Click to read the original text for details In the first half of 2022, FMCG professionals experienced another round of pandemic tests. Fortunately, after more than two years of training, everyone was somewhat prepared and had developed many coping strategies and methods. However, after the pandemic stabilized, how should FMCG professionals face the current market environment and deal with potential revenue issues? Changes in the internal and external environment have made us deeply realize that the problems before us must be solved on the one hand by holding the basic market, and on the other hand by discovering new opportunities. The first half of the year that is about to pass has many keywords. New Distribution has selected the top 10 industry keywords around the two directions of "seize opportunities and stabilize the market": prepared dishes, brand crossovers, the metaverse, Chinese-style nourishment, Douyin algorithms, digitalization, private domain traffic, community group buying, new consumption, and returning offline. This presents the efforts, changes, and trends of FMCG professionals over the past six months. 1 Prepared Dishes: B-end First, C-end Support Driven by the pandemic, prepared dishes became a hot trend. From 2019 to 2021 alone, the market size of prepared dishes in China increased from 244.5 billion yuan to 345.9 billion yuan, with an average compound growth rate of 18.94%. The momentum is rapid, and it is expected to exceed one trillion yuan by 2026. In fact, prepared dishes are not new. In the traditional frozen food industry, there are many categories of quick-frozen foods, including staple foods like rice and noodles, and processed meat and vegetable dishes, all of which can be considered prepared dishes. However, with market opportunities catalyzing, more new products and new industry entrants have emerged, further expanding and deepening this category. △Image source: Internet Most of the main enterprises in prepared dishes operate on the B-end. In the past two years, with the explosion of prepared dishes on the C-end, the current trend is that while the industry as a whole expands, both B-end and C-end maintain high growth. Prepared dishes have also become a new business growth direction for many old-line frozen food and condiment companies positioned on the B-end. According to Mintel's "Prepared Foods - China, 2021," the brands of prepared foods that consumers have purchased can be clearly divided into three tiers. Traditional quick-frozen food brands and supermarket private labels occupy the top tier, each with over 60% penetration. The second tier consists of Chinese and Western restaurant brands, with penetration rates between 46% and 51%. Emerging prepared dish brands are in the third tier.
- New Distribution Comment: **Regarding the space for exploring the C-end market for prepared dishes, many old players and new entrants are gearing up to seize the dividends of this industry expansion. However, C-end operations differ from B-end, placing higher demands on product R&D capabilities, marketing promotion capabilities, and channel layout capabilities. Moreover, the consumption scenarios and price points for prepared dishes on the C-end remain uncertain, and long-term space remains to be observed. It is recommended that food companies entering the prepared dish industry carefully plan their development strategy, considering whether to focus on B-end, C-end, or both, and how to position themselves. 2 Brand Crossovers: Sinopec Sells Alcohol, Li-Ning Sells Coffee - Are Brands Becoming FMCG? In mid-June, Sinopec announced that its "small tavern" built on the Easy Joy convenience stores at gas stations landed in Hangzhou. According to Sinopec Easy Joy's plan, it will complete the construction of more than 200 "Easy Joy Fine Wine Taverns" by the end of August this year. A relevant person in charge of Sinopec Easy Joy said that the "Easy Joy Fine Wine Tavern" will feature products from well-known brands nationwide and even globally, and will also launch alcoholic beverages with local characteristics based on city and regional differences. In addition, it will operate fine wines across various price points, introducing commemorative and rare wines for collectors. In fact, this is not Sinopec's first cross-border operation; previously, Sinopec also sold water, coffee, functional drinks, and other products. However, relying on the consumption scenario of Sinopec gas stations, selling water, coffee, and functional drinks is understandable, but selling alcohol deviates somewhat from the scenario. Based on the common understanding of "don't drink and drive," for Sinopec, combining "refueling" with "buying some wine" seems somewhat contradictory. But many industry insiders are optimistic. One view is that Sinopec Easy Joy's high-exposure gas station convenience stores are ideal display spaces for alcoholic beverages. For some second- and third-tier brands with weaker brand power, and second-tier alcoholic products from first-tier brands, higher cost-effectiveness can facilitate transactions. Another view from the baijiu industry is that gas station convenience stores are a new option for the baijiu industry to reduce inventory. For baijiu companies, this channel can indeed bring significant value to brand promotion, product market introduction, and entry into key markets. It helps companies (including distributors) reduce inventory. However, Easy Joy convenience stores have not yet reached the stage of systematic operation, so for companies, it can only serve as a temporary sales promotion tool, and profit