Anxious or excited? The current state of the FMCG industry is both a trough and a transition period. In the trough, business is difficult. In the transition, people fear and worry. What is there to fear or worry about? Because after each trough and transition, new forces will grow rapidly, and a batch of new leading enterprises will emerge. The key is whether you are a victim or a beneficiary of the transition. Market share from losers shifts to winners. In the past, this process was called industry consolidation. This is the law of cycles and transitions. I have been in marketing for over 30 years and have experienced four rounds of channel transitions. Each time, I saw leading enterprises decline and new ones rise. What should be feared are the giants, because giants benefit from traditional models. Except for giants, other enterprises have the opportunity to become new giants during the transition. The key is whether you have the will and capability. For example, it is often said that retailers are struggling, and over the past decade, the market share of the top 100 retailers has dropped by 50%. After this round of retail transformation, the new leading retailers will be larger than today's, but the key is who becomes the new leaders. Another example: Chinese distributors are generally small-scale, but after channel transformation, cross-category, cross-regional B2b order platforms and logistics platforms will emerge. How exciting is that! Also, the FMCG industry has been oligopolistic for years, with long-tail players unable to shake the giants. But now, we are entering an era of high growth in segmented and niche markets, where long-tail players move upmarket, and mass-market giants are at a loss. Only in times of change can the cards be reshuffled, creating more possibilities. In an era of change, those with positions may lose them, and those without may find them. The collapse of the old dynasty creates opportunities for new dynasties. The deep distribution system that has dominated channels for over 20 years is about to collapse, and the traditional channel system will break down. Rather than worrying about the collapse of the old order, it is better to participate in building the new order. During the transition, don't focus too much on growth; instead, focus on whether you will have a place in the new order. Once the trough passes and the transition succeeds, a group of enterprises will cheer for this era and be grateful for it. Old Channel Order: Brands Dominate Channels The traditional FMCG channel has three participants: brand manufacturers, distributors, and retailers. This is an extremely simple channel structure. Its characteristics are: 1. Brand manufacturers adopt a dual-drive model of brand and channel The sales departments of FMCG companies have two major divisions: the brand department (marketing department), responsible for 2C communication and awareness, and the sales department, responsible for deep distribution, working with distributors to reach and manage terminals. 2. Distributors operate a "four-flow integration" trade circulation model Four-flow integration means the integration of information flow, business flow, logistics, and capital flow. The advantage is that no external coordination is needed; a single salesperson from a single distributor can complete all four functions simultaneously. For small distributors who started their businesses and have weak management capabilities, being able to complete the four channel functions without coordination is actually a good institutional design. The deep distribution of brand manufacturers and the "four-flow integration" of distributors are well-matched in model. 3. Retailers are simple location-based traffic operators and shelf renters Retail store traffic is mainly determined by location. Retailers' profits mainly come from renting shelves, i.e., the widely criticized back-end profit model. I represent the traditional channel model with the following diagram, and use the concept: brands dominate channels. In this structure, the marketing power of brand manufacturers is embedded in retailers through deep distribution. Distributors, especially leading distributors in the industry, are extensions of the brand's role in the channel, standing with the brand, often not as independent agents. At the same time, manufacturers and distributors jointly "rent" terminal shelves (through display fees, stack fees, shopping guide fees, etc.) to achieve centralized display, brand presentation, and promotional services at the terminal. In this structure, the retailer's role as user advocate is vacant, and the brand's user orientation is empty. In the era of incremental growth, everyone was growing, and few cared about these issues. Before Q3 2024, the heavy inventory pressure exerted by leading FMCG companies shows how strong brand dominance was. After Q3 2024, brand dominance in channels will gradually fade. The above channel model is inefficient and costly, yet it has persisted for 20 years! Isn't it a good thing that such a model collapses and is replaced by a more efficient one? New Channel Order in Progress I use the term "new order in progress" to convey that the new order has arrived but is not yet fully covered; the old order is collapsing but still barely holding on. This is a chaotic transitional phase, the hardest to endure. In the 2025 New Distribution New Year's Eve live broadcast, I used a diagram to illustrate the framework of the new channel order, as shown below. From the diagram, it is clear that future channel participants are not simply three roles, but a group of participants forming an ecosystem. It is no longer a simple progression of three groups but a complex cross-combination. The biggest difference between the new and old order is that distributors who once stood with brands now stand more with retailers—in fact, standing with retailers means standing with consumers—which is a very important event in Chinese marketing history. Therefore, if the old order starts with brand deep distribution, then the new order starts with retailers. Because local retailers like Pangdonglai and multinational retailers like Costco and Sam's Club truly assume the role of consumer advocates. That is, in the past, channels were