Click to read the original article for details The year 2016 just passed was not optimistic for the FMCG industry, often called the FMCG cold winter. However, FMCG companies were actively seeking innovation and change, making many attempts and adjustments to break through. The results of these adjustments are yet unknown, and perhaps some will rejoice while others worry. Among them, Uni-President, firmly holding the "second seat" in the instant noodle industry, made bold moves. In 2016, Uni-President successively sold Jinmailang and Jianlibao, and experienced leadership changes in both Taiwan and mainland China. Chairman Lo Chih-hsien of Uni-President Group proposed a bold zero-inventory strategy, not requiring shipment volume but focusing more on profit. Will this transformation work? Where is it headed? Uni-President's Yesterday: Missed Opportunities, From "First" to "Second" Uni-President Group was founded in Taiwan in 1967 and was the instant noodle hegemon in Taiwan. In 1992, Uni-President and Master Kong entered the mainland market simultaneously, with Master Kong arriving just 15 days earlier. Uni-President brought shrimp-flavored noodles favored by Taiwanese, but they were rejected by mainlanders who preferred stronger flavors. Meanwhile, Master Kong's braised beef noodles, being more down-to-earth, quickly captured market share, reaching a peak market share of 98%. After being suppressed for the first time, Uni-President, accustomed to being the hegemon, sought to save face. Facing Master Kong's attacks and suppression, Uni-President Group implemented major reforms targeting Master Kong. Although market share improved, they remained second, and the heavy investment led to huge losses that were unsatisfactory for Uni-President. Uni-President's challenge to Master Kong never ceased. From 2010 to 2014, Uni-President's profits experienced a 60% decline and also a 300% growth. Uni-President's instant noodle business lost 69 million yuan in 2009, 60.31 million yuan in 2013, and in the first half of 2014, a price war with Master Kong led to losses of 116 million yuan. In 2015, Uni-President Group's revenue fell by 1.7%, instant noodle revenue fell by 4.9%, beverages rose by 0.3%, and it was estimated that 2016 revenue would decline by 5.4% year-on-year. From the overall trend, although Uni-President tried various methods, it was difficult to change the status quo of being suppressed by Master Kong. At the same time, Uni-President's performance has been declining in recent years. So when Uni-President now declares that it will not increase shipment volume but will protect profits and reduce inventory, it feels like facing reality and stepping back. This strategy will likely have an impact on distributors and consumers. Uni-President's Today: Selling Assets and Changing Leadership, Zero Inventory Is Too Difficult Due to the beverage business adjustment in the third quarter of 2016, excluding Jinmailang's revenue, Uni-President lost 125 million yuan in the third quarter, and shipments declined year-on-year. Daiwa analyst Anson Chan said that due to lower-than-expected third-quarter performance, Uni-President's target stock price was cut from HK$7.2 to HK$5.9. In 2016, Uni-President sold Jinmailang and Jianlibao, shrinking its frontlines and focusing on its main business. But the main business is not optimistic either. The newly launched star product Hai Zhi Yan is expected to see a 40% year-on-year decline in annual sales. Although Tang Daren performed well, increasing instant noodle gross margin by 4.7% in 2015 with revenue of 500 million yuan, there is nothing else in instant noodles to stop the decline. Based on this, Chairman Lo Chih-hsien announced that Uni-President would boldly implement a zero-inventory strategy, not requiring shipment growth in 2017, but focusing on reducing inventory and increasing profits. Zero inventory generally has two situations: first, try to place inventory with distributors and terminals, so that Uni-President itself does not hold inventory, achieving zero inventory. Second, reduce inventory at the manufacturer, distributor, and terminal levels, reducing inventory in the circulation chain, thereby improving inventory turnover. If it is the first situation, the inventory pressure falls on distributors and terminals. Such a policy that ignores the interests of partners is like killing the goose that lays the golden eggs. If it is the second situation, it may reduce circulation inventory, but it cannot achieve true zero inventory. The result of complete zero inventory is that terminals have no goods to sell. Instant noodles have obvious seasonality, with sales in winter and spring significantly higher than in summer, making the sales end unstable. The production end has no off-peak or peak season. If production is high in peak season and low in off-season, the production capacity prepared for the peak season will be wasted in the off-season. Therefore, FMCG products have always had a tradition of stocking up, pressing goods produced in the off-season to sell in the next period. The excess goods temporarily stay at the manufacturer, distributor, and terminal levels to smooth out