Introduction: Go out, abandon illusions, and prepare for 'battle.'
Author | Chen Siting Review | Gou Gou Layout | Zhang Yuwei
Mr. Zhou flew 60,000 kilometers in half a year
In April this year, at the Chengdu conference, I met a distributor friend from Shandong, Mr. Zhou. From January to April, Mr. Zhou visited more than ten cities across the country. What for? To observe, learn, and exchange ideas with other distributors. Sometimes he arranged visits himself, and sometimes he joined New Distribution's study tours. What did he observe, learn, and exchange? He said the biggest problem now is not knowing where his company should go. He must quickly visit distributors with various development models across the country and find a direction truly suitable for his company's transformation. "Our company has a team of over 200 people. Where to go and how to get there are the most important matters overriding everything else." The company's annual traditional business is around 300 million yuan. On the issue of transformation, Mr. Zhou is both urgent and cautious, forcing himself to be patient. This afternoon, I called Mr. Zhou, and he said his flight mileage in the first half of the year has exceeded 60,000 kilometers, visiting 27 cities. "Have you chosen a direction for the company? When will you start the transformation?" "I have some sense of direction, but for the final choice, I still want to wait until after your October FMCG conference to make the final decision." I fully understand Mr. Zhou's situation, because in our market visits in the first half of the year, we heard more than once about distributors' intense anxiety about direction.
It's not just distributor Mr. Zhou who is anxious; this year, brand-side Mr. Zhous are also exceptionally anxious. Brand leaders are busier than usual, paying more attention to performance progress, going deeper into the front lines, and researching and trying new channels and models. New Distribution has received far more inquiries about "direction" and "transformation" than in previous years.
All anxiety stems from growth issues. When performance growth is weak or even declines, all kinds of problems begin to plague the company. Only growth can cure all ills. But today, conventional methods simply cannot solve the problem of sustained growth. Only by solving the two strategic questions of "Where should I go?" and "How should I get there?" can the growth worries be resolved.
Why has growth disappeared? Many distributor bosses and brand managers do not clearly understand how our past high-speed growth came about, and of course, they are now puzzled about why growth has disappeared. Over the past 30 years, why did we grow? There are roughly four core drivers.
1. The ever-increasing total population means an ever-expanding market capacity. How many people, how many stomachs. The essence of the FMCG economy is the population economy; the total stomach capacity of the national population is the total market capacity for FMCG. In 1980, China's population was only 987 million; in 2021, it was 1.413 billion. Over the past 40 years, the population has increased by a full 426 million. This is the "first nuclear power" supporting 40 years of high-speed growth. However, since 2013, the birth rate has slowed significantly; in 2023, China's population experienced a historic negative growth of 1 million, bringing the number to 1.412 billion. The "nuclear power" of population growth has disappeared. This means the incremental FMCG growth driven by population increase has vanished, and all manufacturers and distributors must compete in a stock market. For a long time, we should not expect the "power" of population growth to recover.
2. Economic development and rising individual disposable income. In 1980, China's per capita GDP was 500 yuan; in 2022, it was 85,700 yuan, a 170-fold increase in 40 years. In 1980, per capita disposable income was 200 yuan; in 2022, it was 36,900 yuan, an increase of over 180 times. Increased disposable income means increased purchasing power. Increased purchasing power means growth in total social consumption and market capacity. The continuous increase in per capita purchasing power over 40 years is the "second nuclear power" creating high-speed growth in the FMCG market. Unfortunately, this "second nuclear power" has also weakened. In 2022, China's per capita GDP growth was only 3%, half the average growth rate of the past 40 years. Per capita disposable income grew by 5%, close to the lowest level in the past 40 years. We certainly hope and are confident that the "second nuclear power" will regain strong momentum, but for now, this power clearly cannot bring much increment to the market.
3. Increasing penetration rates of various FMCG products. People's aspiration for a better life is the "third nuclear power" of market growth. From having only heard of, never seen, never used, to using and using frequently, product innovation and penetration rates have been continuously improving, which is the third "nuclear power" of high-speed growth over the past 40 years. From not drinking milk once a year to "a cup of milk a day, strengthening the Chinese people," one can imagine the huge growth space it brought. In the past, whenever consumption hit a bottleneck, growth was driven by improving product innovation and commodity penetration. With the continuous improvement of infrastructure, the deep distribution model of FMCG expanded from first- and second-tier cities to third- and fourth-tier, and finally deep into rural areas. Every market sinking and channel flattening is an overall improvement in penetration. Today, although there is still some space for product penetration, the ceiling is in sight, and the market increment it can provide is limited. Crucially, the threshold for urban markets is getting higher, and while low-tier markets have space, the operational and long-distance management costs are also significant. A few years ago, when the internet dividend was still available and traffic costs were not expensive, it gave many new consumer brands space and soil for rapid growth, but that dividend has now disappeared. Innovative brands need to raise more funds on one hand, and on the other, find growth models that effectively improve ROI under high costs.