margins will not be large. It is understood that Midea's specialty stores and China Tobacco Group are also venturing into alcohol retail. It seems the baijiu track is indeed a hot potato. In addition to baijiu, the coffee track also cannot escape the "fragrance" law. Not long ago, the clothing brand Li-Ning announced the opening of a "Ning Coffee" experience hall, which caused quite a stir. Image source: Li-Ning official Weibo Li-Ning officially stated: The company pays attention to the consumer purchase experience at retail terminals and hopes to improve customer comfort and experience by optimizing in-store services. Providing coffee services in stores will be an innovative attempt by Li-Ning to enhance the retail terminal consumer experience. Given Li-Ning's trend toward national trend (guochao), the coffee audience fits Li-Ning's positioning. On the other hand, Li-Ning is not only entering the coffee beverage business but also the chain coffee format. As a place for spatial experience, coffee shops also need to meet the requirements of photo-taking, socializing, and beautiful imagery. Li-Ning's creation of coffee scenes combined with its own brand culture aims to get closer to young user groups and strengthen brand philosophy. It is understood that China Post (Post Office Coffee), PetroChina (Haoke Coffee), Sinopec (Easy Joy Coffee), and other traditional brand companies are also cross-border operators in the coffee track, and Huawei is also considering selling coffee.
- New Distribution Comment: What signal does brand crossover into FMCG send? For brands with different attributes, the directions of cross-border exploration differ. Easy Joy pursues profit supplementation based on its network advantages, while Li-Ning pursues a new way of spreading corporate culture. The FMCG-ization of brands is becoming a trend and a new approach to brand building. Through crossovers, brands bind to the "high frequency, high coverage, and timely experience" characteristics of FMCG, effectively increasing the consumption frequency and experience of target user groups, bringing brand value enhancement. For brand entities, building scenarios where consumers can experience and perceive in a timely manner will become a key measure for future market competition. This explains why brands with product manufacturing attributes like Li-Ning and Huawei are exploring new business models in conjunction with FMCG scenarios, and more brands will join in various ways and forms in the future. However, if the above cross-border behaviors are only strategic layouts and key tactical actions in the brand upgrade process, becoming tactical supplements to boost the main business, there is a possibility of success. But if they aim for independent operation, the difficulty will be greater. 3 Metaverse: Nothing Concrete Yet, Empty Talk Is Useless The concept of the metaverse became a hot topic, but after the public realized that the metaverse cannot be achieved overnight, the heat subsided. However, the enthusiasm for the metaverse at the industry and investment levels has not significantly declined. In fields related to the metaverse, such as virtual humans, social networking, and VR/AR, major companies are making moves. Since the beginning of this year, virtual digital humans have become the darling of the investment community, with nearly a hundred financing deals in the first month alone, totaling over 400 million yuan. ByteDance, Tencent, and other internet giants and entertainment companies have laid out virtual digital humans, releasing digital human products; Inke Corporation renamed itself "Inkeverse"; metaverse social apps are constantly being incubated; Luo Yonghao recently publicly stated that his next entrepreneurial direction is AR, calling AR the next computing platform. In the FMCG industry, news about the metaverse concept has also emerged. Kangshifu and Baixiang have launched virtual digital human endorsements, Coca-Cola partnered with digital wearable device design platform Tafi to launch NFT digital collectibles, including the Coca-Cola Friendship Box, and Wanglaoji launched the digital artwork "Baijiahe" and applied for trademarks such as "Wanglaoji Metaverse," "Lixiaoji Metaverse," and "Ciningji Metaverse." △Baixiang Food virtual digital human Nan Mengxia However, regarding the distant metaverse, Wang Sheng, partner of Inno Angel Fund, said, "Talking about realizing the metaverse now is like building Disneyland before the roads are repaired and water and electricity are connected." Wang Sheng pointed out that the infrastructure construction of the metaverse is still in a very early stage, and investors are highly focused on technological innovation in its infrastructure construction. Taking virtual digital humans as an example, on the one hand, the production cost of 3D animation is high and the cycle is long; on the other hand, the immersive 3D images of digital humans are still mostly presented in short video formats. He believes that the metaverse infrastructure should focus on the following directions, including computing power infrastructure to support the massive computing needs of the metaverse; artificial intelligence technologies such as AI perception algorithms to strengthen virtual-real connections; and the construction of 3D graphics and related production tools to build virtual digital spaces. "In the next three to five years, the metaverse field must first achieve improvements at the infrastructure level. Only on the basis of continuous improvement of infrastructure can there be a rich content ecosystem," Wang Sheng said.
