From last year to the first half of this year, several major events have occurred in the market:

  1. Retail enterprises have begun to build their own supply chain companies. On March 31, Jiangsu regional retailer Hongxin Supermarket listed on the Hong Kong Stock Exchange. According to its prospectus, wholesale business accounted for about 56% of revenue in the first nine months of 2024, and its wholesale business grew much faster than retail. Traditional retailers are no longer limited to a single retail business; the model of wholesale + retail + regional deep cultivation has begun to enter the public eye. In addition, since the second half of last year, Metro has also begun to open its supply chain to fellow retailers. Metro, under Wumart, due to its German enterprise background, has inherited the tradition of retail + wholesale. As a German enterprise, Metro practices the Metro Supply Chain + Metro Retail model, operating wholesale independently, reducing procurement costs through centralized management, and lowering product prices, forming a business model that can compete with Aldi and Lidl in Germany. Now, with changes in the market landscape, Metro China has also begun to try to empower small and medium-sized retail enterprises with its supply chain. But more noteworthy is that local retail enterprises represented by Biyoute, before Metro China, had already achieved supply chain innovation through self-built supply chains and began to empower other small retail enterprises. This not only lowered their own product prices but also helped other small retail enterprises achieve transformation and upgrading, resulting in a win-win situation. It is expected that in 2025, more 'retail + B2b' business models will appear in the market. On the one hand, enterprises with mature store models will steadily open new stores; on the other hand, they will help small retail enterprises with transformation through their supply chain advantages and operational expertise.
  2. Brand companies have begun to help retail enterprises with transformation, and even engage in retail themselves. Brand owner Three Squirrels, in addition to announcing the acquisition of offline retail brands 'Ailingshi' and 'Aizhekou' last year, a more important signal was the 'transformation' of Meiyijia. Although Squirrels only participated in transforming the snack category, it has set a precedent for brand owners to intervene in retail for 'retail support'. For traditional brand owners, I believe this action is an important signal.
  3. Some distributors have begun to engage in retail themselves, and some have begun to cooperate with retailers on OEM. Finally, for the distributor group, market space is being further compressed. Under market pressure, some have transformed downstream into retail; some have transformed upstream, cooperating with retailers on OEM. In summary, on the one hand, retailers are beginning to break through their boundaries and extend upstream to the supply and production ends. On the other hand, brand owners and distributors are also breaking through their boundaries and extending downstream to the retail end. In the past, production, supply, and sales were relatively independent in China, with brand owners, distributors, and retailers each performing their own functions. But today, the boundaries of the three have gradually begun to merge. Does this mean that in the future, brand owners will engage in retail? Will retailers become distributors? Are distributors completely at a dead end? That is not the case either. We see these 'phenomena' such as 'retail enterprises doing supply chain', 'distributors engaging in retail and OEM', and 'brand owners helping retail enterprises with transformation' are only temporary 'phenomena' in the new cycle of change in the FMCG industry, not the final outcome. In 2025, China's FMCG industry will gradually enter the stage of integrated production, supply, and sales. What is integrated production, supply, and sales? So what is integrated production, supply, and sales? Why don't brand owners just do their branding well? Why don't retailers just do retail well? Why don't distributors just do distribution? Why do brand owners guide retail transformation? Why do retailers operate wholesale businesses? Why do distributors open their own stores? Because in the context of insufficient effective demand across society. On the one hand, the traditional logic of distribution for large single SKUs in FMCG can no longer meet the segmented needs of consumers. The high inventory pressure caused by low sell-through means that brand owners must have a deeper understanding of terminal retail. On the other hand, competition in the retail industry has also become more intense, especially the impact of discount formats, which will have a greater impact on traditional retail. Retailers must also find new value propositions. In this context of involution, some brand owners and retailers have begun to think about new ways out. By constructing new cooperation methods to achieve higher efficiency, explore more unmet consumer needs, and find new growth. Therefore, the author believes that starting from 2023, the market has seen the emergence of a large number of price-destructive discount formats. After entering 2025, destructive discount formats and value-based formats will achieve a new balance, and the space for single-dimensional low prices will become increasingly limited. Brand owners, retailers, and distributors will form new synergies, forming a new integrated production, supply, and sales. What is the logic behind this? The author has previously summarized China's three circulation revolutions as follows. The current market involution, de-distributorization, and discounting in the retail industry are all products of the second circulation revolution, and these are only stage-specific products. Through the reform of the downstream retail industry and the upstream supply side, China will quickly transition to the stage of the third circulation revolution. In the context of comprehensive involution in the industry, the three parties of production, supply, and sales, in order to seek new value propositions, have begun to merge boundaries and shift from traditional game relationships to seeking new cooperation methods, building new competitive advantages by seeking 'external forces'. Therefore, our definition of integrated production, supply, and sales is: through deep collaboration across the supply chain, breaking the traditional game relationship of production, supply, and sales, and building a consumer-demand-oriented integrated production, supply, and sales system. Under the new integrated production, supply, and sales background, the positioning of production (brand owners), supply (distributors), and sales (retailers) will be reshaped.
