A Critical Historical Juncture Strategy, with the most historical penetration, is not about planning the future, but about what to do now to have a future. Standing on the right side of history means looking at the present from the perspective of the future. Many people feel that it is difficult to understand the current situation, let alone the future. Some things can be predicted because they have coordinates and historical trajectories; there is a precedent. Other things are hard to predict because standing at the forefront, the path ahead is a "dark zone," and every step is an abyss. The direction forward is based on predictions of the future. Simply put, two forces influence the future of China's FMCG business. First, China has entered the mature phase of industrial civilization. In the mature phase of industrial civilization, Europe, America, and Japan have historical trajectories, and we have coordinates. The transformation of China's retail, channel, and even brand companies in many aspects is basically a replica of the mature phase of industrial civilization in Europe, America, and Japan. This is a certain trend. Second, the information civilization is still in a period of technological explosion. Technological breakthroughs during the explosion period are unpredictable. The phenomena of the Internet era, from the perspective of productive forces, can be called the Internet era or the AI era, but this is only valid in the short term, not the long term. Because new technologies iterate rapidly, there is no stable era name. From the perspective of production relations, it is the era of information civilization. Productive forces will ultimately change production relations. E-commerce, instant retail, etc., are not only changing business models but also shaping new lifestyles. These changes are very difficult to predict. Big data, blockchain, the metaverse, etc., all fear falling behind the times, yet often bet on the wrong track. The interweaving of these two forces makes the future somewhat certain and somewhat uncertain. Two months ago, I had a dialogue with editors from a leading FMCG media outlet, describing the current and future landscape of the FMCG business ecosystem. The business ecosystem includes brand manufacturers, channel distributors, and retailers. All predictions are based on relatively clear coordinates and the signs of future trends that have already emerged. Below is a simplified diagram. This is an ecosystem landscape that is very different from the current one and is still evolving. I will explain the content of the landscape and why it is evolving this way. The Shift in Dominance of the FMCG Ecosystem In 2008, after writing "Chinese-style Marketing" with Mr. Jin Huanmin, we had a conversation and reached two consensuses: first, China, with the strength of its single market, has cultivated world-class enterprises; second, as China's national power rises, these world-class enterprises will go global and create new multinational companies from China. Now, looking at China's leading FMCG companies, purely from a scale perspective, they are basically world-class. The marketing methods that achieved world-class scale are what we call "Chinese-style marketing." "Chinese-style marketing" emphasizes Chinese characteristics while acknowledging that multinational companies' marketing is the mainstream. When China's leading companies go global, they will create "Chinese marketing." "Chinese marketing" will become the mainstream of future global marketing. The FMCG business ecosystem includes three major sectors: brand manufacturers, channel distributors, and retailers. Traditionally, these three sectors have been significantly unbalanced. Strong brand manufacturers, weak channel distributors (dealers), and retailers with scale but not strength are the characteristics of this imbalance. We call deep distribution the main force of Chinese-style marketing because it deeply involves brand manufacturers in the channel, organizing weak dealers and scattered retailers. In Europe, America, and Japan, this violates the division of labor in business. In developed countries or regions like Europe, America, and Japan, the power of brand manufacturers, wholesalers, and retailers is relatively balanced. In many developing countries, where brand manufacturers and channel distributors are weak, European and American retailers have entered and achieved dominance, establishing connections with global supply chains, marginalizing local brand manufacturers and channel distributors. The value of deep distribution to the rise of China's leading brands cannot be overstated. China's leading FMCG brands must adopt a dual-driven model of brand and channel. China, with the strength of its single market, supports world-class enterprises, not only due to its large population but also because deep distribution can connect scattered and weak channel distributors and retailers. The above ecosystem phenomenon is a brand-led FMCG business ecosystem. However, when China's industrial civilization enters its mature phase, this business ecosystem is no longer applicable, and retailers begin to take the lead in the business ecosystem. This process is called the supply chain revolution. Local "Pangdonglai remodeled stores," hard discount snack stores, Hema stores; foreign ones like Sam's Club, COSTCO, and ALDI all belong to this category. It seems that overnight, the dominance of China's FMCG business ecosystem has shifted, and the driving force of the business ecosystem has also changed. The deep distribution model that once connected China's scattered retail and weak channel distributors has now become the target of "disintermediation." The accelerated reshuffling of agents that occurred in the United States in the 1920s and Japan in the 1960s is now happening in China. From brand-led ecosystem dominance to retailer-led ecosystem dominance, and also the dominance of internet platform companies, this is the logical