Time Is Running Out for Manufacturers

Time is running out for Team XX. This was a phrase often used by commentators during football match broadcasts in the past. Supermarkets near my home are all undergoing adjustments. Recently, I visited many Pangdonglai-renovated stores and suddenly remembered this phrase: time is running out for manufacturers. The typical product structure of Pangdonglai-renovated stores is the "334 model": 30% of sales from fresh produce (including processed), 30% from private label (PB), and the remaining 40% from NB standard products. I observed that even among the 40% standard products, there are still many non-first-tier brands, and true NB may only account for a little over half of the standard products. What does this mean? The share of traditional manufacturer supply chains in renovated supermarkets is only 20-40%. In other words, the share of traditional brands in supermarkets has dropped by 60%-80%. Seeing the article title, you might think it's manufacturing anxiety. Seeing the data, do you still think it's manufacturing anxiety? If 2024 was the trial year for supermarket renovation, then 2025 is the first year of supermarket renovation. Supermarkets that do not renovate will gradually exit central cities. The only strategy for manufacturers to cope with the supermarket product structure is to create national blockbuster products that appeal to all. The quota for national blockbusters in each category is limited. Once occupied by another brand, there will never be another chance. Yonghui plans to complete renovation of all stores by 2026. Time is tight, and indeed, time is running out for manufacturers. Adapting to Business Cycles Declining sales are a minor issue; missing the new cycle is the major issue. Economic cycles are actually periodic reshuffles. The timing of transformation is not freely determined by enterprises; it is determined by economic and marketing cycles. When the new cycle arrives, if you are not ready, you can only say, "Time is running out for you." Drucker said that an enterprise only matures after experiencing more than three cycles. I think maturity means reverence for cycles and respect for their laws. You cannot change the laws; you can only adapt to them. So, what are the laws of cycles? Let me mention a few from a marketing perspective. First, marketing cycles correlate with economic cycles. Below is a chart summarizing the correlation between marketing cycles and economic cycles since the reform and opening up. We must pay close attention to changes in economic cycles. Why do micro marketing cycles correlate with macro economic cycles? Because macro economic cycles amplify or contract consumption, which in turn affects micro marketing cycles and forces marketing transformation (reform). Second, the peaks and troughs of macro cycles are lagging reflections of micro-cycle consumption. Peaks and troughs under financial leverage are amplified reflections of lagging consumption. Thus, it is common to shine at peaks and die at troughs. Because cycles have lag effects, when we observe cycle phenomena, it is already lagging; because of amplification effects, peak and trough values are magnified. Third, each marketing cycle is actually a new starting line. During downturns, everyone suffers. The key is whether you are present in the new cycle. In a new cycle, traditional advantages reset to zero, or even become "baggage." Enterprises have few choices in the face of economic cycles; they can only choose to adapt. Whether it's the global macro economic cycle, China's macro economic cycle, or micro marketing cycles, they all indicate that a new round of marketing transformation has begun, and time is indeed running out for manufacturers. Distributors Contract, Keen Senses Market perception of consumption has a transmission effect. Retailers feel changes before distributors, and distributors before manufacturers. From market reactions, supermarket "renovation" started first. 2024 was the trial year, 2025 is the first year, and in provincial capitals and above, renovation will be completed within 2-3 years, then gradually penetrate lower-tier markets. Supermarket renovation inevitably drives supply chain transformation, with factory-to-store direct supply becoming a trend. Consequently, distributors' distribution share rapidly declines, prompting distributors to contract their operations. Individual enterprise changes may be foresighted. For example, Pangdonglai initiated the "self-purchasing" new supply chain model 20 years ago. Collective enterprise changes are basically market-forced results. For instance, supermarket renovation is due to the collective operational difficulties in the retail industry, forcing them to learn from Pangdonglai. Some regional markets are already renovating collectively, such as Zhengzhou's new commercial F8—Pangdonglai, Tao Xiaopang, Xianfeng Shenghuo, Huayu Baijia, Duoledun, Zhekouniu, Xunwu She, and Wangge Discount Store. The new supermarkets near my home are all renovated stores. Market forcing means reaching a critical point where they can no longer sustain. Renovation is a last resort. After all, who would willingly go under the knife unless at a life-or-death juncture? Supermarket renovation must follow the path of supply chain transformation, which inevitably leads to a decline in distributors' distribution share. Thus, first-tier brands that previously could not make money but drove sales now neither make money nor drive sales, leading to a situation where first-tier brands cannot find successors. The number of distributors for first-tier brands is overall declining. Distributor sales decline is a result of the economic downturn. Distributors actively contracting is a signal of adjustment in the new cycle. Some exit, some transform, forming a new equilibrium in the new cycle. Now It's the Manufacturers' Turn What is the biggest danger for manufacturers? Certainly not declining sales. The biggest dangers for manufacturers, especially first-tier brands, in order of danger, are: First, decline in industry ranking (status); second, decline in market share; third, sales decline exceeding industry decline. The new industry cycle is an opportunity for industry reshuffling. There will surely be new industry upstarts rising and traditional leaders declining. Any change is both a crisis and an opportunity. This new cycle has many key points. The most critical is supermarket renovation. The biggest danger and opportunity in supermarket renovation lie in supply chain transformation. The harms of supply chain transformation to first-tier brands:

