Where is the market heading?

More and more managers openly admit: the market is increasingly uncertain, and it is difficult for them to make a confident and sustained corporate strategy as they once did. Their most important task today is to figure out where the market is ultimately going. The market's shape has never been determined by a single force. But where the market goes is often influenced by one or several major forces. When this major force undergoes fundamental changes, the market will deviate from its original path, break away from our habitual understanding, and undergo unknown and complete shifts. The root of managers' confusion today lies in the fact that this key force is undergoing such fundamental changes. These forces that determine where the market goes were once very familiar to us; it was by relying on them that we created forty years of success in the past. The last century was an era of product scarcity; modern, large-scale production and distribution once dominated the market, but quickly declined at the beginning of the new century. The first fifteen years of the new century were a period of quality scarcity and the golden age of brands. As long as you believed in the power of brands, you could create miracles in that era. Today, in China's FMCG sector, homogeneous production capacity is almost absolutely excessive, quality is no longer scarce, and brands are being demystified. What force will be the next decisive one? The bottleneck of deep distribution is firmly entrenched, the continuous downward expansion of the FMCG market is nearing its end, and the demographic dividend is also coming to a close. When the market pie stops growing, or even visibly shrinks, where will our corporate strategies point?

From a supply chain perspective: seeking the next decisive force in the market

What is the essence of business? It is the continuous satisfaction and rebalancing of "supply" and "demand." In fact, not only in business, but most wars in the world are also fundamentally initiated due to the seizure and balancing of certain "supplies" or "demands." If we cannot see the changes clearly from a "marketing perspective," we might as well look from a "supply chain perspective." The "supply chain perspective" is not the producer's perspective of brand owners, nor the distributor's perspective of dealers; it is a perspective based on specialized division of labor, seeking the optimal solution for "supply" and "demand." From this perspective, we can understand why Pinduoduo's market value steadily surpassed Alibaba's in December 2023. We also begin to understand why in 2023, all business models centered on "discounts" rapidly swept the entire market.

When a certain "supply" shifts from relative scarcity to surplus, and "demand" turns from strong to weak, the force determining the market shifts from the previous "brand" and "experience" to "cost and efficiency." Whether we praise, embrace, curse, or distance ourselves from it, "cost and efficiency" will become the decisive force of the next era. This force is the power of the supply chain revolution. This shift in decisive force does not change according to the will of operators, nor will it change due to our emotional preferences. Such fundamental changes do not happen overnight, but once they begin, they will not turn back. Brands still possess great appeal, and "emotional value" as a product attribute will even become more expensive; multiple forces act on the market in parallel without conflict. However, the core force determining where the market goes in the future has already shifted from the "brand power" of the previous era to the "supply chain power" centered on "cost efficiency." FMCG is not high-tech; the "supply chain era" will arrive faster than anyone imagines.

From March 14-16, 2024, the 9th China FMCG Innovation Conference will grandly open in Chengdu. This conference will revolve around the theme of "Supply Chain Revolution," with three days of intense discussions.

The Impact of the Supply Chain Revolution

This FMCG supply chain revolution is bottom-up, marked by a "revolution" initiated at the retail end. Retailers are the spokespersons for consumers, and the retail revolution is a consumer revolution. The foundation of this revolution is that the new generation of consumers born in an era of material abundance is becoming more mature and confident. In FMCG consumption, their need to gain a sense of security through "brand consumption" is decreasing. In the past, Chinese FMCG retailers lived comfortably on various upstream fees, but when fiercely competitive brand owners could no longer provide fee support, they had to fight for consumers through self-revolution. Therefore, we have seen several major changes in FMCG consumption channels in recent years:

1. The rise of convenience chains. Meiyijia, Furongxingsheng, and others have broken through the critical point of "10,000 stores" and continue to expand rapidly. Small and medium terminals are increasingly chain-operated and branded, making their supply chain procurement more centralized and scaled.

2. The discount model is flourishing. From snack discount stores to discount supermarkets and discount warehouses, various forms of terminal stores centered on "genuine discounts" have become rare incremental channels in a shrinking market. Supporting their rapid development are the growth pressures brought by brand competition, capital seeking profits, and the return of value as consumers become more rational.

3. The proportion of retailer brand sales in stores is gradually increasing. Besides the big brands that must be sold, retailers are gradually increasing the proportion of their own brands. Strong upstream supply chain infrastructure allows retailers to offer "absolute cost-performance" products in most categories to attract more price-sensitive consumers.

These three retail revolutions will be transmitted upstream to the entire FMCG industry, profoundly affecting the supply chain transformation of the entire FMCG sector, as well as the survival and development of various ecological roles in the industry. FMCG companies without brand capabilities will see their living space retreat from urban markets to vast low-tier markets. Some companies may gain survival qualifications by actively embracing retail private labels. Distributors without major brand agency will face increased survival difficulties; distributors attached to major brands will see their profitability and operational pressure increase, with no way to retreat. Many distributors that survived the last wave of internet revolution may fall in this round of supply chain revolution. In this supply chain revolution, the number of distributors will further decrease.

What kind of brand owners and distributors can survive the supply chain revolution? When the supply chain revolution hits, where should traditional brand owners and distributors turn? Can they turn to sales organizations attached to brands, supply chain organizations attached to retail, or third parties specialized in supply chain capabilities? All of the above can only be answered by time and practice. "Each generation has its own mission, and each generation has its own Long March." Brand owners and distributors who have experienced multiple eras—channel, brand, internet—are now about to plunge into the torrent of the supply chain revolution. The times are like the rolling Yangtze River, flowing away. But no matter how big the waves, brand owners and distributors will not retreat or evade; they will move forward bravely as in previous transformations, still "a group of people falls, a group of people gets up, dusts off, and continues forward."

From March 14-16, 2024, at the 9th China FMCG Innovation Conference, thousands of FMCG brand owners, distributors, retail innovators, and industry service providers from across the country will gather together for three full days, with one main forum, over ten sub-forums, and closed-door exchange sessions, to discuss the challenges and opportunities, changes and solutions in the era of supply chain revolution.

In this era of supply chain revolution, a new business era will be born. I hope every participant will still have a place in this wave, and I believe this will be a conference worth attending!

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