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On September 28, 2016, Evergrande Group announced the sale of all its interests in its grain and oil, dairy, and mineral water businesses for a total consideration of approximately RMB 2.7 billion. After the completion of the sale, Evergrande Group will no longer hold any interests in these businesses. It has been less than three years since Evergrande Group made a high-profile entry into the FMCG sector on November 10, 2013, and now it comes to an abrupt end.
Media interpretations vary, with many suggesting conspiracy theories or asset transfers for stock market purposes. However, I believe this signals that the traditional marketing era of extensive operations in the FMCG industry should be declared over!
Decline! In this new normal of a stock market, the pain in the FMCG sector is not limited to Evergrande!
Case 1: Guangzhou Black Cow Food Co., Ltd. In August 2015, its pre-mixed wine TAKI, launched less than a year earlier, was already facing poor sales. By the end of October 2015, after the release of Black Cow's first three quarters financial report, the glaring data made many people's eyes red: net profit was -159 million yuan, a year-on-year decrease of 6449.27%. After three failed transformation attempts, Black Cow's actual controller and chairman, Lin Xiuhao, transferred his shares to Zhihe Capital's Wang Wenxue and resigned.
Case 2: Baorun Co., Ltd. released its 2016 semi-annual report, with revenue of 420 million yuan, a sharp decline of 75% from 1.688 billion yuan in the same period last year, and a huge net loss of 145 million yuan, a year-on-year decrease of over 123%. Among them, the RIO pre-mixed wine business, which once brought Baorun's stock price to over 100 yuan, saw sales plummet by 78%, becoming the core factor dragging down Baorun's performance and a burden on its financial report.
Case 3: Master Kong's first quarter 2016 performance continued to "double decline": total revenue was approximately $2.1 billion, down 9.54% year-on-year; net profit was approximately $73.5 million, down 45.02% year-on-year. The second quarter continued the decline, with net profit of $18 million, a year-on-year drop of over 87%. Beverage sales fell 21%, and instant noodle sales fell 12%.
Case 4: On August 26, 2016, the All-China Federation of Industry and Commerce released the "2016 China Top 500 Private Enterprises" report, and the significant decline in beverage giant Wahaha's performance attracted widespread attention: in 2015, Wahaha's revenue was 49.4 billion yuan, ranking 70th among the top 500 private enterprises. In 2014, these figures were 72 billion yuan and 31st place. Among them, the large single product Nutri-Express, which once contributed 20 billion yuan in sales, saw its sales almost halve, leaving Wahaha in a dilemma of product aging.
Case 5: On September 22, 2016, media reported that due to poor performance of Xiaoyang Lactate, Fujian Haocaitou Food Co., Ltd. downsized in some regions with poor sales performance, cutting 200-300 sales staff for the lactate product, reducing to about 80 people, leading to salespeople from various parts of Sichuan flocking to Haocaitou's Southwest Service Center to seek explanations.
Confusion! FMCG giants are suffering from the continuous decline of old categories, while new stars and brave players like Evergrande Spring Water and RIO cocktails face the embarrassment of spending heavily without creating a new category!
These vivid failure cases tell us that the promotion logic of these FMCG companies is as follows: (1) Companies spend heavily on celebrity endorsements and advertising, confidently believing they can create a category leader and reap dividends. (2) To quickly recover capital and cover large expenses, they aggressively recruit and expand distribution, forcing channel stocking and pressure. (3) Because terminal sell-through is slow, distributors complain, and manufacturers increase promotions, generating more expenses. (4) As promotion costs rise, manufacturers struggle and seek external capital subsidies, introducing capital cooperation. (5) After exhausting advertising, stocking, promotion, and capital, if still ineffective, they resort to layoffs, unpaid wages, and distributor fees. (6) Eventually the bubble bursts, and we see some seriously injured, others dead!
Regarding this deep distribution method, there was once a theory called "Sea, Land, and Air": "Air force" uses extensive TV advertising to build a high-end product image; "Army" employs human wave tactics with field staff quickly recruiting distributors, stocking, and displaying products in third- and fourth-tier cities and townships; "Navy" involves large-scale recruitment of sales promoters and promotion specialists, along with headquarters-organized promotional activities to boost terminal sell-through.
Once upon a time, local brands like Wahaha, Master Kong, Shuanghui, Want Want, Blue Moon, and Beingmate benefited from heavy advertising, extensive sales staff, and human wave deep distribution, which proved effective and led to rapid rise. Reasons: First, the market and categories had enough growth space, and even large expenses could be compensated. Second, China's vast third- and fourth-tier cities and rural townships could be penetrated, with sufficient growth space. Third, compared to high product gross margins, the costs of salespeople, promoters, and promotion teams were not expensive at all!