starting point for predicting the future FMCG ecosystem landscape. Retailers with Brand Genes Is Walmart a brand or a retailer? Walmart sells products from many brands, so it is a standard retailer; Walmart also has private labels, making it a brand as well. Pangdonglai is the same. It sells multinational brands and products from China's leading brands; it also has a large number of private labels marked with the "DL" logo, as well as products that are endorsed by Pangdonglai but not well-known. More than 20 years ago, I called this product structure of Walmart "brand coverage," meaning retailer brands cover manufacturer brands. Many Chinese OEM companies have profited from the dividends of brand coverage. Now it's China's retailers' turn! According to the "Pangdonglai remodel" template, the product structure of Chinese retailers roughly includes three categories. First: Multinational brands and well-known local brands (national brands). They can be listed, but brand manufacturers are required to supply directly. "Direct supply" means disintermediation, bypassing the dealer channel system. According to the logic of "wide category, narrow product," the SKUs directly supplied by a brand are extremely limited and cannot be displayed centrally. The current phenomenon of brand manufacturers occupying a large number of terminal resources with a large number of SKUs will no longer exist. Of course, this is also an opportunity for the birth of national mega-products. Second: Private labels. That is, the retailer's own brands. Private labels are also brands and must have the ability to build brands. If the same factory OEMs, Pangdonglai sells well, but yours may not. Therefore, future retailers must have the genes of brand manufacturers. Walmart's private labels are only sold in its own stores, but Pangdonglai's private labels have already spilled over to other stores and are also sold on e-commerce platforms. Therefore, it can be said that Pangdonglai is a "brand manufacturer disguised as a retailer." Private labels are, of course, directly supplied by manufacturers, still disintermediated. Third: Products from supplier supply chains. In Europe and the United States, each retailer has 5-10 comprehensive suppliers. Supply chains are new intermediaries connecting manufacturers and retailers, but they are different from traditional dealers. Suppliers provide packaged services to retailers and also have scale advantages. Although the products provided by suppliers may not be very well-known, because the retailer itself has visibility and brand endorsement capability. The above three structures vary by company. Hema has a ratio of 334. Pangdonglai's ratio for livelihood categories (fresh, cooked food, bakery, etc.), well-known brands, private labels, and internet-famous brands is 2332. I particularly emphasize that future retailers must have brand genes because in the above brand structure, except for multinational brands and well-known national mega-products, private labels and internet-famous brands need retailer endorsement. National mega-products are not profitable, so private labels and internet-famous brands must have premium pricing capability, with profits mainly coming from the retailer's own brand premium. Therefore, retailers will face huge challenges. They will no longer just rent shelves to brand manufacturers but will also participate in product development and product promotion, which are traditionally the functions of brand manufacturers. In addition to the change in category structure, another huge change is "direct supply." National mega-products are directly supplied by brand manufacturers, private labels are directly supplied by OEM manufacturers, and only suppliers are new intermediaries, but certainly not traditional dealers. Direct supply is the beginning of changing the FMCG business ecosystem. Sharp Decline in Distributor Distribution Share China's channel distributors have gone through three stages.
First, the wholesaler stage before 1998 (provincial agent stage);
Second, the "downward" stage from 1998 to 2003 (from provincial to county agents);
Third, the dealer deep distribution stage after 2003. The above three stages are actually a process of channel distributor miniaturization. Because of this miniaturization, brand manufacturers, through deep distribution, gained the ability to fully control the channel, and thus could organize China's scattered retailers and weak dealers. This has made a huge historical contribution. However, starting with e-commerce, the distribution share of already weak dealers has been gradually diverted, and future traffic will gradually dry up. First, e-commerce diversion. E-commerce currently accounts for less than 30% of China's physical retail, with first-tier FMCG e-commerce share at about 10%. In 2025, because brand manufacturers need to escape difficulties offline, first-tier brands have increased online investment, and the share will continue to expand. The e-commerce model, I call it F2P2C. F stands for factory, P for platform, C for consumer. Platforms are new intermediaries. Second, retailer "direct supply" diversion. Pangdonglai remodeled stores, hard discount snack stores, and other chain stores are increasingly adopting "factory-to-store direct supply," bypassing dealers. This is an irreversible trend. Wherever the Pangdonglai remodel wind blows, a large number of dealers will give up their agency. Third, B2b platform share diversion. The giant B2B attempts that started 10 years ago failed, but regional B2b has risen again. It currently accounts for about 10% of distribution share. I predict that when B2b platforms account for 30% of distribution share, the dealer channel will collapse entirely. The mom-and-pop stores covered by B2b platforms will join B2b platforms through chain franchising in the future. B2b platforms will not only be order platforms and city distribution platforms but also private label platforms. Stores without private