Click the image above for details Looking back at the development of China's FMCG industry over the past 30 years, frankly speaking, the continuous growth in brand sales has come from four original drivers, which we can also consider as opportunities leading everything. 1) Market capacity: Where there are people, there is a market. In the past 30 years, China's large and rapidly growing population, coupled with the economic growth and consumption explosion after reform and opening up, created unprecedented market capacity. 2) Category penetration: Categories went from nonexistent to existing, from few to many; consumers went from not using to using, until the proportion of users in the population grew higher. 3) Category upgrade: From low-end to high-end, from single to comprehensive; single-product packaging upgrades, taste and quality upgrades, specification and capacity upgrades; consumers went from spending less to spending more, with per-capita contribution continuously increasing. 4) Market share expansion: Through brand positioning, product portfolios, and market segmentation, brands squeezed market share, occupied markets, and captured share from other brands. But now, the above dividends have almost all failed. Market capacity is continuously shrinking, and opportunists find it hard to survive. Brands that want to expand their market share must put in several or dozens of times the effort. The richness of products makes category penetration and upgrade difficult. So where is the road for brands? What are the development trends? -01- Trend One Overall consumption is strong, service demand maintains high growth, but categories hit an inflection point, with price driving growth rather than volume. 1. Macro perception: Strong consumption power during the 618 e-commerce shopping festival The recent 618 e-commerce shopping festival, as the first shopping festival in the post-pandemic era, was an important node for brands and merchants to boost sales, acquire users, and make up for losses during the pandemic. This year's 618 mid-year promotion started pre-sales on May 25, officially kicked off on June 1 with the first wave of discounts, and peaked from June 16 to 18. What was people's purchasing power under the pandemic? How strong was this wave of revenge spending? We can get a glimpse from the results of the 618 shopping festival. 2. Micro feeling: FMCG industry data According to the latest data from Kantar Worldpanel, China's FMCG market achieved an overall recovery in the post-pandemic era, with a 3.5% year-on-year growth in the second quarter. This also aligns with the overall rebound of China's GDP: data from the National Bureau of Statistics shows that China's GDP grew 3.2% year-on-year in the second quarter. Nielsen research shows that in January-February, March, and April this year, FMCG online channel sales grew 33%, 32%, and 43% year-on-year respectively; the year-to-date growth is 37%, maintaining strong momentum. From an omnichannel perspective, according to Nielsen, FMCG omnichannel sales grew 3% year-on-year in January-February, fell 6% in March, and returned to growth in April with an 8% increase; the year-to-date growth is 4%. 3. Categories hit an inflection point, focusing on price-driven rather than volume-driven growth To achieve high sales growth, brands must continue to focus on volume increase as the foundation, but also pay more attention to category pricing. In short, relying on selling more to achieve sales growth is increasingly difficult; the only hope is to sell at higher prices. Just as it's hard for brands to create billion-level super products, diversified and personalized products are becoming more numerous and more expensive. -02- Trend Two Consumption upgrade, product premiumization and diversification are bound to be key factors for brand sales growth. 1. First, let's talk about changes in consumption concepts a. Higher requirements for consumption quality. Consumers are more willing to pay for high-quality products with higher safety standards. b. Emphasis on healthy and natural lifestyles. They are very willing to pay for products with organic, natural ingredients and environmentally friendly, recyclable materials. c. Pursuit of convenient consumption methods. On one hand, the proportion of internet consumption is increasing; on the other hand, they spend less time on basic needs to free up more time for things they want to do. d. Emphasis on deeper and broader emotional experiences, and a greater pursuit of experiential consumption. Buying quality products more or less makes them feel happy, and buying high-quality products boosts their confidence. They value and emphasize perceptible value experiences. As consumers' horizons broaden and their perspectives diversify, communication methods change from functional concept preaching to sharing and discussion. e. Leisure and entertainment needs continue to expand, with a greater preference for participation. Improved economic strength leads consumers to demand higher product quality and be willing to spend more money in exchange for additional value from products or services. It's no longer about satisfying basic needs but pursuing high-end consumption of enjoyment, quality, and value, shifting from "eye consumption and price comparison" to "heart consumption and value comparison." 