First, the "wide category, narrow product" strategy greatly reduces SKU numbers;

Second, no brand stacking, no centralized display;

Third, no manufacturer in-store promoters. What are the impacts? First, sales drop significantly; second, losing the opportunity to reach users through supermarkets. Losing user reach means losing the handle for user operations. Since 2010, e-commerce has impacted first-tier brands, but manufacturers could treat e-commerce as a channel. However, supermarket renovation's impact on first-tier brands is like closing half the door to sales, with extremely significant effects. It can be said that first-tier brands have no solution. If previous volume shrinkage was for all manufacturers, then the shrinkage from supermarket renovation is the squeezing of first-tier brands by private labels and new brands. The most affected are first-tier brands. The secondary harm of supply chain transformation is distributor transformation: brands without profit are not taken on, and brands with collapsed price systems are not taken on. Thus, first-tier brands are forced to do two things: first, clarify the price system, sell at market prices, stop volume-based policies, stop pressuring inventory, and believe this will be resolved within two years; second, shift distribution to B2b platforms, which, except for lacking the ability to pressure inventory, have cost and efficiency advantages in regular order delivery. The impact of supply chain transformation on SMEs is twofold. Some small-category leaders, who previously had no chance in supermarkets and found it hard to cross the entry barriers, now, because they entered Pangdonglai, have been copied by many Pangdonglai-renovated stores, entering the national market through renovated stores. SMEs that previously survived in low-tier markets on low prices have been hit hardest in this round of involution. The endgame of involution is that the most involuted price bands become marginalized, causing enterprises in that band to collectively disappear. Supermarket renovation is fierce, fiercer than e-commerce. It depends on which first-tier brand reacts faster and has greater determination. Currently, the supply chain after supermarket renovation is not fully formed, and the door is open; everyone has a chance. Once the supply chain is relatively fixed, leaving only a crack, it will be very hard to squeeze in. Time is running out for manufacturers. Manufacturers Must Do Three Major Things Manufacturers must extricate themselves from the current panic over declining sales. To maintain sales, manufacturers sacrificed the price system. Because the price system is unstable, the channel state in the old cycle is also unstable. Even first-tier brands, in many markets, see old distributors exit with no successors. At this point, I think manufacturers should do three things. First, stabilize the price system. To maintain sales, the price system became unstable. Because the price system is unstable, sales continue to decline. Only by stabilizing the price system and ensuring a healthy channel can the traditional channel be stabilized and not continue to decline. Therefore, I have always said that channel health is more important than maintaining sales. However, stabilizing the price system may cause a 2-3 month sales decline. After that, it will stabilize. Second, create national blockbuster products to cope with supermarket renovation. Manufacturers must fight on two fronts. They must participate in the price bands that are being involuted. But note that any price band that has been involuted will be marginalized in the future. At the same time, they must participate in the creation of future blockbuster products. Future blockbusters will definitely be national blockbusters, larger than all current blockbusters. Because national blockbusters appeal to all. Third, find new marketing handles for the future. Deep distribution is no longer a marketing handle because it is already over-distributed. The future marketing handles are two: operator operations and B2b platforms. Creating national blockbusters relies on operators. Operators mainly do user operations. Then, the deep distribution function is handed over to B2b platforms. In the future, there will be no inventory pressure; even if you want to pressure, you can't. As long as there is user demand, terminals will naturally place orders on the platform. National Blockbusters, Appeal to All National blockbuster is a term I have repeatedly mentioned recently. What is a national blockbuster? Recently, I saw Jiang Nanchun of Focus Media provide an interpretation. A national blockbuster is not high-end, not involution, but appeal to all. Appeal to all! Appeal to all! Appeal to all! Important things said three times. When supermarkets adopt "wide category, narrow product" and have many private labels and unknown brands backed by retailers, first-tier brands' sales will definitely decline, and even their blockbusters may not get shelf space. So, what is the bargaining chip for first-tier brands with supermarkets? It can only be national blockbusters. Products of multinational companies entering China are either national blockbusters or niche products. A national blockbuster, or national brand, is a product that appeals to all consumer classes, like Coca-Cola, accepted by low-income groups, the middle class, and top billionaires like Buffett. The formation of national blockbusters requires timing. I think now is the best time. Pangdonglai's prices are not low, but the value for money is high. However, Pangdonglai was born in Xuchang, a fifth-tier city, not a first-tier city. This shows