- New Distribution Comment: Most of the behaviors related to the metaverse in the FMCG industry are brand communication activities. It is fine to get on a hot search to increase exposure, but it may be far from the standard for entering the metaverse. However, in the exploration of metaverse technology, there are indeed some technological means that can be combined with the "people, goods, and scenes" in the retail format. For example, Junlebao's Yuexianhuo milk has built a 100-story "Fresh Milk Experience Factory" in the metaverse scene, allowing consumers to intuitively experience the integrated management of the entire industry chain - from pasture planting, dairy cow breeding to production and processing, all visualized. Another example is that FMCG brands using metaverse technology to empower products may gain natural favor from the young generation born between 1995 and 2010. The user profiles of Generation Z, who grew up in the internet world, include three important labels: "anime," "stars," and "games," which align with the virtual IPs, NFT art collectibles, blind box economy, and other content that may appear in the metaverse. 4 Chinese-style Nourishment: Younger Demographics With the improvement of living standards and income, not only middle-aged and elderly groups have health awareness, but in recent years, young people have also gradually joined the health maintenance army. According to e-commerce platform data, traditional nourishing ingredients such as donkey-hide gelatin, fish maw, bird's nest, black sesame, honey, goji berries, notoginseng, and ginseng, with modern processing methods, have broken the traditional consumption patterns that were only popular among deep consumer groups or gift-giving scenarios, and have begun to meet the fast and convenient usage needs of young people under the 996 work schedule. Among many Chinese-style nourishing products, bird's nest is a relatively representative product. In the past, bird's nest was exclusively used by the royal family, representing status and identity. It is precisely because of this concept passed down from ancient times that bird's nest has always been a symbol of scarcity and high price in consumer perception. Now, bird's nest products have gradually come down from the altar. Although they are still relatively precious nourishing products, they have gradually moved toward the mass market. In particular, the emergence of new bird's nest products (instant bird's nest, fresh stewed bird's nest) meets consumers' needs for convenience, speed, health, and nutrition, and has also attracted young consumer groups. △Image source: Internet Other products almost follow the same logic, breaking the traditional production process of steaming, boiling, simmering, and stewing for health ingredients. New Chinese-style nourishing products are gradually showing a trend of snackification and convenience, penetrating into daily life. This nourishing approach will also affect and even reconstruct a generation's habits and concepts regarding traditional nourishing products.
- New Distribution Comment: For consumers, there is a long-term demand for health maintenance to solve health problems. Whether it is the older generation or the new generation of consumers, the need and desire for health is a common issue. The emergence of new Chinese-style nourishment provides a better solution to some extent. It not only enriches product categories but also expands the Chinese-style nourishment market. However, I believe this market is still in its infancy. There have been breakthroughs in product technology, taste, formula, usage scenarios, and brand image, but it is far from being attractive enough. To achieve FMCG-ization and younger demographics, in addition to solving consumer awareness issues, price, taste, consumption scenarios, etc., also need in-depth research. After all, it is easy to be brilliant for a moment, but to occupy consumer minds for a long time and form repeat purchases like FMCG, it still needs to stand the test of time. 5 Douyin Algorithm: Platform Creation An article by Teacher Li Qian, "It's Not That You Play Douyin Well, But Douyin Chose You," fully explains how Liu Genghong and East Buy became popular under the Douyin algorithm, based on the "six-step brand building method." Teacher Li Qian said that the "explosive popularity" of East Buy, like Liu Genghong's shuttlecock exercise, is a brand action of the Douyin platform itself. Once you hit the opportunity that "Douyin brand needs," becoming popular is just a calculable result. This action, described in one step of her six-step brand building method, is called: setting off fireworks. What does this firework refer to? It is brand culture and tone. To be selected by the Douyin platform, your brand culture and tone must either be consistent with Douyin's brand value or meet Douyin's needs and interests. This wave of East Buy helped Douyin upgrade its so-called "platform tone" and brought back many "high-end" users. △Image source: East Buy live streaming room We have entered the era of platform creation. In the past, "people looking for channels" has now become "channels selecting people." Whether you are the "chosen one" has become a careful study of platform rules and traffic passwords, like an imperial examination. How to set your positioning and tone in the face of the market, and release the correct labels and signals, has become the key to competition. Justice, culture, health, the pride of national brands... these big directions guide the platform's screening mechanism. Do you know how to become the "chosen one" of the platform?