2. Brand product definition In most FMCG growth, the launch of premium and diversified products has become a dominant factor. Consumption upgrades have driven half of the growth rate in FMCG. As brand concentration further increases, the space for brands to survive is shrinking. Today, consumers are increasingly rational, with growing brand awareness and higher product demands. This requires brands to launch premium and diversified products to meet consumers' different pursuits. This is a blue ocean strategy and a manifestation of diversified development, while the richness of products drives consumers to pursue a better quality of life. 3. Summary of consumption upgrade a. China's consumer goods have gone through a process from nonexistence to existence, to scarcity, to abundance, to preference, to selection. b. With the great abundance of materials, demand levels develop from basic needs to safety needs to social needs, aligning with Maslow's hierarchy of needs. c. Consumption drivers evolve from basic functional usage needs to high-quality, natural, healthy, and convenient experience needs. d. In the new round of consumption upgrade, consumer demands become more diverse. -03- Trend Three Hero products dominate; creating core hero products is particularly important. First, it should be noted that hero products are not super products; they represent not only sales guarantees and brand appeal but also the diverse needs of consumers and the satisfaction of personalization and differentiation. For example, after the success of the Nongfu Spring brand, it continuously launched multiple hero products such as Tea π, Oriental Leaf, Vitamin Water, Scream, and Water-soluble C100 to meet the different needs of different customer groups and gain more loyal consumers. Second, for small and medium-sized brands, constrained by resources, they should focus resources on creating core hero products to seek a place in the market. -04- Trend Four Market sinking continues; growth in upper-tier cities slows, and 3-6 tier markets will become the main battlefield. The continuous urbanization process has released consumption growth potential. Among them, lower-tier cities have performed very prominently. According to a Nielsen survey, the consumption trend index of first-tier cities remained first in 2016. By the first quarter of 2019, first-tier cities had been caught up by second, third, and fourth-tier cities, with third-tier cities seeing rapid index growth and taking the lead, followed by second and fourth-tier cities. The sinking market is a huge business opportunity. With online traffic dividends gradually hitting the ceiling and first-tier city consumers becoming saturated, lower-tier cities have become the main battlefield for giants' business layouts. What brands need to do is: on one hand, continuously open up the "capillaries" of urban-rural consumption linkage, delivering diversified, quality products to people's doorsteps; On the other hand, through sinking markets, bring many quality services from first and second-tier cities to rural areas, allowing rural consumers to also enjoy quality user services. -05- Trend Five Community and convenience: community commerce will become the core of future business; hypermarket sales share is gradually weakening, while convenience store systems, especially community convenience store systems, show a low-base, high-growth trend. Community and convenience commerce continues to grow by continuously strengthening radius services. The pandemic at the beginning of this year made the gathering of people in modern hypermarkets a weakness. In contrast, community commerce can more effectively meet people's basic needs within a 1-3 km radius, meeting daily life needs and avoiding long-distance movement of people. Even in the current normalized epidemic prevention period or even in normal times in the future, community commerce will continue to develop due to factors such as continuously improving residents' convenience, improving life efficiency, alleviating urban traffic pressure, and enhancing urban travel efficiency. -06- Trend Six Deep integration of online and offline; Internet + FMCG is a must-pass path. Recently, the E-commerce Department of the Ministry of Commerce released the "China E-commerce Report 2019," showing that in 2019, China's e-commerce market scale continued to lead globally, with further improvements in service capabilities and application levels. China's internet users have exceeded 900 million, and national e-commerce transaction volume reached 34.81 trillion yuan, of which online retail sales reached 10.63 trillion yuan, a year-on-year increase of 16.5%; physical goods online retail sales reached 8.52 trillion yuan, accounting for 20.7% of total social consumer goods retail sales; e-commerce employees reached 51.2565 million. From the data, e-commerce has flourished in recent years and is unstoppable. It is common for FMCG brands to start from online e-commerce, leverage e-commerce traffic dividends, and quickly achieve a wave of scale. But up to now, the main battlefield for FMCG, especially beverages and food, is still offline. In fact, deep integration of online and offline can efficiently improve brand management efficiency and marketing efficiency. Through digital empowerment of stores online, integrating store, member data, marketing methods, warehousing and inventory resources, and combining with offline physical stores to form synergy, brands can further understand consumer needs and better meet personalized and customized demands. This is a must-pass path for brand development in the future. Final words: 2020, the beginning of another decade. Technology is developing, the industry is reshaping. How can marketers see trends amid changes? Following the trend is key for brands to win in fierce market competition. When the prospects are unclear, return to the origin of the market: the three elements of people, goods, and places. Use basic common sense to deduce; laws are irreversible, and seek a long-term development path. Regarding "industry changes, market prospects, and marketing innovation," New Distribution will invite over a hundred industry experts and corporate executives to discuss and exchange at the "2020 (3rd) China FMCG Conference" in Shanghai from August 24 to August 26. Friends who are interested should not miss it!