labels will have no premium pricing capability. Imagine, after the above three diversions, how much distribution share will dealers have left? Can they still afford their current personnel, warehousing, and delivery? According to the post-diversion distribution scale, the current model of dealers making money through trade price differences will become increasingly difficult. However, the current dilemma faced by brand manufacturers, under the premise that retailers generally prefer direct supply, requires a channel partner as an ally; otherwise, the status of brand manufacturers will be difficult to maintain. I believe the role of brand manufacturers' ally will be the operator. Operators stand with brand manufacturers, leveraging their existing B-end customer relationships to reach C-end users and conduct user operations. It is the existence of user operation capabilities that ensures brand manufacturers have the qualification for "direct supply" in the future. The premise for brand manufacturers' direct supply is to operate users, thereby "holding users to command retailers," and thus gaining the qualification for direct supply. As distributors, the "territory" of dealers is gradually being diverted, which is an unstoppable trend. As operators, brand manufacturers need them, otherwise they have no position in the FMCG ecosystem. If dealers have strength, they can try to build B2b platforms; if not, it is also good to settle for being an operator. The "Broad World" for Brand Manufacturers is Overseas In the early development of China's local FMCG companies, they used the strength of a single market to support world-class enterprises. This is the dividend of national reform and opening up and Chinese-style marketing. However, if leading companies become dependent on the domestic market, it is not promising. Except for the home appliance industry, China's consumer goods giants are too "introverted." The current era of shrinking volume in China's FMCG is actually an inevitable phenomenon of industrial civilization entering its mature phase. The widespread "three highs" or even "six highs" diseases in China are actually the result of long-term overconsumption. Incremental, excessive, shrinking. These are the three stages of China's FMCG consumption scale. Because there was excess, there is now shrinkage. It cannot be entirely blamed on the "macro environment." In the retailer-led business ecosystem, first-tier FMCG brands will see their share greatly reduced. Factory-to-store direct supply, selling only national mega-products, and the exit of sales guides from terminals will strip first-tier brands of their former marketing handles, requiring profound transformation. I divide future brand manufacturers into three categories. First: First-tier brands with national mega-products With the "wide category, narrow product" strategy after supermarket remodeling, brand manufacturers' SKUs will be greatly reduced. The era when first-tier brands occupied huge shelf space in supermarkets with a large number of SKUs and then induced purchases through sales guides is over. However, retailers still need national brands (NB). National mega-products remain an important tool for retailers to attract traffic. This is true even in countries with mature industrial civilization like Europe and America. So, what is a national mega-product? It is a product that is popular regardless of income level, even across borders, the greatest common divisor of users. For example, multinational brands in the Chinese market are basically national mega-products. In the past, the best-selling products might have been at the bottom of the pyramid. In the future, sales distribution will be olive-shaped, with low-end and high-end shares relatively low, and the best-selling products will be the national mega-products in the middle. In the past, Chinese companies' products have been rapidly upgrading, and there was no time for national mega-products to take shape. Now China has entered the mature phase of industrial civilization, and the product upgrade process will gradually be completed. This is the time to define national mega-products, a once-in-a-lifetime opportunity. Seize the moment, or it will never come again. I have communicated with some first-tier brands. China's national mega-products, in terms of price band, may be slightly higher than multinational companies. China's first-tier brands must take advantage of the current supermarket remodeling to truly create national mega-products that will lay the foundation for the next century. The shrinking domestic market is not scary; another door is opening. China's first-tier brands are ushering in the best time to become multinational companies. For a long time, multinational companies have basically originated from old developed countries like Europe, America, and Japan, with only a few countries like South Korea catching up. If multinational companies shrink back to their home countries, they will no longer have world-class scale. For a company to become a multinational, many countries in the world must have a high degree of recognition of the national brand. China's rapid economic development has reached a critical point because the global influence of Chinese brands has created the opportunity for multinational companies from China. Brand is psychological admiration. In the past, we chased Western brands so much because of psychological admiration. Now there is confidence in national trend brands because we no longer admire them. China's economic scale, its position in the world discourse system, and its penetration in the global economy all determine that China will no longer just export products but can also export brand premium with brand labels. This is also a once-in-a-lifetime opportunity! Going global is not exporting. Going global is the export of marketing capabilities. For developing countries, we can fully leverage our familiar deep distribution model and internet