by new retail.
Distributors are having an even harder time. In the past, they were squeezed by upstream and downstream players; now many are being abandoned by them, and the trend of big fish eating small fish is becoming increasingly evident.
However, 'difficult' is the current state, and behind it lies:
> **1. The fundamental survival logic of retailers has changed.**
> **2. Brand owners' voice in the market has been severely weakened.**
> **3. Distributors need to redefine their role in the market.**

**The fundamental survival logic of retailers has changed.**
There is a saying in the consumer goods industry: 'Whoever is closer to the consumer has more say.'
In the commodity circulation chain, retailers are the final link that directly sells to consumers, so they have always had significant influence in the channel, especially hypermarkets and national CVS chains.
It is precisely this influence that has kept traditional offline retail giants aloof. **Their business logic is essentially not selling goods, but selling shelf space.**
Various entry fees, barcode fees, display fees, promotional fees, and various anniversary fees plus rebates. Whoever can afford these fees gets their products on the shelves.
This business model directly results in **the limited shelf space being mostly bought up by leading brands.**
For consumers, there is homogeneous merchandise everywhere, and the products on shelves are almost no different from ten years ago. Even new products are mostly from leading brands.
When there was insufficient supply and terminal channels were concentrated, consumers had no other choice but to passively buy these products, and this business model did bring huge profits.
But today, supply is severely excessive, and retail transformations are happening one after another. **Times have changed; 'selling shelf space' no longer works, and consumers are no longer buying it.**
In earlier years, these traditional retailers mostly blamed online channels for their poor business. Indeed, the rise of various e-commerce platforms has had a certain impact on offline.
However, traditional retailers themselves have bigger problems.
In recent years, the rise of new retail formats such as warehouse membership stores and snack stores shows that **it is not that consumers are unwilling to shop in stores, but that traditional retail stores have not given consumers a reason to enter and buy.**
Many people think these new formats attract consumers simply with low prices and a large number of white-label products. But that is just the surface; the underlying logic is the optimization of commodity circulation efficiency and product differentiation.
The chairman of BiuTe shared at the New Distribution conference: 'In traditional supermarkets and convenience stores, from factories to distributors across the country, the markup is as high as 20 percentage points, and retailers add another 20 percentage points, resulting in a final price to consumers that is 40 percentage points higher, much more expensive than in Japan and also more expensive than online.'
The fundamental reason for the high retail prices in traditional supermarkets is the low efficiency of commodity circulation and excessive markup rates. Moreover, due to various fees, shelves are filled with products that few people buy, turning them into advertising spaces for brand owners.
The membership stores, discount stores, and snack stores we see are actually reducing terminal retail prices by improving the efficiency of the commodity circulation chain. At the same time, these new formats no longer follow the shelf-fee logic in product selection; instead, they stand from the consumer's perspective, seeking upstream manufacturers and products with good quality-price ratio.
Of course, traditional retailers are gradually realizing these issues. On one hand, some retailers are starting to overhaul their supermarkets, such as Zhongbai and Yonghui seeking help from Pangdonglai, with a focus on adjusting product structure.
For example, in Yonghui's overhaul at the Beijing Shijingshan Xiluoduo store, 11,430 SKUs were removed, a removal rate of 79%, and 12,765 SKUs were re-planned, with new SKUs accounting for 76.2%.
On the other hand, some retailers are beginning to seek direct sourcing without fees, canceling all front-end and back-end fees, canceling return and exchange requirements, and shortening settlement periods, but requiring the same price as distributors and the freedom to adjust retail prices.
Behind this shift is a signal: **Retailers' survival logic is changing from 'selling shelf space' to 'selling products,' from focusing on front-end and back-end fees to focusing on supply chain efficiency and the products themselves.**