- Teacher Liu Chunxiong's Comment: The explosive popularity of East Buy is due to East Buy's own potential + the platform's needs, making East Buy the "chosen one" of platform creation. This is a part of platform star-making, a success of effort + luck. Big success depends on platform layout, small success depends on your own efforts. The platform draws a circle; your efforts and skills, at best, fill the circle. To break out of the circle and enter a larger circle, you still need to see if the platform has chosen you. 6 Digitalization: A Must for Enterprises Why is digitalization so important? It has not only become a must for the transformation and upgrading of the FMCG industry at present, but will also continue to affect the development and transformation of the entire industry in the next decade. The pandemic has played a certain role in accelerating the digitalization process of enterprises. In the first half of this year, FMCG professionals who experienced the test of the pandemic have all begun to re-examine their understanding of digitalization. To understand digitalization, one must first distinguish informatization from digitalization. Traditional IT system upgrades do not change the overall business structure. Through system upgrades, we only improve management efficiency and optimize operating costs. This is the value and characteristic of informatization. The essence of digitalization, although the process is still based on the construction of information systems, is fundamentally business-driven, including the exploration of innovative businesses and business transformation. For the FMCG industry, what problems do we need to solve with digitalization? Today, when facing the new retail environment, the traditional distribution model can no longer solve current business problems. The core of digital transformation is to complete the digital reconstruction of marketing, supply chain, decision-making, and management based on market changes and consumer needs, oriented by user management, establish a rapid response mechanism for consumers, digitize offline business, turn channel and consumer behavior into data, quickly feed back to production and marketing ends, form a closed decision-making loop, and ultimately achieve all-weather, all-domain, and personalized consumer needs. This is also the fundamental way to solve future growth.
- New Distribution Comment: What are the main problems faced by FMCG enterprises? How can digitalization solve them? There are three main problems: data gaps and channel blind spots, unable to provide decision support for marketing; low organizational efficiency; and inability to quickly discover and respond to consumer needs. Digitalization must achieve four "onlines": organization online, business online, functions online, and consumers online. Digital transformation is not just about having a set of digital tools or completing the online conversion of some offline data, but a business model. It is a process that starts from solving specific problems, based on business and organizational logic, and continuously grows. Starting from solving specific problems one by one gives the team enough room for trial and error and growth, and ultimately completes the closed loop of the entire system. In one sentence, think about digitalization with systematic thinking, and start digitalization from solving specific problems. 7 Private Domain: New Ideas for Shared Private Domain The concept of shared private domain was proposed by Teacher Liu Chunxiong. The concept of private domain is very popular, but how to do private domain is still in the exploration stage. Many enterprises have found on the road of private domain exploration that if private domain falls into the logic of private, exclusive, and traffic diversion, this road is getting narrower and narrower. Is it a false proposition for enterprises to do private domain themselves? Or are there other new ideas for private domain to learn from? Teacher Liu Chunxiong, through some actual cases in the FMCG industry, proposed the concept of shared private domain, that is, brands share private domain with all links in the distribution chain to maximize value. One case comes from the maternal and infant industry. The maternal and infant industry is special, relying particularly on professional and trust endorsement, so stores and shopping guides, as the closest touchpoints to consumers, are very important. Against the background of the disappearance of demographic dividends, maternal and infant brands have been relatively early and deep in private domain exploration. Mining the value of the user's full lifecycle is a key way for maternal and infant brands to gain increments. After exploration, maternal and infant brands have formed a value chain where the brand is responsible for building the operation system, and together with channel partners, assists retail small b to connect with consumers. In this chain, the brand provides professional services, and the retail store provides customer relationships. The difference in this case is that in the past, retail stores guarded their own membership systems, and brand owners bypassed stores to reach members, with both sides playing games. Now the two cooperate to form a shared membership between brand owners and retail stores. Another case comes from a distributor's exploration of private domain. During the pandemic, distributor Mr. Gao in Beijing used the idea of shared private domain, operating communities with retail store owners, turning store owners into group leaders. On the one hand, this helped store owners connect with C-end users to sell goods, and on the other hand, it also promoted the inventory turnover of his own goods. The topic of whether distributors should do private domain has sparked intense discussion. Some believe that distributors should do their own job well and should not be distracted to reach C-end. Others believe that distributors should not limit themselves and can explore C-end to gain more market increments. I think both are reasonable; the key is how distributors view themselves and how to balance the interests of all parties.
