On May 14, Chen Siting, CEO of New Distribution, and Zhang Jixue, founder and chairman of Xinchao Media, discussed brand survival strategies in the era of shrinking volume. In 2024, the consensus of a shrinking market has formed, and FMCG brands are exploring ways to navigate this new reality.

Population Decline FMCG Business Is Getting Harder Zhang Jixue: Today, my guest is Chen Siting, CEO and co-founder of New Distribution. He has deep insights into the Chinese market and consumer goods. I invited him to join me in this livestream to discuss where opportunities lie for Chinese consumer brands in the shrinking economy and how we should approach brand marketing. Business is definitely getting harder. Last year, China's birth population was about 9.02 million, a net decrease of 2.08 million. In Japan's era of stagnant economy, leading brands became more concentrated, a large number of SMEs died, and consumption began to downgrade. Will China face the same market situation? Let's invite Mr. Chen to share his views. Chen Siting: We have been analyzing this issue. The FMCG economy is a typical population economy; whether it grows or shrinks depends entirely on population size and per capita purchasing power. Our population growth rate has been declining for 11 consecutive years since 2013. Since 2022, it has turned negative, and last year it decreased by more than 2 million. This is the most fundamental and core reason why every boss and marketer finds business increasingly difficult.

After Giants Form in the Liquor Industry Are There Still Opportunities for New Brands? Zhang Jixue: I saw a statistic: in 2000, China's baijiu market was about 12-14 million tons. Now, it's only 5-6 million tons. Why aren't people drinking baijiu? The number of baijiu drinkers hasn't decreased, but why are they drinking less? What's the reason behind this? Chen Siting: The first reason is that our drinking habits have changed dramatically. In the past, the habit was to get the other person drunk; today, it's about self-pleasure and comfort. This has led to a decline in per-drink consumption. The second reason is that the target population for alcoholic beverages is actually declining. Many older people gradually stop drinking baijiu due to age. The absolute number of young and middle-aged people who drink baijiu is decreasing. Third, the variety of alcoholic products has increased, so the volume of baijiu consumption has declined. Zhang Jixue: Another viewpoint is that Moutai's competitor is Guandan (a card game). When friends gather, they might drink, but if they plan to play Guandan, they'll drink less, which reduces Moutai sales. Following this logic, Guandan is a competitor to baijiu. Looking at young people, they can play Werewolf, watch movies, sing karaoke, or play games. Are these time-killing entertainment activities reducing the time people spend drinking together, and is that also a fundamental reason for declining liquor sales? Chen Siting: When other entertainment activities or consumer products compete for the same consumption scenarios, there will inevitably be some impact. Previously, we focused more on products and brands. But in the future, growth will come from discovering more consumption scenarios, creating or combining more scenarios that bring consumption to your products. Zhang Jixue: Now, the top 5 baijiu brands account for 40% of total industry sales. The top beer brands account for 95%. Once giants form in an industry, do other new brands still have entrepreneurial opportunities? Chen Siting: For baijiu, I think new brands may not have good development opportunities. But regional brands with history and culture can definitely survive by differentiation. The next big change in the beer industry will be on the product side. Pasteurized beer dominates the market, accounting for 99%; draft beer has irreplaceable taste advantages but faces huge challenges. First, it needs to improve supply and channel models; second, consumer demand needs to be stimulated. I've tried draft beer; its taste is overwhelmingly superior. After a few times, it's hard to go back to pasteurized beer, so I'm very optimistic about its future.