tools to organize the backward channels and retailers of developed countries. For developed countries, we can fully leverage China's financial strength to acquire Western brands, or create world-class Chinese brands like Huawei. For first-tier brands, the biggest market is in the world. China is just the starting line for entering the world market. China, with the strength of its single market, has cultivated world-class scale, and entering the international market will make them TOP100 global brands. Second: Niche and small enterprises lacking scale Making scale requires timing. For those enterprises that have lost the opportunity to scale up, it is hard for the world to provide another opportunity like China to cultivate world-class scale in batches. In the past, small and medium enterprises always survived at the low end, on the fringes of the mainstream market. When industrial civilization enters its mature phase, the classification of mass, segment, and niche will replace the classification of high-end, mid-end, and low-end. The long tail lies in segment and niche. The more mass, the more dependent on economies of scale. The more OEM, the more scale is needed. The demands of mature economies will become more differentiated, with more consumer groups in segment and niche. This is a once-in-a-lifetime opportunity for small and medium enterprises! Third: OEM manufacturers China has become the world's factory, not only for the production of first-tier brands but also for multinational companies setting up factories in China and Chinese companies OEMing for Western retailers' private labels. As long as there are private labels, there must be corresponding OEM factories. Even the products of future suppliers will be produced by OEM factories. According to the traditional development trajectory, enterprises do face macro environment issues. According to the opportunities provided by China's national strength, every type of enterprise has countless opportunities, even once-in-a-lifetime opportunities. Strategic opportunities are waited for; tactical opportunities are sought. There is always a way out, depending on whether you see opportunities or problems. Internet Factors in the Future Ecosystem Landscape Chinese marketing is a compressed catch-up process. In 30 years, it has completed a century of Western history. In the catch-up process, you cannot stop; stopping means regressing, stopping means being eliminated. When industrial civilization entered its mature phase, China caught the wave of information civilization, seamlessly connecting the two and transitioning smoothly. This is China's fortune. I believe the internet factors in the FMCG ecosystem landscape include the following aspects. First, changes in cognition, transaction, delivery, and payment models In traditional marketing, cognition relied on independent mass media, with cognition (mass media) separated from transaction (intermediaries); however, transaction, delivery, and payment were integrated. Cash on delivery. In internet commerce, cognition, transaction, and payment are integrated, but transaction and delivery (third-party delivery, such as Cainiao, express delivery, etc.) are separated. Transaction, delivery, and payment all rely on internet platforms and have become patterned, making them easy to adapt to. However, first-tier brands have precisely lost the cognitive platforms they could control with resources. Without cognition, there is no transaction, payment, or delivery. Cognition is the source of marketing. The lack of mature and stable cognitive models that can be controlled, and the lack of understanding of Gen Z lifestyle changes, have caused the current difficulties for first-tier brands in promoting new products. The danger for first-tier brands mainly lies in the fact that their mega-products were successfully promoted 10 years ago, while companies that have created new mega-products within the last 10 years (such as Oriental Leaf) are currently doing well. The biggest challenge in promoting new products is the powerlessness of resources in communication. Paid communication is ineffective, while unpaid communication may explode. Traffic models and the integration of brand and effect models are not suitable for first-tier brands; they are just concepts to attract new merchants to platforms. As long as cognition is in place, whether transactions occur online or offline doesn't matter. The internet has precisely caused first-tier brands to lose their cognitive tools. Second, lifestyle changes have changed retail formats The essence of channels is convenience, either buying nearby or one-stop shopping. This is traditional convenience. The internet provides convenience in transaction and payment, and third-party delivery provides convenience in delivery. Therefore, store-based models, home-based models, and store-to-home models have emerged, adapting to new lifestyles. The internet has not only brought new marketing tools but also changed lifestyles. The changes in lifestyle are beyond expectations. Final Thoughts The current problems in the FMCG industry are all the result of being too "inward-looking" (clinging to the domestic market) and "backward-looking" (nostalgic for the high-growth period). Enterprises should face the world, face the mature phase of industrial civilization, and face the era of information civilization. Recognizing the shift in FMCG business from brand-driven to retailer-driven is the key to moving toward the future. Do not exaggerate the impact of the so-called macro environment. The current environment is a normal phenomenon of industrial civilization entering its mature phase. Do not treat normal phenomena as abnormal, then complain and shirk responsibility for abnormal performance. The impact of internet factors, on which platform to trade, is the easiest thing to learn. If first-tier brands cannot adapt to the changes in cognitive models in the internet era, they will yield to those who can.