This article focuses solely on FMCG. Although 2023 has not yet ended, I strongly feel the urge to label it as surreal. One moment we see side A of the market, then side B, then side C. Each side is different and can reverse. It is like blind men touching an elephant, each convinced they have grasped the truth. Because the market is multifaceted, trend judgment becomes harder and can even lead to errors. There are numerous theories and viewpoints explaining the current Chinese market. Each theory is self-consistent, all arguments have real-world basis, all viewpoints are supported by data, and all viewpoints have multiple counterarguments. This is an era lacking consensus, even an era that does not expect consensus. The fear of the surreal market lies in not knowing whether it is a post-pandemic aftermath or the new normal, and in the risk of misjudging trends or mistaking strong disturbances for major trends.

Surrealism 1: The Alternating Hot and Cold Consumer Market

In 2023, the biggest surrealism in the Chinese market is: although incomes have declined, is FMCG consumption actually downgrading or upgrading?

Act 1 At the beginning of the year, the pandemic ended. Enterprises were confident and eager to do business, but the market was cold in January-February. In March-April, the market suddenly exploded, with consumption data exceeding expectations. In June-July, consumption data turned poor again, and confidence tightened. Foreign trade data followed the same pattern. Before the pandemic ended, companies went overseas in groups, only to encounter a cold reception. But exports surged in March-April, yet in July exports saw rare negative growth. The market is like a roller coaster. Just when you are optimistic, it turns cold; just when you prepare for winter, it explodes. With the market alternating between hot and cold, which is the real Chinese market?

Act 2 Whether in self-media or mainstream media, the talk is all about difficulties, with negative headlines everywhere. Manufacturers say it's hard, distributors say it's hard, and retailers find it even harder. Every link is complaining. However, when the National Bureau of Statistics released half-year data, total retail sales in the first half of 2023 grew by 8.2%, which was a big surprise, and some questioned the data's credibility. The Bureau even used the term "temperature difference" to explain the disparity in people's perceptions. Category data may be more specific: in major consumption areas, there was significant growth in the first half. Whether from listed companies' half-year reports or private exchanges with leading companies, although the first half was difficult, most still achieved growth targets, and many companies' half-year results were indeed surprising, showing little sign of major difficulty. This is the surrealism of 2023: it is so surreal that you cannot feel the reality, so surreal that the whole does not equal the sum of its parts. Some say we should doubt that 1+1=2.

Act 3

  1. Starting in March, the voice of consumption downgrading rose. Quite a few manufacturers repeatedly increased channel promotions, some even to 40% intensity, but still ineffective. Some therefore firmly believe in consumption downgrading.
  2. In the baijiu industry, except for Moutai, even leading brands experienced severe price inversion in channels this year. Baijiu has a "channel dammed lake."
  3. Pinduoduo, which focuses on cost-effectiveness and the market outside the Fifth Ring Road, saw first-half revenue grow by 40% and net profit by nearly 30%. Seeing this information, I was about to believe in consumption downgrading. Until I saw the following data.
  4. In August, an article titled "The Resilience of High-End Consumer Goods" circulated in communities. Hermès, Chanel, and LVMH have all seen rapid growth in China in recent years. Not only foreign luxury goods, but also domestic high-end products such as high-end home furnishings, high-end cars, and even high-end health products have seen growth. The chart below shows Hermès' half-year revenue in Asia-Pacific (excluding Japan). Some say this is a typical sign of an M-shaped society, a feature of the disappearing middle class. Then I saw the following information.
  5. Beer, which had seen declining sales for years, finally saw both volume and price increase in the first half of 2023. The high-end beer F4 (Wusu, Qingdao White Beer, U8, Heineken) grew rapidly. China Resources Beer CEO Hou Xiaohai proposed the "new world of beer" is coming.
  6. Oriental Leaf, once rated as one of the "worst-tasting drinks" a few years ago, became a hit this year. Oriental Leaf is in the 5-yuan price band. In recent years, newly launched drinks rarely price below Coca-Cola. In the current Chinese market, low-end is stable, mass-market is shrinking, and high-end is growing. Both upgrading and downgrading exist; neither side is the whole picture of the Chinese market. This is the surrealism of today's Chinese market: individuals cannot restore the whole, and the flower of consumption downgrading bears the fruit of high-end upgrading.