  • Brand owners will shift from 'standardized producers' to 'agile solution providers'. In the past, brand owners were production-centric, pursuing economies of scale, and pushing inventory to retailers through distributors. They will transform to use real-time retail terminal data (such as POS systems, consumer behavior tracking) to guide R&D and production in reverse, and co-develop products with retailers.
  • Distributors will develop 'retail support capabilities', becoming the adhesive between manufacturers and retail ends, assisting retailers. In the past, distributors undertook basic functions such as warehousing, logistics, and capital advances, relying on product price differences for profit. They will transform to integrate manufacturer production data and retailer sales data, build a data middle platform; provide a combination of 'product + service' capabilities (such as logistics optimization, front-end retail technology training).
  • Retailers will shift from 'channel terminals' to 'consumer demand translators'. In the past, retailers passively sold manufacturer products and relied on promotions to clear inventory. Through stores, they will collect more detailed consumer data, extract unmet implicit needs of consumers, become the frontline for new product trial and iteration, and improve product sell-through faster. Overall, the repositioning of the three parties in production, supply, and sales is driven on the one hand by innovative enterprises actively seeking change, and on the other hand by industry cycles forcing enterprises to change. Why does integrated production, supply, and sales emerge? The core reason for the emergence of 'integrated production, supply, and sales' is, in plain terms, insufficient effective demand across society. Through research, we have found that in the context of insufficient effective demand across society, brand owners and retailers will begin to seek deeper integration, and distributors will also undergo a transformation in their value positioning during this process. This is an inevitable result of economic cycles, and this process has been experienced in mature countries. In the 1980s, the US oil crisis led to the emergence of a large number of discount formats such as Target and Walmart. In the market changes, P&G began to explore a new GTM approach with Walmart, embedding its team into the Walmart system in an almost 1:1 replication manner, providing comprehensive category empowerment to Walmart. In Japan, it was first explored by large supermarkets, then gradually extended to convenience stores, beauty stores, and other channels. Early production-supply-sales cooperation focused on POS data sharing, such as the cooperation between Estée Lauder and Kao with retail enterprises, helping brand owners make more accurate stocking decisions. But from 1994, cooperation began to deepen into product development. For example, Ajinomoto and Daiei's frozen food, and Yamazaki Baking and Lawson's bakery products, were products of this stage, which not only involved accurate stocking but also precisely explored the products consumers wanted. The timing of the above events also coincided with Japan's bubble economy bursting, after which the macro economy entered a long-term deflationary cycle. In an economic cycle with strong consumer demand, the business model of mass production/mass distribution will not face challenges. But when effective demand begins to be insufficient, the difficulty of traditional distribution models begins to rise. Unsold goods and associated warehousing and transportation costs have become hidden costs in the circulation chain for FMCG companies. In the past, FMCG companies made distributors the buffer for these costs. But when distributors in the market also begin to be cleared out, these costs will eventually return to FMCG companies. So when effective demand is insufficient, economic growth begins to slow, and the market enters a stage of stock competition, the successful paths we have relied on in the past need to be re-examined. In the future, the successful experiences you have relied on will be ruthlessly overturned, far beyond your cognitive scope. The three stages of integrated production, supply, and sales From a stage perspective, the integration of production, supply, and sales in the FMCG industry can be divided into three stages. The first stage: the boundaries of brand owners, distributors, and retailers begin to merge. Some brand owners begin to think from the retailer's perspective, even helping retailers with transformation. Some retailers begin to go deep into the supply chain, establishing independent supply chain companies, and gradually move from pure wholesale business to product development. In this stage, the three parties begin to seek synergy, but it is not yet the mainstream direction of the market. The second stage: as market competition intensifies, the three parties begin to seek deeper cooperation. On the one hand, some large brand owners cooperate with small retailers. They begin to intervene in category transformation/overall transformation of regional small retail enterprises, or directly invest in or acquire them. As the survival pressure on regional small retail enterprises gradually increases, they must seek external support. Large brand owners, by establishing retail support teams or service providers, participate in retail enterprise operations and store pilots, gaining deeper terminal insights while forming deeper binding with retail enterprises. On the other hand, large retailers begin to cooperate with small brand owners. They explore cooperation at the product development level. Small brand