push-pull combined: brand-driven pull and deep distribution push. In the new order, all channel forces are loaded on the C-end, and most channel ecosystem participants stand with terminals and consumers, so channel push will nearly disappear—except for bC integrated promotion, which is a reality all channel participants must face. New Retailers: Truly Representing Users Unlike traditional retail, transforming new retailers will roughly assume three major functions. First, assume the role of brand manufacturers by promoting private labels Private labels will significantly increase their share in KA, becoming key to retailer competitiveness. So how does a retailer assume the brand role? To do private labels, it's not just about putting your label on; you must take on brand communication and awareness. Even if you use the same factory as Pangdonglai, Pangdonglai has the ability to build consumer brand awareness, but you may not. Second, assume the role of supply chain In traditional channels, retailers at best did "irresponsible" product selection. Why? Because under the elimination system, even if retailers made selection errors, suppliers (brands or distributors) bore the losses. In the past, it even happened that suppliers' sales were not enough to cover fees, and they ended up paying out of pocket. Now, under the new supply chain system, selection errors are borne by the retailer. Large retailers' supply chains no longer go through distributors, achieving direct factory-store supply, improving efficiency and reducing costs. Some categories, like Pangdonglai's bakery, are produced on-site. The former CEO of Hema said that large global retailers have 5 to 10 procurement service companies responsible for sourcing products worldwide. Moreover, CVS will build a heavily vertical supply chain system, integrating R&D, production, wholesale, and retail into one system, capturing profits across the entire channel. Third, assume the role of retailer Placing the retailer role third is because this role is greatly weakened, especially for brand products, which will see significantly reduced SKUs. For example, Pangdonglai's transformation of Yonghui stores removed 80% of the original products. When I visited Yonghui, I saw that well-known brand products no longer had centralized displays or promotions; they were displayed by category, mixed with private labels. Also, only big single products were available; new and niche products had almost no chance to get on shelves. In fact, the biggest role change for retailers is to study consumers and represent them. Except for some national brands and national big single products that retailers must sell, most products are either customized or carry private labels. If retailers don't study consumers and don't stand with them, they will suffer great losses. Channel Ecosystem: Platformization As mentioned, commercial distributors are "four-flow integration." In the future, commercial distributors will gradually disappear, and platform-based channel providers will rise. "Four-flow integration" will become four major platforms: 1. Business flow B2b platform, i.e., order platform. Business flow B2b is typically terminal-oriented: whatever the terminal needs, that's what is stocked, with no room for negotiation. Currently, most B2b platforms in China are order platforms. Yang Qiming, CEO of Shanghai B2b platform Kuaile Zhanggui, said that traditional distributors are relationship-based, while B2b platforms are technology-based. Relationship-based distributors have the ability to push excess inventory or persuade terminals to accept products they don't strongly want. B2b platforms don't have this phenomenon. Relationship-based distributors have limited ability to build relationships and are not suitable for large platform companies. Therefore, relationship-based distributors have no capital value, or no exit mechanism. B2b platforms have capital value; with capital value, they will expand through capital mergers, forming regional oligopolies or becoming cross-regional or even national platforms. Hence, order B2b platforms will become oligopolistic in the future. 2. Logistics F2B2b platform. In the past, logistics was divided into trunk logistics F2B and urban distribution b2C. Trunk logistics has long been third-party. Urban distribution is still "two-flow integrated" with order B2b, but in the future, it will merge with trunk logistics to form F2B2b, i.e., "warehouse-trunk-distribution" integration, like Midea's Ande Zhilian, which has achieved "delivery and installation integration" in home appliances, i.e., F2B2b2C. Logistics F2B2b is larger in scale and has typical scale effects. 3. Capital platform. With scale comes scale credit. With transaction data comes data credit. Once business flow B2b and logistics F2B2b reach scale, capital platforms will emerge. 4. Supply chain alliance platform. Large supermarkets and chain stores have scale advantages and will build their own supply chains and private labels. What about small and medium supermarkets and street-side stores? Ant Alliance in Zhengzhou is a private label alliance serving small and medium supermarkets. Currently, some organizations are also deeply building supplier alliances for small stores. It can be seen that the above four platforms are all terminal-oriented (or consumer-oriented), becoming part of a consumer-pulled channel ecosystem. So a question arises: Who is the brand's ally in the channel? How do brands build channel pull? Brands: Finding Channel Allies In China, marketing always involves the 4Ps. In fact, Europe and the US have long been 1P marketing. 