Surrealism 2: The Divergent Retail Revolution

The phenomenal marketing events of 2023 are private labels and snack discount stores, but their interpretation is extremely surreal.

Act 1 The marketing world has always focused on brand owners, but suddenly private labels emerged. Large-scale supermarkets are developing private labels, distributors are doing private labels, convenience stores have long had private labels, and even heavily vertical private labels that integrate production profit, distribution profit, and retail profit. What about channel players without scale to do private labels? Thus, alliances of retailer private labels and distributor private labels were formed. In short, without private labels, channel players and retailers have no future. Only private labels are the hallmark of success for distribution enterprises.

Act 2 Discount stores, which began in 2021, after a year of brewing in 2022, suddenly galloped in 2023. The first tier, such as Snack Busy, surpassed 3,000 stores. To develop faster, mergers and acquisitions in retail discounting occurred. The development of discount stores has had a major impact on surrounding businesses, affecting the traffic of nearby supermarkets, with some saying it affects 20%-30% of sales, and has had a significant impact on distributors' supply chains. For example, will long-tail categories, like snacks, form a new direct-supply supply chain?

Act 3 Private labels and discount stores are major retail revolutions since the advent of supermarkets in China. But there is significant controversy over why the retail revolution occurred. One view holds that private labels and discount stores are standard for the middle class. In the United States, apart from department stores that originated 170 years ago and supermarkets 110 years ago, most retail formats originated in the post-war "4664" era (1946-1964), a time of post-war prosperity and rapid rise of the middle class, and also the era when discount stores, big-box stores (like Walmart), and many new retail models emerged. It was precisely because of overall social prosperity, credit, and middle-class confidence that private labels and discount stores developed. Japan's prosperity in the 1970s-1980s replicated the development of U.S. retail formats. For example, the famous affordable brand Muji was originally a private label of the retailer Seiyu. Japan also perfected the convenience store format (like 7-Eleven) during this period and rapidly expanded it to East Asia. Because of the middle-class society, brands once admired became mass brands, so the "brand ladder" became "brand similarity." Under brand similarity, private labels naturally have stronger cost-effectiveness. Because private labels changed the supply chain, discount stores had enough room for discounts. Another view holds that the core of private labels and discount stores is cheapness, a product of consumption downgrading, M-shaped society, and the disappearance of the middle class. The U.S. and Japan are experiencing the disappearance of the middle class and entering an M-shaped society. Therefore, many judge that after the pandemic, China is entering an M-shaped society. An M-shaped society is where the two poles of consumption are strong, but the middle layer disappears. K-shaped divergence exactly confirms the M-shaped society phenomenon. In terms of timing, private labels and discount stores happened to emerge during the pandemic and fit the psychology of low-income consumers expecting cheapness. The same phenomenon—the prosperity of private labels and discount stores—can be explained by two opposite theories. Both middle-class society and M-shaped society serve as evidence. The same phenomenon, different explanations, is not a word game but a judgment of major trends applied to new marketing phenomena.

Surrealism 3: The Reversal of Digitalization

Another surrealism in 2023 is the focus "returning to offline," but it is returning with the internet.

Act 1 After 2014, B2B was hot. With the exit of major B2B platforms in 2019, B2B was no longer at the center of the internet. However, in 2023, the new-type distributors visited by New Distribution mostly have B2B platform backgrounds, and they proposed a new concept: platform-based distributors. A platform distributor in Xi'an said: For traditional brand distributors, 300 million yuan is the ceiling. But for platform distributors, 300 million is just the starting volume. The once-disappeared B2B is back and is becoming a standard for new-type distributors.