Now, the FMCG market has undergone major changes, and the old deep distribution methods are no longer viable: First, category growth has stagnated or declined, market peaks and dividends have bottomed out. Second, after years of developing third- and fourth-tier cities and rural markets, these FMCG giants have found that with the "urbanization" of Chinese farmers, the dividends of third- and fourth-tier cities have also peaked. Third, labor costs are too high; thousands of field staff and salespeople may require tens of millions or even 100 million yuan in monthly wages (excluding travel expenses).
Wake Up! For most FMCG companies now, it is clear that traditional human wave deep distribution is no longer sustainable. But in the new normal FMCG market, how should they break through? Most business owners haven't fully figured it out. Since spending money doesn't work, they quickly stop losses. So we see many brands considering how to shrink territory, reduce staff, cut market expenses, adopt conservative strategies, pause, and review the internal and external environment.
What should be done in the future? I believe FMCG manufacturers should adhere to the principle of "don't shoot until you see the rabbit" refined marketing. The following three points are worth learning from.
1. Keep up with middle-class upgrades and adjust category development strategies in a timely manner. For example, in the beverage industry, according to Kantar Worldpanel research, in the first half of 2016, except for bottled water which grew 12%, other beverage categories (juice, tea, dairy, carbonated, ready-to-drink coffee, functional drinks, etc.) all declined to varying degrees. More and more FMCG categories are doing subtraction, with trends like "no additives, natural, healthy, low fat" becoming more prominent. At the same time, as long as your product meets consumer needs and offers value for money, consumers don't necessarily find it expensive; compared to health and naturalness, price is not the dominant factor.
In the dairy sector, low-shelf-life pasteurized milk and room-temperature yogurt have become new growth engines for dairy companies. For example, low-fat, low-calorie Greek yogurt, according to US market research firm Technavio, accounted for 1% of the US yogurt market at one point, and last year exceeded 50%. It is expected that Greek yogurt sales will continue to grow at 5% annually. Consumers are paying more attention to low sugar, low salt, low calorie, healthy, and natural light living.
This round of consumption upgrade is destined to gradually eliminate outdated old products. Companies cannot go against trends. To become tomorrow's star, developing future categories with foresight is a core competitiveness.
2. Upgrade channel operations with real data. I have already discussed the general pattern of vivid failure cases (the traditional six-step approach). Honestly, is it that these deep distribution methods are completely ineffective and it's time to completely overturn traditional methods? I think it's not necessarily advisable. Many seemingly flashy new marketing methods may not withstand the test of time and may not be mature enough; this is debatable.
Traditional marketing methods in offline FMCG channels have accumulated time and experience, and are still worth referencing, but they cannot be copied blindly. It's time to refine "traditional marketing" methods. The core idea is "more data-driven" and "information symmetry."
(1) For example, when developing new products offline, we must ensure that packaging, taste, selling points, and positioning are truly welcomed by target consumers and have sustained stickiness. We must decisively abandon "decision-making by patting the head." As mentioned in "The Lean Startup," "enterprises should start with minimal cost, conduct sample market tests, obtain real feedback data from target customers, and iterate quickly based on that."
(2) Another example: previously, FMCG companies habitually allocated large market advertising budgets to marketing departments, heavily investing in TV ads, but the actual effect at the sales department and terminal level was impossible to measure, or due to too many intermediate layers in the transmission chain, the actual effect was weakened or dispersed. My idea is to minimize uncontrollable air advertising and focus on scenario marketing that evokes immediate consumer needs, which is better than traditional air advertising; in-channel displays and vivid presentations are more valuable than vague advertising investments.
(3) Additionally, unlike online platform sales, most FMCG companies cannot capture dynamic data of "manufacturer-distributor-terminal-consumer" in offline channels, or the data is not real or timely. Due to the many organizational layers in large enterprises, when it comes to decision-making, bosses want to make wise decisions "based on facts and data," but lacking real data, they are ultimately forced to "pat their heads"!
To upgrade traditional offline channel operations, the core is to open up real data chains and more accurately measure the cost-effectiveness of business.
3. Upgrade management inside and outside the organization to maintain a healthy ecosystem. Chinese traditional FMCG companies have developed over 30 years into large, bloated organizations with internal relationship societies. Now facing upgrades, they are like an obese person facing rapid socio-economic changes, showing various maladaptations. I have three suggestions.
(1) Refer to the Amoeba management model for organizational reform. Mr. Inamori's five core elements of Amoeba management: achieve management with full participation; use accounting as an important indicator to measure employee contributions and cultivate goal awareness; implement highly transparent management; integrate top-down and bottom-up; cultivate leaders. Here, we can focus on Alibaba's "big middle platform, small front desk" and Haier's platform-based management innovation practices.