owners, while retaining their original brands and channels, provide product development services for the single channel of large retailers. In this stage, cooperation among the three parties increases, but the mainstream direction is 'big brands with small retail' and 'big retail with small brands'. The third stage: large brand owners and large retail systems move from game-playing to cooperation. As the competitive landscape changes, some traditional big brands begin to choose new competitive paths. They choose to fully embrace large retail systems, forming integrated production, supply, and sales capabilities. That is, embedding teams completely into large retail systems, achieving agile product development capabilities through data insights. Retailers transform their terminal consumer data into more competitive products, and brand owners also improve product sell-through and reduce hidden costs in the circulation chain. Of course, I do not believe that all brand owners will choose this path. Strong categories or brands with strong brand power will still maintain their big single SKU strategy. But weak categories or challenger brands in strong categories are more likely to seek cooperation with retail systems. In this stage, cooperation among the three parties enters the 'big brand with big retail' stage. So at present, we see these 'phenomena' such as 'retail enterprises doing supply chain', 'distributors engaging in retail and OEM', and 'brand owners helping retail enterprises with transformation' are actually products of the first stage of integrated production, supply, and sales. As cooperation deepens in the future, it will gradually enter the second and third stages. Who leads the integrated production, supply, and sales? In today's market, we see brand owners pushing themselves downstream, and retailers also pushing themselves upstream. Both sides are consciously promoting the industry towards collaboration and integration. In mature countries, we have seen Kao and P&G actively promote cooperation with JUSCO and Walmart (brand-led integration). We have also seen cooperation led by 7-11 with Ajinomoto and Itochu (retailer-led integration). So who leads the integrated production, supply, and sales? Who will play the leadership role in the circulation revolution of China's FMCG industry? I believe that retailers will play the leadership role in this round of circulation revolution. And third-party supply chain platforms will cooperate with retail enterprises for joint leadership. On the one hand, China's large FMCG companies have inherent historical path dependence and limitations. China's FMCG circulation model has long been dominated by brand owners, controlling channel pricing power and benefit distribution through deep distribution. However, this model has begun to expose drawbacks in the context of overcapacity and rational consumption, such as brand self-revolution causing damage to the original base. On the other hand, China's large FMCG companies almost lack control over terminal channels, whether online or offline. This determines that the probability of brand owners becoming the dominant party is not high. Of course, this does not mean that all brands cannot become the dominant party. Although most brands may lack momentum, if some brands can think clearly and actively promote downstream changes, there is great strategic value. I can elaborate on this in a later article. So why will retailers become the dominant party? Retailers naturally face end consumers, have a better understanding of consumer behavior, and directly face the pressure of competition for consumers' wallet share, so their willingness and ability to change are stronger. But retailers also naturally have their own capability shortcomings, such as insufficient understanding of some categories, and most retailers lack brand owners' product R&D and quality control capabilities. Relying on white-label or OEM models will lead to homogeneous competition. At this time, third-party supply chain companies, or distributors (service providers) with dual service capabilities for retail and brand sides, can begin to play a role. For example, integrating resources from multiple brand owners to empower downstream retailers with category planning capabilities. For example, through centralized procurement and integrated warehousing and distribution, reducing warehousing and logistics costs across the entire chain. I even suggest that brand owners can participate in third-party supply chain companies with minority equity, thereby obtaining terminal data feedback while maintaining their independent identity. Therefore, in the integrated production, supply, and sales pattern, retailers (sales) and third-party supply chain platforms (supply) are likely to play the leadership role, and some innovative brand owners (production) also have a strong driving role. This article is the opening of the series on integrated production, supply, and sales. In the future, I will analyze from the perspectives of brand owners, distributors, and retailers respectively, how to find their own value positioning in the context of integrated production, supply, and sales. Qi Te, Chief Research Consultant at New Distribution Research Institute. He has worked for several listed FMCG and retail companies, responsible for strategy and investment, and has also worked for several well-known domestic and foreign funds and investment banks, responsible for consumer investment. Currently focused on strategic consulting for FMCG and retail enterprises, helping companies think deeply. Welcome to scan the QR code to add the author's WeChat for in-depth communication: