01 2022 has been one of the most transformative years for China and the world in recent decades. The Russia-Ukraine war, Sino-US confrontation, recurring global pandemic, commodity price volatility, and Fed rate hikes leading to global economic deflation—these macro-environmental changes have continuously disturbed consumer demand. Indeed, the world is experiencing unprecedented changes! Consumer confidence has been tightening spending desires due to macroeconomic disruptions. Many companies believed that if they could endure the first half of 2022, the second half would improve, but unexpectedly, the market environment in the second half worsened further! Not only the macro environment, but also the consumer goods industry has seen continuous market changes. Recently, 'Hextech' went viral on Douyin, Haitian soy sauce faced an unprecedented PR crisis, and the corn incident involving Dongbei Nongsao and East Buy. Many people consider these mere coincidences.

Image source: Internet

On the surface, these are just changes in media communication logic, where seemingly trivial matters trigger frequent mob emotional incidents. But at a deeper level, not only is the environment changing, but the industry is also entering a new cycle. So, during this transition period between old and new cycles, we see many seemingly reasonable but commercially illogical events. At the same time, our past business experience becomes sometimes effective and sometimes ineffective. Therefore, the implications behind the Hextech and the corn incident between Dongbei Nongsao and East Buy deserve our attention:

First, the industry standards and market rules that companies previously set using their information advantages and asymmetric supply capabilities are being overturned by consumers whose rights awareness is awakening. It can be said that the era of consumer sovereignty has officially begun.

Second, over the past decades, China's market economy has developed rapidly, with numerous small and medium-sized enterprises growing wildly. There has been a lack of basic trust and win-win business ethics among business partners, with transactions filled with deception, calculation, and gaming. However, today, this business value system is facing challenges. Integrity, transparency, fairness, and reasonableness are gradually becoming long-term principles in the business value chain. More importantly, in such an uncertain external environment, deep binding and symbiosis among business partners, becoming a community of shared destiny, is one of the few choices to survive in the ecosystem. What do I mean by this? In terms of manufacturer-dealer relationships, the past gaming is likely to be replaced by a new business model of a shared destiny community in the coming years. Looking at European and American countries, the division of labor between factories and distributors gives distributors more functions, while brand owners focus more on what they do best. Behind this, there must be deep interest binding and strategic alliances. It can be said that this is the end of an era and the beginning of a new cycle!

02 Liang Ning, in her 'Growth Thinking 30 Lectures' on Dedao, presented a viewpoint: The most important capability of a company is the ability to sustain growth. Growth is the ability to continuously make correct judgments and to make correct judgments amidst constant change. Regarding growth, I believe there are two key points for making correct decisions: one is the ability to capture key information, and the other is having a set of underlying algorithms that enable continuous correct judgments. For a company, the three most important things for a founder are strategy, product, and organization. In a sense, company growth is the process of continuously elevating the shortcomings in strategy, product, and organization. The biggest problem a company faces internally is inertia. In the course of operations, there are too many inertial thoughts and actions. In normal times, when the sea is calm, this is the most fuel-efficient way for a ship to sail. But when facing reefs, shoals, or storms, and needing to change course, inertia becomes the greatest danger for a company. The world is changing so much, and the consumer industry is encountering an unprecedented new cycle. The uncertainty from the combination of these factors makes the future development of all companies full of unknowns. If we still use our previous strategies, products, organizational structures, and run the original track at the same inertial speed, it is highly likely that we will hit a hard wall in the coming years. We must re-examine this world, re-observe the overall situation, proactively engage in strategic thinking, and find our own new battle map. Making judgments is not difficult; continuously making correct judgments is the inevitable choice for every brand owner and distributor to look up and see the road ahead.

