Hello everyone, I am Zhao Bo, founder of New Distribution. I want to thank brand owners, distributors, and service providers from all over the country for taking the time to travel to Chengdu for the 9th China FMCG Innovation Conference, the 2nd China FMCG Hard Discount Conference, and the 2nd China FMCG Distributor Conference. This year, New Distribution has tried some innovations, such as holding multiple conferences independently, and organizing a brand factory direct sourcing fair, jointly experimenting with a new supply chain format with brand owners. The theme of this conference is "Supply Chain Revolution," which was the result of discussions among all partners of New Distribution at the end of last year. Why is the supply chain revolution an inevitable outcome in the Chinese market? In China, whether in retail or supply chain construction, the services and support of distributors are indispensable. Looking around the world, you will find that the forms of commercial circulation in different countries vary. For example, in Japan and South Korea, factories, supply chains, and retail are mostly integrated, while in the United States, the commercial circulation system is composed of wholesalers. China is indeed a unique existence, composed of countless small and medium-sized distributors. Why did this happen? In the past, China's retail market was highly fragmented, requiring distributors to assist in the regional distribution of products. On China's 9.6 million square kilometers of land, there are 6.8 million mom-and-pop stores. The highly fragmented mom-and-pop store model did not form a large-scale logistics and supply chain system. Under this model, information asymmetry and capability asymmetry between manufacturers and distributors made it very complex to distribute goods nationwide. Therefore, under the market environment at that time, teachers Bao Zheng and Shi Wei proposed a specific marketing concept system called the "Deep Distribution Theory." Starting in 1995, Coca-Cola launched the "101 Model," and in 1998, Master Kong proposed "Channel Intensive Cultivation." Each brand had different models, but the goals were clear: to serve the highly fragmented mom-and-pop stores well, to ensure distribution in lower-tier markets, and to solve distribution problems. At that time, brand solutions based on the market were:
· Establish multiple factories to shorten delivery radius;
· Extensively cooperate with distributors;
· Adopt a combination of distribution models to complete market coverage;
· Divide labor with distributors and deeply participate in regional marketing and management;
· Adopt deep distribution models and refine terminal layout;
· Empower partners (provide professional skills training to partners). This is how, over the past 30 years, Chinese FMCG brands achieved tremendous growth and national brand presence through this model. Today, the Chinese market is undergoing major cyclical changes, gradually entering a mature market economy. In the past 30 years, China's economy developed rapidly, and from 1979 to 2014, the FMCG industry also steadily rose. But growth has cycles and repetitions; it cannot always move forward without fluctuations. After 2014, China's FMCG market began to gradually enter a shrinking market. Typical categories, such as instant noodles and baijiu, saw sales revenue increase, but sales volume no longer grew and even slightly declined. Most consumer goods categories have essentially entered an era of shrinking volume. Companies can only achieve new growth through structural operational adjustments, which is a typical characteristic of mature markets. In this context, will business be difficult in the future? Undoubtedly, yes. In the past, the market was a quantity-driven growth market; you didn't need to work too hard, just move a little and you could make money. But when entering a stock market, or even a shrinking market, involution and competition become the norm. Under this norm, not growing is normal. Growth means squeezing competitors. Through continuous self-iteration and innovation, companies can escape the red ocean of competition. Therefore, I believe that China still has a golden consumption period of 10-20 years, and strong and sustained consumption capacity will always exist. China is a country built on manufacturing, and manufacturing remains the ballast stone of China's economy. Stable employment brought by basic industry, new energy, high technology, a stable political environment, and a strong, self-improving Chinese culture that seeks to change destiny are all major reasons that can drive the market into a mature consumption cycle and maintain consumption capacity. Of course, under such a consumption cycle, competition and involution will also force companies to enter refined operations. Corporate growth is continuously shifting functions, such as digital intelligence, transformation and upgrading, mergers and acquisitions, and cross-border expansion, gradually moving to the forefront of the stage. In a mature market, consumers are also changing and becoming increasingly savvy. Why? First, abundant information supply, sufficient consumer choices, and brand disenchantment. Consumers no longer look up to well-known mass brands, but they do look up to high-end brands. Mass brands no longer have social significance; there may still be a large number of loyal consumers, but the charm of famous brands has faded. Second, platform-driven models, opinion leaders, and centralized shopping are forcing changes in the industry chain. For example, platforms like Douyin, Tmall, and Taobao, as well as various KOLs and opinion leaders, are forcing changes in the entire supply chain and industry chain. Third, the upgrade of consumption concepts, shifting from "eating and drinking" to "playing and having fun." It's not consumption upgrading, but consumption concept upgrading; consumers no longer emphasize eating and drinking, but place more importance on entertainment, and their material consumption tendencies are more rational. Fourth, asset-liability and post-pandemic economic downturn have made consumers re-examine their consumption habits. "Save where you can, spend where you should" – consumers are not not consuming, but they are no longer consuming blindly. Combining these four points, it's not hard to see that consumers are becoming more sophisticated, and it's increasingly difficult to take money out of their pockets. While consumers are becoming smarter, market complexity is also increasing. Population stratification, scenario differentiation, the emergence of new economic demands, and the aggregation of large amounts of traffic have caused the complexity of marketing to rise exponentially. Many large enterprises are at a loss when facing such complex populations and environments. Companies can no longer use one product to satisfy all consumers; they need to segment people by labels and propose different solutions. In such a complex market environment, scenario has become the first principle of corporate marketing. Brand owners must build an integrated supply chain and value chain based on consumer consumption scenarios, construct a fan-shaped product marketing based on consumers' living radius, and build an integrated marketing system based on individual cities. The new market environment undoubtedly poses great challenges to traditional distribution models. Comparing the past channel structure with today's, you'll find that today's channel structure is extremely complex. As I've mentioned before, China has four generations of retail models coexisting in one market system. First-generation retail model (1989-): mom-and-pop stores + wholesale markets;