4. Corporate strategic innovation and marketing innovation. Objectively speaking, the first three drivers are macro-environmental factors that companies and distributors cannot choose or escape. They are fair to all manufacturers and distributors; we can only compete in the same macro environment. The purpose of effective management for a brand and distributor is to occupy the market through unique strategy, brand positioning, product organization, team organization, and market operations, seizing others' market share. What can help us win the competition is only our own unique strategy, products, marketing, and team. These are also the options we can control and that can determine our destiny. Over the past 40 years, the core reason for the sustained growth of most manufacturers and distributors has been the macro environment. Population growth, rising purchasing power and demand, and as long as the market was carefully cultivated, there would be high output. In other words, in the "old world," manufacturers, especially distributors, often did not need to spend much thought on direction to succeed. Many distributors even succeeded by "accidentally" choosing the right brand, following instructions, and persisting. But the era of endless increments is over. When the nuclear powers of population, purchasing power, and demand are no longer strong, when the market cake no longer grows in a simple way, and when the growth methods we are familiar with are gone forever, what should we do?
Go out, abandon illusions, and prepare for 'battle.'
A well-known snack food brand recently held its semi-annual distributor conference. At the meeting, most distributors said this year is difficult, especially difficult. Sales are hard, team management is hard, completing tasks is hard. Although the company is still operating, they feel everything is not going smoothly and not meeting expectations. The company leader poured cold water on the attending distributors: "This year is difficult, but not the most difficult; next year will be more difficult, but not the most difficult either. Now there are only two choices: either liquidate inventory, transfer the business, and retire with the money you've made; or abandon illusions and prepare for battle." This battle is not against others, but against ourselves. The growth methods and paths we are familiar with were built based on the environment of the previous era; in the "new world," the environment has changed dramatically, and the soil on which past growth methods depended has changed. If we do not change our direction and methods, we are like a man marking his boat to find a lost sword—there is no way out. As mentioned earlier, the two strategic propositions of "where to go" and "how to get there" are the most "life-threatening" issues for manufacturers and distributors today. "Where to go" is a direction issue, requiring finding one's own path under the new climate and soil of the "new world." "How to get there" is a method issue, requiring learning, exchange, practice, and exploration to find one's own way of growth under the new climate and soil.
Seeing this, we can finally truly understand why distributor boss Mr. Zhou flew 60,000 kilometers in half a year to find the answer to "where to go." But it must be reminded that the questions of "where to go" and "how to get there" cannot be answered in one's own office. Since the environment, climate, and soil we live in have changed, how can we find direction and answers by staying in the familiar home or company? The only way that may help us find answers to these two questions is to go out! In early July this year, New Distribution established the "New Distribution Member Club," and within just one month, hundreds of distributors joined. In the July Xi'an Jiayun City study tour, more than 150 distributors from across the country participated in the visit and learning.
Why is this October's FMCG Conference worth your attendance?
Why must distributors go out? A New Distribution member put it thoroughly: Going out may not necessarily find the right answer, but staying at home will definitely not find it! To help brand owners and distributors who are seeking answers to the two strategic propositions of "where to go" and "how to get there," from October 9 to 11, 2023, the Fifth China FMCG Conference and the First China FMCG Distributor Conference, hosted by New Distribution and co-hosted by Anneng Zhilian, will be grandly held in Shenzhen; the First China FMCG Distributor Conference will be co-hosted by Zhoupu Data; the instant retail forum will be co-hosted by Heyin Network. Why do we believe this conference will definitely help brand owners and distributors seeking transformation direction and methods?
First, the annual China FMCG Conference has over 100 sharing guests, including well-known experts in the marketing field, leaders of first-line FMCG companies, and outstanding large distributors from across the country who have successfully transformed and achieved sustained high growth. The sharing by these guests is nothing less than their profound insights into the industry and transformation, and many come with successful cases and experiences of corporate transformation. They have successfully answered the questions of "where to go" and "how to get there," bringing their companies back onto a high-growth track. Can these valuable cases and experiences not help you?
Second, the theme of this conference is 'New Era · Reforging.' "New Era" is the direction of "where to go," and "Reforging" refers to "reforging corporate capabilities," which is the answer we are exploring for "how to get there." From October 9 to 11, for a full three days, there will be nearly ten forums, all closely centered on the direction issue of "where to go" and the path issue of "how to get there."
Third, it is the first national, industry-wide FMCG distributor conference. The First China FMCG Distributor Conference will be held on October 11 during the conference. Since its establishment, New Distribution has held distributor forums and study tours, but this is the first time it has held a national, industry-wide FMCG distributor conference. At that time, thousands of outstanding large distributors from across the country will attend. This is not only an opportunity for excellent brand owners and distributors to understand and connect with each other, but also an opportunity for the best group of FMCG distributors to have in-depth exchanges, learn from each other, and promote each other.