03 Many primitive tribes in Africa eat monkeys. Their method of catching monkeys is extremely simple: find a tree hole with an opening just big enough for a monkey to insert one hand. Then the hunter deliberately shows food in front of the monkey and pretends to hide it in the hole. After the hunter leaves, the curious monkey will voluntarily reach in to grab the food. But the hole is too small; once the monkey grasps the food, it cannot pull its hand out. At this point, the monkey becomes anxious and screams. Then the hunter appears and easily captures the monkey. You might ask, why doesn't the monkey let go? Indeed, why doesn't it let go? What is more important than life? From another perspective, with the constantly changing external environment, the declining economy, and the anxiety brought by countless pressures, aren't we just like that monkey? Many manufacturers and distributors have been very anxious in the past two years, partly due to industry pressure and partly due to competition from rivals. Some poorly managed distributors have begun to see years of no profit or even losses, putting immense pressure on many. They try to solve their operational difficulties through one-time investments or businesses, but this leads many to fail, lose money, or even go bankrupt on new projects. Today's market and business are gradually maturing. The only direction for change and optimization is to continuously cultivate internal operational skills and further improve operational efficiency. But distributors can't see this! They think it's too simple and disdain to do it. More importantly, many distributors no longer want to earn money by picking up small change!

04 Competition In 2018, I mentioned that in the next decade, 90% of distributors would be eliminated. Unexpectedly, my words came true. In the past two years, we have seen the rise of many new distributors while many older ones are gradually exiting the market. The biggest problem in today's consumer goods market is severe overcapacity. This overcapacity is not just in goods but also in the number of distributors! In fact, the market does not need so many distributors to serve the terminals, but the extremely low entry barrier leads to massive supply, and severe involution has been the fundamental reason for the industry's difficulty in evolving for years. However, if we look at the overcapacity from a structural perspective, we find that there are still many opportunities in the market. From a structural standpoint, the overcapacity is in low-quality small and medium-sized distributors with sales below 50 million yuan. Large, high-quality distributors are still scarce overall. These large distributors outperform small and medium ones in operational capability, market management, and management skills. Looking at the future market competition landscape, these large distributors will gradually encroach on and squeeze the market space of small distributors. From a market tier perspective, large distributors in lower-tier markets are extremely scarce, which is directly related to the characteristics of past deep distribution. But this also reveals market opportunities: whoever can quickly grow in lower-tier markets, defeat competitors, and become the largest local distributor will have a smoother path in the future trading field. From a category perspective, there are very few large distributors in snacks and beverages, while relatively more in daily chemicals, grain and oil, and leisure foods. Of course, this is directly related to the category characteristics, but the deep distribution business model has firmly locked the possibility of these category distributors growing larger.

05 In today's market, whether large or small distributors, facing an oversupplied market, all growth comes from seizing share from competitors. So we see that when one distributor rejoices in growth, several others worry about decline. At this stage, the battle situation for distributors is relatively simple. Most markets are like the wars of the Seven Warring States: you seize a city, I capture some population, and few opponents have long-term strategies. You just need to be like the Qin state, find the key points of the overall battle information, plan the strategic path to unify the seven states, and leave the rest to time. Don't just focus on your own business, because your future growth comes entirely from your competitors' pockets. Since you're already taking from others' pockets, why not take it all? This is just competition among peers at the same dimension. But market involution comes not only from peers but also from higher-dimensional opponents—invisible competitors like short videos, group buying, social commerce, B2C, etc. Non-localized e-commerce platforms are deeply penetrating local markets through online platforms. This requires distributors to look beyond local markets, not only pay attention to peers but also consider higher-dimensional opponents. In the local market ecosystem, you need to see your own position and the new ecological niches that have emerged, such as B2B, city distribution logistics, and other professional new supply chains. These are future trends. You need to consider: are there any players currently? How many? A market may only accommodate two or three distributors in the future. In such a case, do you still have a chance? If so, seize the position quickly. If not, consider higher-dimensional, higher-capability future development directions, such as multi-region agency or professional distributors in a specific category. The purpose of discussing these is to explore how distributors can survive in the future. This is not a small topic, and today's discussion is somewhat scattered because no one can clearly say what your next step should be. You can only find the direction for developing your own capabilities based on your own endowments, abilities, resources, and willingness, and build your future development barriers based on your unique capabilities. Having said all this, I think the most important thing for distributors now is to go out more, observe and understand the current industry, not just local peers but also competitors nationwide—what they are doing and thinking. Only after seeing clearly can you make judgments, and ultimately, the probability of success may be higher.

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