- Teacher Liu Chunxiong's Comment: Private domain seems to have entered a dead end. The "private" in private domain has brought enterprises into a small pattern. When private domain goes astray, the emergence of shared private domain is timely. Sharing is difficult, but it is a big pattern. There are two prerequisites for sharing: one is trust, whether the brand or distributor is worthy of trust; the other is service capability, where the brand (or distributor) works with small b to provide professional services to C-end. At the same time, two problems must be solved: one is increment, sharing must have increment, otherwise it enters stock competition with no shared profit; the second is the profit-sharing mechanism. With increment, how to distribute profits must be agreed upon in advance. 8 Community Group Buying: Where to Go After the Rise and Fall? In the first half of 2022, the community group buying businesses of internet giants were successively shut down or retreated. Chengxin Youxuan completely withdrew from the market, and Jingxi Pinpin also retreated again and again, retaining only 2 markets nationwide, almost closed. Taocaicai and Meituan Select are relatively strong, but they are still mainly "strategic defense," with some layoffs and some withdrawing from cities. Duoduo Maicai has achieved profitability in some areas, but most places are still losing money... Community group buying has returned to rationality as a whole, and it needs to prove its sustainability through profitability. At such a time, we stop and reflect: What exactly happened to community group buying? It is undeniable that without black swan events like the pandemic, the spark of community group buying would have been extinguished in 2019. The pandemic brought community group buying back to life, but with the massive influx of hot capital and the crazy grab for traffic entrances by internet giants, we have also questioned the sustainability of this business model. We have to think: When people's life order gradually recovers, will this business format of community group buying gradually dissipate? When internet giants retreat one after another and capital no longer subsidizes, can these group buying users still be retained? △Image source: Internet
- New Distribution Comment: The history of yesterday and the lessons of today tell us that community group buying is a retail business and a supply chain business, requiring "bending down to pick up coins." Returning to the essence, community group buying is not a capital war or a traffic war, but a long-term protracted war. The entry of internet giants, carrying the huge temptation of traffic entrances, underestimated the difficulty of community group buying from the beginning. However, what was underestimated was not the business model threshold, user operation promotion, or replication and expansion to new cities. What was truly underestimated was supply chain fulfillment and delivery, category combination design, and community social relationships. The ideal state of community group buying is centralized procurement, reducing transaction processes, and thereby improving efficiency. But for fresh produce categories, it is impossible to achieve centralized large-scale procurement, transportation losses, price fluctuations, scattered planting, etc. It is difficult to truly achieve economies of scale in a short time. Moreover, behind stable fresh produce supply is never a technical problem, but a cost problem. Low-priced fresh produce cannot support the warehousing and distribution costs behind it. Perhaps the name "community group buying" is wrong, misleading many people. It should not be called community group buying. If it had been called community retail, community service, community fresh produce, community e-commerce from the beginning... the industry might not have been so eager for quick success. Let community group buying rest for a while and give them a period of recuperation. 9 New Consumption: A Period of Calm Reflection The heat of new consumption is receding, and conversely, some voices of decline are coming. However, if we leave the essence and talk about phenomena, we can only judge the success or failure of a new thing from a two-dimensional perspective. The reason why "new" was added before new consumption may simply be that under the background of the times, with the birth of new media, new channels, and new products, it was given the title of new consumption. New consumption is actually consumption and needs to follow the business logic of the consumer industry. As the traffic-driven entrepreneurial logic has been disproven, new consumption companies have entered a period of calm reflection, starting to think about the essence of business and the core issues of consumption. Comparing new consumption with traditional consumer brand companies, we find that the basic market of traditional enterprises, such as brand, cost, supply chain operation efficiency, and deep distribution, is the password to maintain long-term business operation. The reason why some new consumption brands come and go quickly is not only because dividends disappear and capital retreats, but because their basic skills are not done well and not solid. Other new consumption brands have stayed. What do we see them doing? Product R&D, brand promotion, expanding all channels - which of these is not consolidating the basic market?