that the time for national blockbusters benchmarked against Pangdonglai has come. Once you become a national blockbuster, you gain access to all FMCG sales venues. No matter how narrow the "wide category, narrow product" channel is, national blockbusters are a must-have. Precisely because of the "wide category, narrow product" strategy, the quota for national blockbusters is limited and extremely scarce. So, do current first-tier brand blockbusters have a chance to become national blockbusters? I think except for Oriental Leaf, all others are a level behind. Especially those blockbusters that have raised prices in recent years have no chance. National blockbusters, benchmarked against Pangdonglai's current quality, are basically correct. For first-tier brands, this is not a capability issue but a determination issue—whether they are willing to adapt to the supply chain price system and value for money after supermarket renovation. The domestic market's shrinking trend is hard to reverse in the short term; the biggest incremental market is going overseas. National blockbusters will definitely gain world-class influence and qualify as super blockbusters in the international market. Because of the scarcity of national blockbusters, once someone occupies the spot, you have no chance. National blockbusters will be the final showdown for first-tier brands and a reshuffling of first-tier brands. User Operations Are the Handle for the New Cycle Multinational companies' national blockbusters were formed in the industrial era, during brand-driven and retail oligopoly processes. Supermarket renovation will form oligopoly in Chinese retail, similar to Europe and America. The difference is that the formation of China's national blockbusters will lack brand drive, or rather, lack the brand drive carried by mass media like in Europe and America. At the same time, national blockbusters cannot be formed through deep distribution and extensive terminal coverage. Therefore, a new user operation model is very important. Brand operations used to rely on brand departments, with key strategies for mass media placement. Now, Douyin is similar to the main battlefield for mass media communication in the past. The fragmented communication environment determines that only UGC-based communication can form widespread public awareness. Therefore, from a marketing function perspective, new organizational structures and functions are needed. UGC cannot be manipulated or solved by resource investment. Platforms allocate 50% of traffic to UGC and the other 50% to brand investment. This logic determines that imitative UGC traffic is the largest. So, what determines whether UGC can gather momentum? I think it's consumption scenarios. UGC has no commercial stance; it's just an outlet for consumer emotions. Therefore, scenarios carry communication genes. User operations are scenario operations, scenario operations are UGC operations, and UGC operations are brand operations. I think either establish a scenario department or redefine the brand department's function as scenario operations. This is the first important change. The second important change is to define distributors as operators, i.e., user operations and scenario operations. As long as there are orders, B2b will be the most efficient and cost-effective for product delivery. So, where do orders come from? From user operations. China's distributors must either transform into B2b platform operators, category operators, or private label operators. In short, they are all operators with new functions. What is the difference between distributors and operators? Their stance is different. Distributors take the manufacturer's perspective, serving the manufacturer. The supply chain takes the retailer's perspective, serving the retailer. Among the above operators, only user operations stand on the manufacturer's side, serving users. This is a new type of channel partner aligned with the manufacturer. Dual-Track System China's reform has two major methodological breakthroughs: the dual-track system and incremental reform. Stock reform involves interest distribution. Reforming the stock may even lose the stock. Using stock organizations for reform will inevitably face conservatism and resistance. If you use new organizations, they are naturally change-oriented; without change, they have no legitimacy. I suggest using the dual-track system. I have often used the dual-track system in past marketing transformations. For example, current user operations are like this: the scenario department and flying team operate new products, while the deep distribution organization operates old products. When incremental operations reach a certain point, stock organizations will automatically move toward incremental organizations. If national blockbusters are handed to deep distribution organizations, they will definitely become policy-driven inventory pressure and extensive distribution, making high-end products look low-end. The biggest advantage of incremental organizations is that they have no stock baggage and can start from zero. China's FMCG is in a stage of major reshuffling, with channel fractures, supply chain reconstruction, and brand redefinition. All old game rules are failing, and the new order is not yet stable. In this new world's business cycle, the real game is just beginning. Who can create the next national blockbuster? Who can adapt to the supply chain reshaping of the new retail structure? Who can occupy the next round of consumer mindshare? At the 7th China FMCG Conference 2025, with 3 main forums and 5 parallel forums on hot topics, over 100 FMCG industry experts will share their practical experience, discuss the latest market trends, and help you lock in the next wave of growth opportunities. Additionally, there are 4 SVIP private sessions: face-to-face with industry leaders to discuss industry trends, cooperation opportunities, and business innovation. There will also be closed-door seminars and networking dinners for in-depth exchanges, precise connections, building an industry elite circle, and breaking cooperation barriers.