New Consumption "Cooling Down" Why Are Internet-Famous Brands No Longer Popular? Zhang Jixue: Next topic. The internet era was supposed to redo every industry. But capital went in, and the FMCG industry wasn't redone as capital expected. First, online requires traffic, offline requires channels. Channels need deep distribution, and brand and traffic need to develop synergistically. Second, FMCG builds moats offline, especially in site selection, chain store management, channel integration, etc. This threshold is very high. Chinese FMCG entrepreneurs used to think they could disrupt the industry with data and intelligence, but after fighting with traditional leaders, they realized how naive they were. Former internet-famous startup brands are now mostly in decline. What's your take on this? Chen Siting: I think there are several points. First, internet-famous brands emerged due to consumer demand and the capital boom. Investors found new consumption promising; as long as you have users buying your products, you have profits. So a lot of money poured in. Second, there was an online dividend. If you had a product with good design and concept, it could quickly become famous in e-commerce, with sales reaching tens of millions. For this industry, tens of millions or even hundreds of millions are small. But for investors, this growth rate is astonishing. In this process, they didn't take the opportunity to enter offline markets, establish their base, and root themselves. When the internet dividend ended, traffic costs remained high, brands didn't occupy consumer minds, and channels didn't penetrate the vast market. Their foundation wasn't solid, so they faced huge challenges. Among the new consumer brands I've encountered, many entrepreneurs are still resiliently surviving and developing. But the environment they face is completely different from a few years ago. Previously, they were in the spotlight, representing the future hope of the industry. Today, everyone is struggling to survive. But costs aren't low enough. Because most new consumer brands use financing to build brands and develop products, or acquire traffic; manufacturing is usually outsourced. They can't achieve extreme cost efficiency in product costs. Zhang Jixue: Can I understand it this way: today's young people are digitized. Their online needs can be revealed through data tags. So a wave of smart young people produced products tailored to these consumer interest tags. They pushed them directly to consumers by buying traffic. Buying traffic to exchange for sales is actually simple. But bidding quickly strangles traffic costs, and soon you can't make money. Smart entrepreneurs, after reaching hundreds of millions online, quickly expand offline to build channels. Traffic and brand, online and offline channels, are actually concentric circles for a company. If you want to quickly test and scale, you do well online, but the ceiling comes quickly. Then you have to build the harder offline channels. Only when you achieve dual-wheel drive of brand and traffic are you a mature brand. Chen Siting: How to transform from internet-famous to long-lasting is key to changing a brand's fate. Many new consumer brands initially relied on traffic tactics, which actually violates Porter's competitive strategy of differentiation. Traffic tactics are pseudo-differentiation. If you gain first-mover advantage, you must think about how to survive and develop after the traffic dividend disappears. Some brands do well. For example, Wangxiaolu (a snack brand) was among the new consumer brands that moved from online to offline early. Zhang Jixue: He (Wangxiaolu) had a viewpoint: when a company wants to sell, it must buy traffic. Before buying traffic, check the brand's awareness in that city. If awareness exceeds 14-15%, the conversion rate is high. So he also uses dual-wheel drive of traffic and brand. Chen Siting: Some brands are also considered new consumer brands, but they didn't start online and succeeded. Youxianggu started offline. They maximized differentiation with their double-pomelo juice; they grow the pomelos themselves, spending six or seven years before launching the product. In marketing, they didn't do online initially; they focused on restaurants. At first, not all restaurants, only mid-to-high-end ones. A 300ml bottle sells for 10 yuan in restaurants. This price point is affordable only for mid-to-high-end restaurants. This differentiation is real. Based on differentiated products, they built a differentiated marketing model. They're not aggressive or chasing traffic. Now they're expanding quality channels nationwide, starting offline. Zhang Jixue: Online brands fail in a few years, but century-old brands like Coca-Cola and L'Oréal have survived countless channel and traffic cycles and still thrive. How do you understand this? Chen Siting: I think it's a natural law. There's a saying: trees with fast growth are low-level life. In the plant world, the fastest-growing is the paulownia tree, reaching towering heights in two or three years, but it's only good for firewood, and not even good for that. In contrast, rosewood like huanghuali takes over a century to mature. The quality of life is completely different. Online brands, using traffic boosts and seizing time windows, rise quickly, even reaching 1 billion in sales. But if they don't form unique competitiveness or truly establish mindshare, and traffic tactics fail, the brand can't hold up. Whether new or traditional, if they quickly start rooting downward while doing online, they can become high-level life. They'll form brands and occupy minds. Once they occupy minds, every offline channel, distributor, and terminal becomes the brand's mountains and rivers. That's why when storms come, the ones that really have problems are mostly online-based brands, while those with deep offline roots are the ones that survive best, with the largest scale, healthy growth, and highest profits.