peaks, thereby finding a balance between production and sales and reducing overall costs. If Uni-President wants to promote zero inventory, it must first face the issue of coordinating production and sales. The so-called supply chain is the entire process from raw materials to production, production to circulation, and circulation to terminals. If any link has a problem, other links will be affected. In the circulation link, because it is difficult to accurately predict terminal demand, production and circulation need safety stock; otherwise, terminals are prone to stockouts, and the shopping experience damage caused by stockouts of best-selling products is hard to compensate. In addition to potential production and stockout issues, there are also distributor training and team coordination issues. Especially in Uni-President Group, with simultaneous leadership changes in mainland China and Taiwan, and major adjustments in teams and distributors, the implementation will be more complex. In 2016, Uni-President Group announced the appointment of Hou Ronglong as Group General Manager and Liu Xinhua as General Manager of the mainland company, with simultaneous leadership changes in both regions. Subsequently, Liu Xinhua introduced three major internal reform directions for 2017: "Zero-Based Budgeting," "Channel Reform," and "Food and Beverage Integration." From Liu Xinhua's policies, the core idea is to reduce costs, including operating costs and channel costs, even at the expense of reducing control and service to terminals. This policy aligns with Chairman Lo's proposal to protect profits, but there is no sign of achieving zero inventory. In marketing, there is a term called the "bullwhip effect," which means a positive policy, when amplified through levels, can cause negative results. Chairman Lo's proposal of zero inventory and profit protection is a beautiful vision. However, the author believes that Liu Xinhua's policy overemphasizes cost reduction, leading to weaker control over terminals and reduced sensitivity to market demand, making it difficult to achieve the goal of reducing inventory. Uni-President's Tomorrow: Unclear, Prospects Unknown Although Uni-President proposed a strategic direction for 2017 of not increasing shipment volume, promoting zero inventory, and focusing more on profit, based on the trends of 2015 and 2016, it is likely that Uni-President's performance will continue to decline in 2017. From the channel perspective, Uni-President's small distributors will be eliminated, large distributors will merge, and profits will be reduced. Distributors' profit sources are diverse, including not only product price differences but also promotional policies, gifts, new product promotion fees, year-end rebates, stocking profits, and second-tier distribution. Uni-President's policy adjustments for distributors will cause changes in their income structure. If distributors continue to stock up and push volume as before, they may eventually incur losses. From an innovation perspective, Uni-President has fallen into a strange loop in recent years. The highly publicized "face change" in the past two years only changed packaging and widened noodles. The launch of "Man Han Yan," dubbed the "Hermès of instant noodles," priced at 29.9 yuan, was forced to end in less than a month. Under "micro-innovation," product life cycles are too short, and frequent launches and withdrawals have made distributor overstocking the norm. Uni-President claims it will launch 20 new products this year, but whether they can alleviate the current situation is unknown. The author feels that after the success of "Tang Daren," Uni-President has not done enough to consolidate it. It should first consolidate Tang Daren rather than blindly innovate and reform, neglecting one thing while attending to another. After all, Tang Daren faces significant competitive pressure in the high-priced noodle segment. The three major reform measures do not include targeted strategies for consolidating premium products. Moreover, the integration of food and beverages may lead to less specialized service and unstable pricing, which could affect sales of existing premium products. Overall, Uni-President's reform is quite aggressive, with high reform costs, and may not adapt to the adjustment needs during the transition period. Currently, the entire distributor market is in a period of change, and future functions will be more segmented. Alibaba's Retail Link and JD.com's New Channel have entered FMCG B2B, and internet transformation of distribution brings many uncertainties. Both the economic environment and Uni-President's new policies will lead to fewer distributors. At the same time, with consumption upgrades and changing consumer concepts, product cycles and sales fluctuations are harder to predict. Therefore, distributors should prioritize cash, expand cautiously, and focus on improving internal capabilities and seeking new paths. Regarding Uni-President's zero-inventory and profit-protection strategy for 2017, the author believes it is quite difficult and suggests distributor friends first observe, calculate the benefits and costs, and then make decisions. -END-