- New Distribution Comment: Only when the basic market is solid can pursuing increments bring real growth. If you always chase immediate and current interests, the growth you chase will not be stable. Once the current dividend disappears, the growth of the enterprise will stop abruptly. Pursuing unchanging things is often more reliable than pursuing changing things. For example, consumer needs do not change, and brand assets do not change. New consumption is now in a period of calm reflection, and perhaps a batch of brands can break out of the cocoon and be reborn. Therefore, rethinking, repositioning, re-sorting the value chain, doing product R&D, channel construction, and brand marketing - these basic skills all need to be accumulated step by step by people and enterprises. 10 Returning Offline: bC Integration A few years ago, there was a slogan: all brands are worth redoing. This statement is not wrong. During this period, a series of new consumption brands emerged, seizing the online dividends brought by the rapid development of e-commerce platforms, using new marketing tactics to start market battles, and indeed posing some threats to traditional enterprises. However, 70% of business is still offline. The silence of new consumption brands and their moves to lay out offline in the past two years also indirectly confirm this. The view of returning offline has been re-proposed and valued. Teacher Liu Chunxiong's view is: Returning offline, is it still the same offline? He talks about how to rebuild offline business from the changes of three offline operating entities. The first entity is terminal retail. The value of returning offline for stores needs to be re-evaluated. Especially the value of small stores needs to be re-examined. In the era of deep distribution, there were hypermarkets, medium-sized supermarkets, and small stores. Often, they ran big stores but not small stores, and services also valued big stores over small stores. Now, small stores, through internet tools, have further enhanced their ability to connect with users. Through online-offline integrated links with users, they activate users, realize continuous monetization of users, and become a source of offline increments. Re-evaluating store value and re-planning channel investment is the core task of returning offline. The second entity is distributors. The functions of the personnel teams equipped by manufacturers need to be transferred. Manufacturers have three channel teams: salesmen, distributors, and shopping guides. Returning offline, the distribution of these three teams will change. The function of salesmen responsible for distributors will not change, but the number may remain the same or even decrease. At the same time, the number of distributors and shopping guides will increase, and their functions will change. Based on bC integration (link between stores and users), distributors and shopping guides need to shoulder the dual functions of assisting store sales and user connection. The third entity is the manufacturer's functional departments, which need to be re-empowered. Manufacturers need a dual marketing department. One at headquarters, the other in the region. Why is regional market coordination needed? Because the current functional requirements for regional marketing departments are no longer regional sales, regional communication, and regional sales policies, but to transform into a regional marketing middle platform to support data support for channel terminal maintenance, online channel operation, and user operation. My understanding is that offline is still the same offline, but the organization is no longer the same organization.
- New Distribution Comment: In the FMCG industry, 70% of sales come from offline. Among them, nearly 6 million terminal small stores scattered in alleys, town streets, and rural roads are the stable business foundation of FMCG enterprises and the positions that every brand must capture. In the past, brands wanted to directly connect with terminals and reach consumers, but could not. In the digital era, bC integration can help brands do this. What is bC integration? Specifically, it uses the basic tools of one object one code and mini-programs, plus operational actions, to attract consumer participation, let terminals promote, and bring traffic to terminals. It is digitalized sales promotion, which in turn promotes digitalized distribution, forming a positive feedback upward spiral. Future marketing will inevitably be deep marketing, a process from sales to marketing. The complexity of the market environment is increasing. All-domain operation will be the core work that every brand must do, and deepening consumer operation is the key to win-win for manufacturers and distributors. Half of 2022 has passed. New Distribution has selected the top 10 industry keywords around the two directions of "seize opportunities and stabilize the market," hoping to bring you inspiration. You are also welcome to come offline and communicate and learn with us up close. -END-