1P is product (brand). In the 4Ps, channels in Europe and the US have long been third-party. The US has 10 million people in 2C roles, while China at its peak reportedly had 80 million 2B and 2b salespeople. The difference is that channels in Europe and the US are third-party, while China requires brands to control channels. In reality, the platformization of Chinese distributors is also moving toward third-party channels. Product and price are not 2Ps but 1P. Price is subordinate to product and has no independence. As for promotion, Europe and the US don't have as much channel promotion; even 2C discounts are retailer actions. Therefore, marketing in Europe and the US is just 1P: develop products and promote via media to 2C. If so, China's new channel order becomes a replica of the European and American model. But there is one difference: brands will definitely develop their own allies in the channel. When Europe and the US established their current channel models, mass media played an important role in 2C promotion. An ecosystem formed between oligopolistic media and oligopolistic industry giants. During the establishment of China's new channel order, the mass media battlefield for 2C promotion has weakened. Whether it's the WeChat battlefield after mass media or the current Douyin battlefield, brands cannot control these, nor can they coordinate with industry giants. Therefore, after the deep distribution model of traditional commercial distributors is replaced by the four platforms, brands will face the problem of losing allies. This problem may not be strong now, but as long as current trends continue, it will eventually become important. Currently, deep distribution distributors face a choice: either go the platform route or exit. In fact, there is a third option, especially for relationship-based distributors: they can become channel operators for brands. What do channel operators do? They neither do 2b like deep distribution nor go deep into terminals for 2C shopping guidance (Pangdonglai and others no longer have brand shopping guides). However, the 2b relationship resources formed by distributors' deep distribution are extremely important in China. Combining distributors' 2b resources with retailers' b2C resources forms a bC integrated operation model. When summarizing Lidu's immersive experience, I described it more specifically as "scenario-based bC integrated user experience." Scenario is the foundation (of experience), bC integration is the premise (of relationship), experience is the means, and user operation is the goal. As mentioned earlier, relationship-based distributors may find it hard to do B2b platforms, but they can precisely do bC integrated user operation. Therefore, establishing channel operators, forming brand allies, and ultimately creating channel 2C pull. Without channel operators, channel power is unbalanced, and brands have no handle in the channel. In the absence of the mass media battlefield and with weak control over Douyin, this is a necessary choice. Brands: Reshaping Channel Driving Forces In the past, brands had two driving forces: brand and channel. Brand drive relied on the brand department, mainly through mass media or electronic media investment, which strategic management expert Shi Wei called "big loudspeaker, shout hard," using a "money sea tactic." It created C-end awareness and channel pull. Channel drive relied on the sales department, mainly through deep distribution to reach b-end, with distribution, inventory pressure, and promotion as main means, using a "people sea tactic," creating channel push. The combination of the two forces formed a balanced channel push and pull. FMCG giants were all strong in both brand pull and channel push. Channel platformization reduces channel push. In the future, although deep distribution weakens, distribution still exists. We emphasize that the demise of deep distribution is not the demise of distribution, but the handover of distribution to third-party platforms. Order platforms and logistics platforms together form third-party distribution platforms. For brand giants, the decline in media control is a more serious problem. Now, giants face the problem of having money but not knowing how to spend it effectively. We see that IP-based brands that don't invest in advertising frequently create miracles, while companies relying on ROI investment are not doing well in communication. Enterprises always need to find certain handles. Our suggestion is: rebuild marketing organizations and reshape channel driving forces. Transform the sales department into user operations: when distribution is handed to third-party platforms, user operations become the most important function. Therefore, the sales department needs to transform into user operations, undertaking user operation functions through scenario-based bC integrated user experience. Transform the brand department (marketing department) into a brand scenario department or brand IP department, responsible for building brands and IP. In the future, both brands and IP are needed; brands have long-term values, IP has emotional value, and both are necessary. I especially emphasize IP here. The main battlefield for building IP now is Douyin. Paid models like PGC, PUGC, and OGC are hard to be effective, while amateur UGC is very useful. Where does amateur UGC come from? How to obtain relatively certain massive sources of UGC? Our suggestion: scenario emotion is the certain source of amateur UGC. Whether to use the scenario department or IP department concept? I think both are appropriate; scenario is the source of IP, and IP is the result of scenario. New Channel Order: Symbiosis From the above analysis, channel restructuring is definitely a major trend. Existing channel participants who participate in restructuring will gain new life; those who refuse will be eliminated. Channel restructuring is both a threat and an opportunity. It depends on the attitude toward restructuring. The context of channel restructuring roughly has three aspects.
First, retailers will become the dominant party, and channel platforms will become allies of terminals. Supply chain shortening and direct factory-store communication are inevitable.
Second, professional platforms are efficiency platforms and cannot become tools of a specific terminal or brand.
Third, brands use platforms to improve efficiency, restructure marketing organizations, take on the responsibility of operating users, and take on the responsibility of operating the Douyin battlefield. Scenario, bC integration, experience, and user operation will be the four key marketing keywords. The ecosystem of the new channel order is complex, with many participants and numerous third-party platforms forming a symbiotic situation. Brands must find their allies in the new order. 【New Order·Symbiosis】 The 10th China FMCG Innovation Conference Date: March 17-19, 2025 Location: Chengdu, China