Act 2 Starting in 2017, community group buying became hot, and almost all major platforms entered the track. In 2021, community group buying shrank significantly. However, regional community group buying experienced a big explosion. Variants of community group buying—group stores and group wholesale—spread like wildfire.

Act 3 Since the concepts of new retail and private domain, the digitalization of traditional channels with "de-intermediation" seemed to become consensus. Years of DTC and private domain promotion activities had poor results. Since 2023, full-chain digitalization F2B2b2C has become hot, and leading FMCG companies are rapidly deploying full-chain digitalization. Traditional channels are becoming the main battlefield of digitalization. With the energy of digitalization, deep distribution is evolving toward bC integration. Internet models that once exited have revived, and channels that were once "de-intermediated" are undergoing digital transformation across the entire channel. The constant reversal of digital models since 2023 has made companies cautious about following trends.

Viewing Flowers in Fog: Surreal Interpretations

Why is the Chinese market in 2023 so surreal that it cannot be seen through or understood? Causality is important. All beings fear results; Bodhisattvas fear causes. A rising China, a reversing West, and the aftermath of three years of pandemic. These are the three biggest variables affecting the Chinese market. A rising China has reached the crossroads of "from quantitative change to qualitative change." First, do we firmly believe that China is still rising and has entered the stage of high-quality development? This is the premise of judgment. Otherwise, we will be like birds startled by any fluctuation. The Chinese market has no more signposts; ahead is a dark zone. No consensus is the best consensus. Diverse exploration is the way to find the best path. The reversing West has encountered the Russia-Ukraine war. De-globalization, trade wars, decoupling, chip wars, and declining global exports—these factors叠加 are also a new crossroads for the world. Similarly, to what extent does the West's de-globalization affect China, and can it reverse China's upward path? The world has emerged from three years of pandemic, but the aftermath remains. A once-in-a-century strong disturbance has affected our judgment of future major trends, and we may even mistake strong disturbances for major trends. In recent years, there has been an unforgettable heavy rain every year. Warm and humid air from the south moves north, cold air from the north moves south, and when they meet, or are blocked by high mountains, there is bound to be a violent storm. A rising China, a reversing world, and the aftermath of three years of pandemic—when these three collide, it is a violent storm. What comes after the storm is the key to trend judgment. Too many people hope to find answers.

A complex China, facing a surreal Chinese market, certainly has no simple answers. But that does not stop us from exploring trends and causality.

What should we do in the face of the surreal 2023 Chinese market?

First, go out. Go to the scene, see reality, see the actual objects, feel the changes in the Chinese market, and immerse yourself in the Chinese market experience.

Second, engage in deep dialogue. Have in-depth communication with experts, one-on-one, or in small salon conversations.

Third, attend high-level conferences to feel diverse information and stimulate your mind.

In October 2023, the 5th China FMCG Conference and the 1st China FMCG Distributor Conference have been launched. This is our attempt and effort to find answers.

The theme of this conference is "New Era • Reforging". How to understand "reforging"?

Reforging is not a simple physical combination; reforging is a new substance generated after a chemical change.

Reforging is not to reforge a Chinese market with a simple label, but a more complex and diverse Chinese market.

Reforge a new world of FMCG.

Reforge a continuously rising and high-quality Chinese market.

From October 9-11, 2023, the 5th China FMCG Conference and the 1st China FMCG Distributor Conference will be held in Shenzhen.

At this conference, around the core proposition of "how to reforge a series of enterprise capabilities to help sustain quality growth in the new world," a series of high-quality forums with density, depth, and professionalism will be held over three days. In the surreal 2023, we should go out more, meet thousands of FMCG professionals in Shenzhen, gather at the "5th China FMCG Conference and the 1st China FMCG Distributor Conference", discuss reforging enterprise capabilities together, and create a new era for the FMCG industry!