Be in the Top 40% of Your Industry, and You Won't Die Zhang Jixue: Building a brand today is definitely harder than before. Previously, you just needed to enter large supermarkets and small shops and run some ads. Today, channels are fragmented. There are large supermarket chains, new retail stores, and online platforms like Xiaohongshu, WeChat, and Douyin, all becoming new consumption channels. You have to manage all of them well, which is difficult. Chen Siting: The FMCG industry is typical: easy to enter, hard to do well. Everything we were familiar with has been shattered; that's the biggest challenge we face. Zhang Jixue: I want to give entrepreneurs confidence. There's a rule: as long as you're in the top 40% of your industry, you won't die. If you can get into the top 20%, you'll do well. If you can be in the top three or two, you're a brand in the industry. I believe in this round of stagnant economy competition, you will survive and thrive. Next question: Previously, marketing theory said weak categories don't need branding; just do channel distribution and traffic. But today, we see many excellent strong brands in weak categories, like Bull sockets and David mops. Why do these inconspicuous household weak categories have opportunities for brand innovation? Chen Siting: Because many niche categories previously lacked the ability and capital to build brands. Capital prefers to invest in tracks with long slopes and thick snow, where the pool is big enough, the imagination space is big enough, and it's sexy enough. But with media like Xinchao, these niche categories have a rare historical opportunity for branding. Typical brands that grew on Xinchao's platform, champions in niche categories, share a common feature: low-frequency purchase, high-frequency use, even ultra-high-frequency use. Any product that is used frequently will have a need for branding. Zhang Jixue: Many companies lose their brand assets themselves. As soon as customers remember your slogan, you change it. So truly good advertising is like medicine: you can't stop, reduce, or change it. To get it into consumers' minds, you need simple repetition. Say important things nine times; our customers just heard it. Chen Siting: I want to ask Mr. Zhang: What is the medicine we give them? Should we continue to insist on branding? What is the meaning and value of continuing to build brands? How should we do it so our companies can survive and develop? Zhang Jixue: Although China is now a stagnant economy and opportunities for continuous consumption surges are rare, always remember: every industry has excellent leaders. Our goal is to strive to be successful. As long as you stay at the table and don't leave, all opportunities will come again. My advice is: What is the purpose of advertising? To sell goods and then continuously acquire customers at low cost. Test your ads with these two criteria: After advertising, do you sell goods? After advertising, do you continuously acquire customers at low cost? For example, internet traffic ads: invest and you get traffic and sales. But customer acquisition costs rise, so traffic ads are useful but imperfect. Brand ads: cover users seven, eight, nine times, occupy minds, but you don't see sales in the short term; they're also imperfect. Truly excellent companies coordinate brand and traffic ads. Brand ads are often invested by the boss himself; traffic ads are left to the marketing department. Why? If all ads are left to marketing, to meet KPIs, they'll buy all traffic. Traffic ads earn today's money, while brand ads earn tomorrow's money. Who invests for tomorrow? Only the boss! Chen Siting: Second question: Many brand owners tell me they think investing in elevator media costs a lot. Especially in this difficult period, they're even more afraid. If they want to cooperate with Xinchao, do you have any solutions for them? Zhang Jixue: 70% of advertising effectiveness is determined by content, 30% by media. You need to continuously create content and test it. The truly cost-effective elevator ad method is: first, choose two or three cities for a pilot. Find the content, frequency, and feel for elevator ads. Then scale it from 1 to 10, and after success, scale from 10 to N. Only this way can you avoid waste. Also, the advertising industry has a feature: if you sign a contract for, say, 30 million or 50 million, you don't have to spend it all at once. You proceed step by step. If it's effective, continue; if not, we'll debug and then invest. Among clients who spend over 100 million on elevator ads annually, only seven or eight out of twenty or thirty succeed. You need to cross the river by feeling the stones. Advertising is an investment, not a gamble. Chen Siting: Last question: What kind of companies are suitable to cooperate with Xinchao to build brands? What characteristics must they have? Zhang Jixue: I think any product that can be sold to households is suitable for advertising on Xinchao, on elevator ads. There are big ways and small ways, depending on the brand's business model. Business models generally fall into three types: three-kilometer profit model, city-wide profit model, and national profit model. The three-kilometer model is for hotpot restaurants, clothing stores. You just select residential areas within three kilometers, run elevator ads, tell them about today's offers, and they'll come. The second is the city-wide model, like driving schools; you can advertise across the city. The third is national brands; I don't recommend one-time large investments. You need to test, from 0 to 1, 1 to 10, 10 to N. No matter what stagnant economy era, as long as you're in the top 40% of your industry, you'll survive; in the top 20%, you'll thrive. If you coordinate brand and traffic, transform from internet-famous to long-lasting, and become a traditional famous brand, you'll do well.

Recommended Reading