(2) Process management and PDCA cycle. Essentially, salespeople mainly focus on promotion and wealth. What traditional FMCG salespeople cannot understand is that when the company guides their work, it often mentions route visits, displays, vividness, and ground promotions, but when assessing bonuses, only the final data of distributor payments and purchases is often seen. So some salespeople think, instead of doing all this hard work, it's more direct and effective to build good relationships with distributors and help them stock more goods. Therefore, companies must implement process-based management based on standard business actions, capturing data for each step and linking it to performance bonuses. At the same time, improve through PDCA cycles of planning, implementation, monitoring, and improvement.
(3) Pay more attention to partner growth. I particularly like a quote from Jack Ma: "Only when customers succeed will we succeed. If we succeed too early, customers will not succeed." On one hand, in the new normal, FMCG companies want to quickly withdraw from human wave deep distribution and reduce staff while increasing efficiency. On the other hand, they cannot resist the pressure of overcapacity and keep forcing distributors to stock heavily. Distributors, unable to bear endless stocking pressure and lacking the ability to grow without manufacturer field team support, lead to endless cross-regional sales and price chaos! A mess!
The channel ecosystem presents two states: a virtuous cycle or a vicious cycle. In the current situation, I suggest that companies, while upgrading channels, should pay more attention to "shrinking while helping." On one hand, reduce unnecessary field staff investment to cut costs and increase efficiency. On the other hand, help distributors adapt to a key account system, provide management coaching and tools, so that distributors' capabilities grow, terminal service capabilities strengthen, and the company naturally achieves the goal of reducing staff and increasing efficiency.
In summary, these are my thoughts on upgrading FMCG marketing methods. I hope they are helpful.
Author Introduction: Lu Xingyuan, columnist for Maternal and Infant Industry Observation. Previously worked for well-known FMCG and maternal and infant brands, now researches channel marketing power and management improvement to help manufacturers and distributors win together. Personal WeChat: xingyuanlu
New Food Era · New Distribution —— 2016 China "FMCG + Internet" Summit Forum —— This is a grand event focused on how FMCG industry channels should transform under the trend of internet + transformation
Conference Agenda 08:00-09:00 Registration 09:00-09:05 Host opening 09:05-09:35 2016 China FMCG Industry Trend Analysis Report - Zhao Bo 09:35-10:05 FMCG Enterprise Transformation Strategy and Path - Liu Chunxiong 10:05-10:35 Opportunities and Challenges Brought by FMCG Channel Reform - Field 365 CEO Liu Zhao 10:35-11:05 Reconstructing Distribution Channel System, Promoting Urban Retail Upgrade - Alibaba Retail Connect Backend General Manager Tian Yuan 11:05-11:25 Channel Efficiency in the Internet Era - Benlai Holding Vice President Fu Xiaoyun 11:25-12:00 Roundtable Forum - Brand Transformation: Improvement vs. Reconstruction? Guests: Liu Zhao, Liu Chunxiong, Fang Gang, Chen Feng, Shi Zhengchuan, Deng Xia 12:00-13:30 Lunch 13:30-13:50 Distributor Transformation: City Distribution Trends - Weijie City Distribution CEO Wang Qi 13:50-14:20 Roundtable Forum - Why Distributors Should Do Logistics in Transformation Guests: Zhao Bo, Wang Qi, Liu Zhongmin, Tang Guangliang, Wang Cheng, Sheng Yan 14:20-14:40 How FMCG Companies Can Leverage the Internet to Take Off - Xijiu E-commerce Operations Director Wang Hui 14:40-15:00 Detailed Explanation of Zhongshang Huimin's One Machine Two Wings Strategy - Zhongshang Huimin Vice President Su Xiaoxin 15:00-15:20 Category Value and B2B E-commerce Development Strategy - Yijiupi CEO Wang Chaocheng 15:20-15:40 Supply Chain Finance as a Lubricant for B2B Driving Traditional Business - 51 Order CEO Chen Xian 15:40-16:00 Zhanghe Cloud Factory Helps Upgrade FMCG Supply Chain - Zhanghe Tianxia CEO Yang Lixiang 16:00-16:30 Integrating Small and Micro Retail, Reconstructing Business Ecosystem - Quanshi Vice President Miao Dong 16:30-16:50 B2B Investment Principles and Ideas - Legend Capital Vice President Zhao Mingwei 17:00-17:30 Roundtable Forum - Who is the King of FMCG B2B Models? Guests: Fu Xiaoyun, Zhuang Jianzhong, Jiang Tao, Zeng Weiqin 17:30-19:30 Dinner
For manufacturers and distributors interested in transformation, this grand event is not to be missed. Interested friends can long press the QR code below or click "Read Original" to register.
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