Recently, Beijing reported multiple new confirmed COVID-19 cases, with 45 throat swab tests positive, causing public concern and raising questions about a resurgence. However, there is no need for excessive worry. Beijing has established a joint prevention and control system, testing systems (fever clinic and testing sites), and case tracing capabilities that can promptly screen, detect early, and cut off transmission routes. Zhang Wenhong, director of the Infectious Disease Department at Huashan Hospital affiliated with Fudan University, also stated: "For a long time, China will remain in a state of 'near-zero (local) cases', not 'no cases'. We must have a clear understanding of this and not adopt excessive prevention measures that halt economic and livelihood recovery." This means the fight against the pandemic has become a protracted war, and its impact on the FMCG industry will persist. How significant is the pandemic's impact on the industry? What problems have been exposed? What opportunities have emerged? And where is the industry heading? Let's explore these questions in detail.

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Impact of the Pandemic on the FMCG Industry from a Market Perspective

To respond to market changes, we must first understand the impacts of this pandemic on the FMCG industry, which can be summarized in four aspects. 1. Disrupted Sales Rhythms The pandemic disrupted the sales rhythms of all FMCG manufacturers. Tasks scheduled for the first quarter, such as the Spring Festival gift sales peak, spring ordering meetings for payments, and channel stocking for water products, were all thrown into disarray. As the pandemic continues, it will take time for consumption levels to recover to pre-pandemic levels, and all FMCG manufacturers face a new market environment. 2. Large-Scale Overstock Many product categories experienced severe overstock, with gift boxes and foodservice categories hit hardest. A few categories, such as self-heating hot pots in the grain and oil category, saw slight growth. For example, a dairy company in Henan produced new products before the Spring Festival, and 300,000 units were completely unsold. Beijing's Yili Jindian and Mengniu Telunsu offered buy-one-get-one-free promotions to move inventory. Qingdao Beer saw a 70% sales decline in February. Many categories suffered severe overstock, with significant impact. 3. SME Reshuffling During the pandemic, large enterprises often relied on their accumulated resources and loan advantages to weather the storm. However, SMEs, after facing industry downturn in 2019, entered a difficult pandemic period with high rents, labor costs, and inability to recover funds. Therefore, the FMCG industry may accelerate the survival of the fittest and undergo forced reshuffling after the pandemic. For instance, a factory in Hunan with 60 employees had to shut down during the pandemic, but still faced high rent and had to pay wages to prevent staff turnover. Half of the orders they had secured were canceled or stolen, and with various high costs, any funding issue could lead to bankruptcy. 4. Digital Advantages Highlighted During the pandemic, companies that had previously implemented internet-based management tools and marketing methods were less affected, and some even seized the opportunity to grow rapidly. For example, the baijiu company Jiangxiaobai, due to its early adoption of digital office systems, operated normally during the pandemic despite facing similar difficulties as other liquor companies. It was clearly superior to many traditional liquor companies in solving pandemic-related problems and information transmission efficiency, further reducing losses. Based on the pandemic's impact, what problems have been exposed, and what opportunities have been highlighted? -02-

Problems Exposed and Opportunities Highlighted After the Pandemic

1. From a Market Problem Perspective

  1. The pandemic highlighted the lack of attention to innovative channels such as community group buying and social e-commerce, which performed well during the crisis. The industry still underappreciates new retail, B2B, social e-commerce, and community group buying.
  2. When various regions restricted movement during the pandemic, many traditional enterprises were paralyzed, with information transmission broken or inadequate. This indicates that many traditional enterprises lack sufficient informatization and cannot effectively conduct online communication and office work. 3) Many manufacturers have not connected their data chains, leaving them in the dark about inventory levels and terminal sell-through. They cannot clearly grasp the flow of goods, logistics, and funds, making it impossible to analyze and respond effectively during the pandemic.
  3. Organizational capabilities are insufficient to respond promptly to market changes. Traditional management structures, typically pyramid-shaped, involve layer-by-layer reporting and slow action; employees are responsible for their own KPIs, but no one is accountable for rapidly changing market results. 2. From a Market Opportunity Perspective
  4. From a living environment perspective, after the pandemic, fresh produce and live livestock will find it harder to enter large cities, and frozen fresh categories may see a surge.
  5. From a lifestyle perspective, young people are reluctant to cook, so convenient ready-to-eat and frozen semi-finished products will benefit.
  6. From a life concept perspective, people's demand for health will increase. Products such as low-sugar, low-calorie healthy foods, dairy products, and personal and home care items like cleaning and disinfecting wipes and disinfectant solutions will have huge opportunities.
  7. From a consumption behavior perspective, home delivery services have seen a boom, benefiting fresh food delivery, community group buying, and foodservice and retail delivery. This is evident from major platforms increasing investment in home delivery services and the rise of regional home delivery platforms.
  8. From a supply chain perspective, B2B companies and fresh food supply chain enterprises that had invested early in supply chain infrastructure made significant progress during the pandemic, such as Meicai, Xintonglu, Lingshoutong, and Yijiupi.
  9. From a brand perspective, companies like Haidilao, with their supply chain subsidiaries Shuhai Supply Chain and Yihai International, saw business volumes surge, which to some extent offset the risks to their restaurants.
  10. From a technology perspective, companies that had adopted cloud-based office systems early were less affected by the pandemic and actually expanded their competitive advantages during the crisis. In summary, the problems faced during the pandemic were similar across the industry, but many opportunities also emerged. Apart from a few product categories experiencing explosive growth, the digital field stands out as a key development focus for FMCG manufacturers in the future. -03-

Trends and Transformations: Where Will the FMCG Industry Head?