Second-generation retail model (1998-): chain convenience stores + hypermarkets;
Third-generation retail model (2007-): platform e-commerce, vertical e-commerce, private domain e-commerce;
Fourth-generation retail model (2016-): front warehouses (community group buying + flash warehouses) + discount/membership stores (bulk snack discounts + hard discounts + membership) + interest e-commerce (category + KOL + content). Behind the four generations of retail models are four different supply chain provisions. This is the current state of the market, but for enterprises, it is both complex and difficult to operate. In this context, let's look at the changes in terminals, channels, and distributors. First, terminals. The types of retail are increasing, new retail traffic is becoming more concentrated, and the transaction volume per store is increasing. In the past, a mom-and-pop store might sell a few thousand yuan a day, but now it's not uncommon for a single Douyin live stream to generate tens of millions. This has led to a rapid decline in grocery stores, a significant decrease in fragmented retail traffic, and an increase in aggregated retail traffic. Next, channels. The supply chain from manufacturer to terminal is getting shorter, upstream pricing power is being gradually stripped away with traffic monopolies, distributor and wholesaler gross margins are being significantly compressed, and low or negative margins are becoming very common. Finally, distributors. Online-offline integration, BC integration, and same-city traffic marketing have greatly increased professional operational requirements. One-stop supply, integrated operations, and precision marketing require distributors to have digital capabilities. In summary, a conclusion can be drawn: the supply chain model of enterprises will also undergo a revolution due to market changes. There are several significant changes in the mature market supply chain. First, one decrease and one increase. With the reduction of fragmented traffic, single-brand agents will also significantly decrease, replaced by individual distributors/supply chains whose scale rapidly grows. Second, technology-driven growth. Digitalization, onlineization, automation, scale, and technology-driven factors will become the dominant growth factors in the supply chain. Third, model upgrade. Supply-sales integration, online-offline integration, BC integration, routing, intensification, and short chains will make business models significantly different from before. Fourth, changes in manufacturer-distributor rights and responsibilities. Data-driven decision-making, channel participation in brand co-creation, and the shift in discourse power brought by supply-sales integration. Based on these changes, brand owners will have four new demands for the distribution system: precision marketing, omnichannel coverage, service upgrade, and digital management. In this case, the core competitiveness of distributors is to have new distribution capabilities and new sales promotion capabilities. It's not simply about scale, but about building an integrated distribution system based on today's retail scenarios. Therefore, New Distribution believes that distributors need to develop four new capabilities: new coverage, new service, new transaction, and new efficiency. New coverage, such as the rise of bulk snack discount stores, O2O, front warehouses, and community group buying in recent years, requires distributors to cover new channels while also penetrating lower-tier markets. That is, while doing old business well, they must also do new business. New service, providing different professional service capabilities for different channel needs, even achieving one-stop services. For example, flash warehouses have been booming in the past two years; besides supplying products to flash warehouses, can you provide one-stop warehousing, logistics, supply chain, and product services? This is the biggest challenge for distributors. New transaction, having the ability to directly transact with C-end consumers in the same city through private domain, live streaming, e-commerce, and membership. New efficiency, platformization, corporatization, supply chainization, digitalization, and routing, using new technological means and models to achieve scale efficiency improvements. These four new capabilities drive distributors to evolve towards specialization, categorization, digitalization, and supply chainization, which is an inevitable result of market changes. Similarly, brand owners must also adjust their strategies according to market changes. At the product level, provide scenario-based products that meet the diverse needs of consumers and channels.
At the channel level, combine distribution models according to channel characteristics and focus on developing corresponding channels based on market characteristics.
At the distributor level, strengthen cooperation with distributors, provide corresponding training and guidance, protect distributor profits, and continuously optimize distributors to ensure channel power.
At the brand level, continuously upgrade brand/product power, achieve model and capability improvements through organizational reform, and use digital technology to improve marketing efficiency. In conclusion, for distributors, the next ten years will be the best of times and the worst of times. Whether it's good or bad depends on how you view this market and how you carry out self-reform and iteration. New Distribution is willing to work with distributors to try to promote China's supply chain reform. In October last year, we officially established the Tower Alliance. This is an alliance organization and also a company, bringing together the best supply chains, the best retail systems, the best B2B systems, and the best teams in the country to serve distributors. Interested distributors can join New Distribution to complete the revolutionary practice of supply chain self-iteration. PS: Friends interested in the on-site speech content can follow the recent posts on the WeChat official account of New Distribution. We will organize and publish all guests' speeches for readers. Click Read Original Text to see more about the 9th China FMCG Innovation Conference, the 2nd China FMCG Hard Discount Conference, and the 2nd China FMCG Distributor Conference...