01
Why has the great change come?
The essence of the FMCG market is population economy. Without recognizing this, one cannot have a deep perception and understanding of the arrival of the great change in FMCG. The total market capacity of a category is the sum of the number of consumers in that category multiplied by the average consumption capacity per person. Among the two variables, "number of consumers" is affected by total population, age structure, category consumption willingness, etc.; per capita consumption capacity is mainly affected by economic development, income level, consumption behavior, etc. In fact, unprecedented changes are taking place in the Chinese market in terms of population size, age structure, consumption behavior, labor income, and other aspects. 1) China's economy has entered the Lewis turning point A consensus view is that since 2013, China's rural surplus labor has basically been absorbed by the industrialization process, and China's economy has also entered the famous "Lewis turning point." Entering the Lewis turning point means that workers' wages must continue to rise, otherwise it will be impossible to obtain sufficient labor. From reality, this is also consistent with the actual feelings of operators. Whether it is a brand company or a distributor, if today's wages are not competitive and do not continue to grow, the team will be in an unstable state for a long time. "Difficulty in recruiting" has become one of the most headache-inducing problems for distributors at present. Of course, the continuous growth of wages also means that the consumption capacity of workers will continue to improve. But how much of this increased consumption reaches you is the important question. 2) China's population has entered an era of negative growth In addition, due to years of declining birth rates and rising aging, China will officially enter an era of negative population growth from low growth in 2022. Although the population will not show a sharp decline, negative population growth is a long-term trend and will basically not reverse in the short term. Aging and negative population growth mean that the total number of FMCG consumers will continue to decrease. Although the total market volume will not drop sharply at once, it has entered an era of stock with no increment. At the Lewis turning point, production and operating costs continue to rise, making it difficult to make money by selling cheap goods and competing on low prices, but high-quality products will be more popular. After clearly seeing the structural changes in China's population and economy, we will find that China's FMCG market will also enter an era of "great changes unseen in a century," pushing the Chinese FMCG market into a "new major cycle." 02
Main trends and competitive methods in the new cycle era
Trend 1: Capacity declines, revenue rises, and "quality growth" becomes the main business strategy. Due to regional differences across China, low-price competition will still exist for a long time, but it will increasingly shrink and will never again become the main strategy for FMCG manufacturers and distributors. In the new cycle, due to changes in population size and structure, the total capacity of most FMCG products will decline, with beer and liquor being the most typical examples. In 2013, China's beer production historically broke through 50 million kiloliters for the first time, reaching 50.62 million kiloliters. Since then, it has continued to decline year after year, reaching 34.11 million kiloliters in 2022, a drop of 32.6% from the historical peak. The trend for Chinese liquor is similar. In 2016, China's liquor production reached a historical high of 13.58 million tons, and has declined year after year since then. In 2017, it was 11.98 million tons; in 2018, 8.71 million tons; in 2019, 7.86 million tons; in 2020, 7.41 million tons, a decrease of 44% compared to 2016. Although capacity has declined, sales revenue has not decreased, and is even growing rapidly. The sales revenue of China's liquor industry has basically remained stable at around 600 billion yuan; the beer industry's sales revenue increased from 147.2 billion yuan in 2018 to 179.4 billion yuan, an increase of more than 20%. Capacity decline and sales revenue increase prove that the market has truly entered a new cycle era of "quality growth." Trend 2: Competition in the new cycle is mainly competition in innovation. The first type is category innovation. For example, from the instant noodle field, innovations have upgraded to "self-heating food" and "prepared dishes"; from the beverage category, low-alcohol fruit wine and others have been innovated. The second type is product upgrade innovation. For example, craft beer, raw pulp beer, various flavored beers, and alcoholic beverages in the beer category. The third type is marketing innovation. For example, enhancement of brand value, improvement of digital marketing capabilities, innovation in new retail channels, and innovation in channel models. In summary, better brands, better products, better prices, more effective marketing, and quality growth are the main trends of FMCG competition in the new cycle. 03
Two important suggestions for FMCG manufacturers and distributors
As mentioned earlier, the main growth in the new cycle comes from "quality growth." This means that in addition to basic coverage capabilities, FMCG channels must also learn another core capability: how to use "promotion" to sell better brands and products at better prices more effectively. In brand building, brand owners can continue to invest more budget; in R&D, brand owners can develop and produce more innovative high-end products. But in the end, they still need channel partners with strong operational and promotional capabilities to complete the most thrilling leap in the market. Therefore, enabling FMCG channel distributors to master the promotion and operation capabilities of high-end products in regional markets is one of the keys to winning the future for FMCG manufacturers and distributors. Therefore, we provide one key suggestion each for FMCG manufacturers and distributors. 1) Suggestion for manufacturers: Build a channel team that can win battles in the high-end field for the future. First, survival of the fittest, and flexibly introduce and support high-end operation distributors who are willing, resourceful, and capable. We cannot expect all distributors in our current channel system to grow, but we can select excellent ones who are suitable and have a strong willingness to operate high-end products, and provide them with continuous empowerment and support. The remaining distributors can still sell our regular waist and bottom products, taking on the task of consolidating the basic market. Second, establish a professional channel empowerment team, organize excellent distributors and continuously empower them, and build a platform for continuous learning and progress in high-end operations. Discover and summarize successful benchmark cases of high-end operations in the national market, and organize excellent distributors nationwide to continuously exchange, learn, and practice. One person's success is just experience; after summarizing experience into knowledge, and after knowledge is replicated and applied, it becomes an organizational capability. Third, make good use of Internet technology and platforms to carry out various online and offline channel empowerment forms. Through online and offline methods, using Internet technology and combining online and offline field training, continuously organize excellent distributors to exchange, learn, and visit markets. Specific forms include online live streaming, offline salons and in-depth market visits, empowerment training workshops, offline training courses, etc. At the same time, in addition to the learning platform built within the enterprise, how to integrate external professional forces to create more learning opportunities for distributors is also something enterprises need to consider. 2) Suggestion for distributors: Keep pace with the times and build several important capabilities to adapt to competition in the new cycle. First, build organizational capabilities to transform our trading companies from traditional companies to modern management enterprises. Second, transform from traditional single offline operations to digital marketing capabilities for omni-channel sales, and integrated online and offline operation capabilities. Third, transform our deep distribution model from mainly undifferentiated coverage to the capability of precise development and deep operation of core terminals. Fourth, transform our function from mainly single terminal sales service to the function of jointly operating high-end customers with core terminals. Improving distributors' high-end operation capabilities and building a channel system with high-end operation capabilities are not achieved overnight, nor are they just to cope with current operational difficulties. They should become the common will of FMCG manufacturers and distributors, with persistent collaboration and efforts, joint learning and progress, and long-term commitment. From November 3 to 5, the 7th China FMCG Channel Innovation Conference, hosted by New Distribution, will be held in Chengdu. It is reported that for the majority of FMCG distributors, the conference will specially launch a training course on "How distributors can acquire the above four capabilities in the new cycle," which deserves attention.