The overall trend of the FMCG industry, driven by technological change and consumer demand, will not change significantly: 1. From a Consumer Perspective, Health Will Be a Major Trend As reported in the news, the source of the novel coronavirus was wild animals illegally sold at a seafood market in Wuhan. The first 'spreader' was likely a person who sold or ate wild game! The pandemic has heightened consumer health awareness to unprecedented levels, and the food and beverage industry is at the forefront. However, before discussing health, companies must pay attention to preventing food safety risks. These risks generally come from three aspects: biological risks, physical risks, and chemical risks. Biological risks mainly refer to food spoilage; physical risks mainly refer to foreign objects mixed into food. In general, these two types of risks can be judged by sensory perception, so their potential harm is largely predictable. Chemical risks include pesticide and veterinary drug residues, heavy metal contamination, and especially the illegal use of food additives, which cannot be ignored. Only by ensuring food safety can companies further explore how to achieve health goals. A Nielsen report showed that even before the pandemic, the concept of healthy living was already highly valued in China's FMCG beverage market. Compared to global consumers, 83% of Chinese consumers proactively adjust their diets to prevent health diseases, 13 percentage points higher than the global average. They also place more importance on healthy food and beverages and are more willing to spend. Additionally, 79% of consumers pay attention to the ingredients in food and beverages, and 82% are willing to pay more for products with safe ingredients, compared to the global average of 68%. From a market perspective, sales growth data for food and beverage subcategories shows that ready-to-drink soy milk, sugar-free tea, low-temperature milk, and soda water—products promoting 'low sugar, health'—are growing rapidly, while juices and coffee, which are 'calorie-heavy', are experiencing negative growth. 2. From an Enterprise Perspective, Technology Is the Future With the development of 5G, AI, and food biotechnology, the era of smart consumption has arrived. Technologization, or the change and improvement of the industry through technology, will come from several aspects: 1) Changes in Communication Methods In the internet environment, the development of new media and social networks, along with the increase in user groups, has given rise to new forms of brand communication, such as real-time marketing, where consumers and brands begin to interact. However, in the communication process, consumers are still mostly passive. Without proactive brand communication, two-way information flow is difficult. Currently, big data operations are changing this situation. First, everyone is a producer and user of data; everyone can actively search for various information, including brand information. Similarly, people evaluate brands, and these evaluations are quickly and accurately captured, analyzed, and responded to by brands. Second, the era of big data has established the concept of equality, with no distinction between primary and secondary. Brands initiate communication activities as the main body, but individual consumers can also attract attention and even influence brands. Furthermore, big data provides infinite possibilities for brands. The large volume, diversity, high value, and high growth rate of data mean that we, living in a sea of data, can be reverse-engineered to reconstruct residential areas, lifestyles, consumption habits, and even predict behavior. Therefore, technology's impact on communication methods is the most significant and most directly felt by consumers. 2) Improvements in Production Technology Technology's impact on production includes improving efficiency, reducing costs, enhancing quality, and even opening up new paths for product innovation. Every major technological upgrade brings disruptive changes to the entire industry. Several industrial revolutions have been major technological boosts to production, affecting not just one industry but the progress of society as a whole. Technological upgrades in each subfield bring huge improvements to production, which we won't elaborate on here. 3) Upgrades in Supply Chain Technology What are the characteristics of the FMCG industry? Low product value, low consumer loyalty, quick purchase decisions, high purchase frequency, and huge market demand. Based on these characteristics, the distribution of FMCG products cannot be separated from the support of social retail. Due to China's vast territory, retail terminals are diverse, numerous, and widely distributed. This reality determines that if brand owners want to deliver goods to retail terminals nationwide, relying solely on their own strength is difficult. According to incomplete statistics, there are approximately 800,000 distributors/second-tier distributors in the entire FMCG industry, distributed across markets at all levels nationwide. Each region has dozens to hundreds of distributors depending on market size and population. Although most brand owners have already focused on modern distribution channels and e-commerce channels, traditional channels still account for the largest share of FMCG distribution in China. However, at present, the development speed of new channels such as modern distribution and e-commerce far exceeds that of traditional channels. Will some channels completely disappear? We believe they will integrate. With technological advancements, including 5G, AI, and big data, the boundaries between various channels will gradually blur and break down. In the future, technological changes will enable multi-channel strengths and weaknesses to complement each other, which is an inevitable result of accelerating market development. 4) Enhancement of Organizational Management Capabilities In organizational management, the current mainstream upgrade direction is digitalization, which is seen as highly efficient and practical. The advantages of digital management are obvious: cost reduction, immediacy, and high efficiency. For example, during the pandemic, a traditional enterprise used DingTalk to achieve flat management and operations, allowing over 20,000 employees to communicate and collaborate across regions at any time. The DingTalk platform, based on cloud and mobile internet, enables all management processes to be implemented through a unified mobile portal, and business operations have fully moved towards green, low-carbon, paperless practices. Currently, FMCG companies are seeking to upgrade their organizational management. After all, with the development of information technology, digital process management is a fact that all industries must face. However, although everyone understands that digital management is inevitable, the process is still fraught with difficulties, and the vast majority of enterprises have not yet achieved digital management. Therefore, digital organizational management remains a major trend for future enterprises, and it will accelerate. Whoever gets ahead will gain a greater competitive advantage. In conclusion, the market problems we face today are part of a large-scale revolution. The pandemic has not changed the process but has accelerated it, including the competition between traditional and new productivity tools, the competition between limited resource barriers and unlimited resource barriers, and the competition between traditional distribution models and new supply chain models. The pandemic has brought us not only disaster but also more thoughts about the future. Tips: If your tip is adopted, we will pay 400-2000 RMB.