**Brand owners' voice in the market has been severely weakened.**
Previously, I communicated with a brand owner friend who mentioned: 'There are more and more channels, and they are increasingly connected with consumers, so their voice is strengthened. In contrast, brand owners are becoming weaker.'
In the past, the distribution system was brand-led, with manufacturers rising through the HBG model (mass production, mass communication, mass distribution) during a relatively simple market environment.
But today, with market changes, the manufacturer-led channel distribution system is gradually unable to adapt to the current environment.
The market voice of leading brand owners is also being weakened bit by bit. This can be roughly divided into several stages:
**Stage 1: Mom-and-pop stores and wholesale markets.**
**Leading brands held absolute voice through deep distribution models.**
**Stage 2: The rise of chain convenience stores and hypermarkets.**
Large retail chains held a strong position, but due to their model of charging channel fees, leading brands with strong financial advantages still occupied absolute shelf space.
**Traditional retail giants and leading brands were co-conspirators in the channel system, and leading brands still firmly held market voice.**
**Stage 3: The rise of e-commerce platforms such as platform e-commerce, vertical e-commerce, and private domain e-commerce.**
The era of infinite shelves began, significantly reducing the cost of product listing, breaking the profit model of traditional retailers, and allowing many small and medium-sized brands to directly contact consumers.
**The voice of leading brands was weakened, while the voice of online platforms was strengthened.** But platforms still have various 'channel fees,' and leading brands can still dominate, as 'money can buy traffic.'
**Stage 4: The rise of new retailers, such as Sam's Club, Hema, Metro, and current snack stores.**
They truly focus on consumer needs, **dominating the supply chain through cash-based product selection and customized development, rather than relying on channel fees.**
Market voice is gradually shifting to retailers who are 'needed by consumers,' **and brand owners' voice is severely weakened in this process.**
Consumers' choices are more diversified and personalized, from being willing to pay a premium for brands to now preferring products with good quality-price ratio. Whoever can better meet this demand will gain market voice. Currently, these new retailers are truly doing this.
Looking through the surface to the essence, it is that **the FMCG industry has shifted from a 'seller's era' to a 'buyer's era,' from brand sovereignty to consumer sovereignty.**
In this process, many small and medium-sized brands, white-label products, and private labels have found opportunities, and good products can appear on shelves and be seen and chosen by consumers.
A few days ago, I met the founder of a regional instant food brand. She told me that after cooperating with several leading snack store chains, they achieved annual sales of 200 million yuan in the snack store channel, directly accounting for one-third of total sales.
While the voice of leading brands is severely weakened, it also gives opportunities for small and medium-sized brands, white-label products, and private labels to develop.

**Distributors need to redefine their role in the market.**
Every channel transformation, distributors are the most uncomfortable group. Because distributors are in a middle position, squeezed by both downstream retailers and upstream manufacturers.
Basically, the slogan 'remove the middleman' is raised every once in a while. In the past, although distributors were struggling, it was mainly due to the impact of online channels. But today, the difficulties are not only online but also the continuous segmentation of offline local business.
**First, after the survival logic of retailers changed, the business available to distributors has decreased.** In the past, many chain supermarkets were supplied by distributors, but now leading retailers seek direct supply and bare prices, either cutting off distributors or leaving them with almost no profit.
Also, supermarket overhauls involve a large number of supplier replacements. Some retailers even directly compete with distributors, such as some chain systems doing their own trading business and B2b, supplying small retail stores.
**Second, the era of relying on brand momentum to distribute goods to terminals and make money is over.** Doing big brands is not profitable, but small and medium-sized brands have high requirements for distributors' product selection and operational capabilities.
Even some brands want to compete with distributors, such as a brand planning to cut off distributor warehousing and distribution to do it themselves, and another brand starting B2b to supply small and medium-sized stores.
The market needs fewer distributors, and the requirements for their capabilities are increasing.
Therefore, in such a market environment, distributors really need to redefine their role in the market.
In the past, most distributors were in the agency business, brand-oriented, serving brands. They provided services to brand owners in the market, including transportation, warehousing, and capital advances.
Today, **the market still needs such services, but it does not need so many distributors to do brand services.**
What other services need to be done by distributors? New Distribution has seen in the market, and some distributors have already succeeded in these directions:
**One type is regional B2b platform distributors, providing one-stop product selection, operations, and services to small and medium-sized stores.**
New Distribution previously made a judgment: branding and chain operation will become an irreversible trend in the development and evolution of traditional small retail stores.
Under such a trend, small and medium-sized stores face great challenges for survival. Distributors can help small stores survive under the chain trend through complete supply chain services and terminal operation guidance. This can both strengthen control over outlets and maintain a stable source of business.
Some mature B2b platform distributors have also started to do retail themselves, such as store rebranding, directly operating supermarkets, snack stores, etc., moving towards the integration of distribution and retail.
**Another type is category operation distributors, deeply cultivating a specific category, forming a brand matrix through multiple brand combinations - category distribution, providing category shelf operation services to retail stores.**
In the supermarket overhauls mentioned above, many retailers do not understand how to operate shelves or how to operate sub-categories, which actually gives opportunities to distributors who have deep expertise in categories.
For example, Zhengzhou Dapeng Trading, previously reported by New Distribution, has continued to grow its business by outputting entire shelf sets in the snack sub-category. Also, Zhengzhou Shizhirui, in the daily chemical category, outputs entire shelf sets, etc.

**In conclusion**
During a visit to a distributor in Xuzhou, she shared with me: 'I feel the industry is all about 'involution.' If you persist and are not the first to fall, the industry pattern will eliminate those who cannot keep up. Market competition is cruel. If you don't want to be swept away, you must work hard to sweep others away.'
The market has always been there, and FMCG is relatively more resilient compared to other industries. It's just that more participants have joined, competition pressure has increased, and this is forcing all roles in the industry to evolve.
Retailers, brand owners, and distributors will always exist in this market, but in the end, who remains in each role is ultimately survival of the fittest.


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