Zhao Bo of New Distribution: Why Is the FMCG Industry Undergoing a Profound Supply Chain Revolution?

A profound transformation is taking place in the channel

A large number of retail brands have emerged on the market, selling on the basis of discounts, including snack collection stores, hard discount stores, and retail enterprises like Hema, which have launched their own private labels.
As of early 2024, the number of lightning warehouses nationwide has exceeded 6,500, and instant retail has become a must-have in people's lives.
Behind the freedom of cherries is the combination of global supply chains and localized live-streaming platforms, achieving the shortest time and fastest speed for global product assembly.
Going global and expanding overseas has become an important topic for many enterprises in 2024.
Regional distributors doing B2b has become a must, and a large number of B2b operations have begun to turn a profit.
The operating conditions of distributors have begun to polarize. The good are getting better, characterized by large scale, high informatization, strong operational capability, category specialization or cross-category operations, and even cross-regional operations. Their owners are generally young and eager to learn. The poor are characterized by single-brand agency, small scale, lack of brand operation capability, acting as delivery agents for manufacturers, with older owners who do not learn.
Involution has become the norm. As teacher Liu Chunxiong said: competing on price, channels, supply chain, and brands.
On the brand side: sluggish sales growth, difficulty in attracting distributors, difficulty in raising prices, management difficulties, decline, category structure adjustment, and unsatisfactory premiumization.
On the new consumption side: platforms that cannot retain users, and offline channels that cannot be penetrated. The social background behind this
The Chinese economy is undergoing structural adjustment, transitioning from an economic structure driven by small commodities, small electromechanical products, OEM exports, and real estate, into a painful period of a new economic combination driven by exports of automobiles, new energy, high-tech branded products, plus domestic consumption. From labor-intensive to technology-intensive to tech-intensive, the opportunities for mass participation are decreasing.
China's population is declining, with deep aging, and the demographic structure determines the consumption structure.
Most categories of consumer goods in China have entered a stock market, with total consumption beginning to decline. It is an indisputable fact that consumer goods have entered autumn.
Consumers are burdened by assets and liabilities, pessimistic about the future, and cautious in spending. However, this generation of consumers has experienced good products and enjoyed good services, and cannot go back.
Decent consumption—consuming higher-quality products at lower prices—has become the mainstream consumption concept of contemporary consumers. In a sense, it is also a sign of consumption maturity.
The fragmentation of media has led to a "tribal cognition" model in consumer attitudes. Unlimited supply has created "scenario-based consumption" demands, posing huge challenges for brand owners on the product side. The big single-product model is gone forever. The FMCG industry has entered the second half—the era of stock competition 1. The first half is about competition; the second half is about struggle. Many people say the second half has begun, involution is the norm, and competition will only intensify. But how should we understand this involution and competition? We can understand the first half as competition and the second half as struggle. Friends who have played the mobile game Peacekeeper Elite know that at the beginning, you parachute onto an island with abundant resources, and you can equip yourself quickly to become stronger. But that's the first half. In the second half, the survival circle begins to shrink, the system continuously narrows the map, and finally you are in a very small circle. When the living space shrinks, players must engage in life-and-death competition. Why couldn't Retail Link kill distributors before? The market was an incremental market, a competitive race where everyone competed to see who could run faster and grab more, with a wide enough track. Now it's in an octagon cage, and it's a fight to the death. 2. Characteristics of the supply chain in the second half 2.1 Consumer side

Consumers may enter because of low prices, but they do not buy because of low prices.
As mentioned earlier, this generation of consumers has seen the world. You must understand that today's consumers have become smarter; they have seen good things and cannot go back, but they don't want to spend too much money.
Young people's consumption is still fierce: emotional consumption, instant gratification, dopamine consumption. Look at the tricks Harbin has been up to; you'll know it's not that consumers have no money, but that you lack the ability to take money out of their pockets. 2.2 Channel side:
Retail formats are becoming more diverse and varied: category stores, specialty stores, online-offline hybrid stores, same-city retail, live-streaming e-commerce...
Cities are becoming more three-dimensional. Distribution models have evolved from one-dimensional to three-dimensional. Same-city retail cannot be operated with two-dimensional thinking.
Deep distribution was about separating cognition and transaction. Today, cognition and transaction are integrated; seeing is getting.
In the retail track, there is no most involution, only more involution.
Specialization, three-dimensionalization, onlineization, branding, and discounting.
Mom-and-pop stores are being marginalized. Deflation has brought a big opportunity to discount stores: falling rents and labor costs, and a large number of idle locations. 2.3 Distribution side:
Channels are becoming more fragmented, with higher demands on the supply chain. Different channels require different SKUs to meet different consumer needs.
Integration of zero-supply and one-stop platformization is very obvious.
Traditional supply chain models are long, lack data, and are not fast enough.
The requirements for supply chain flexibility and agility are increasing.
The model of "broad advertising (to gain wide consensus) + deep distribution" has ended. "Tribal consensus (no more wide consensus) + scenario (commonality) distribution" is the future.
Offline, the traditional agency model cannot cope with today's fragmented channels and markets. Brand owners need a mechanism to enter the market on a larger scale and faster to validate products.
B2b, discount stores, lightning warehouses, community group buying, Douyin live streaming, private domain e-commerce, and many other new channels are emerging, all validating one thing: supply chains are getting shorter and more efficient. Brand owners can no longer use long, redundant, and complex distribution agency models to validate and promote a product. What brand owners need is a complete product-to-distribution system that is fast-reacting, small-scale trial-and-error, continuously iterating, constantly upgrading, and extremely efficient. Conclusion: The market has changed too much compared to ten years ago. Every role in the consumer industry chain must complete a self-revolutionary evolution, which we collectively call the supply chain revolution. Strategies for industry practitioners in response to the supply chain revolution 1. Consumer insight:
Pay attention to JTBD in consumption scenarios and the motives behind consumer purchases in transaction scenarios.
Consumer happiness is important: immediacy, convenience, and social interaction.
Want, instant consumption, instant consumption scenarios, instant consumption satisfaction: consumers today do not lack material goods; they lack reasons to buy. Consumers lack meaning in consumption. They lack emotion; only emotion can drive people's behavior (see the book "Emotion" for details). But emotions are fleeting; to capture them, you must satisfy them in time to seize the business opportunity.
The middle class is in debt, but not all shopping is price-sensitive. For instant consumption, the middle class has the ability to spend.
Whoever can provide certain satisfaction for consumers' uncertain emotions can make money standing up. You must seize both the "rigid demand" of instant consumption and the "business opportunity" of impulsive consumption. 2. Brand-side strategies:
Pay attention to the crowd data assets in the market, leverage existing digital infrastructure, and increase output per store: expand distance, categories, scenarios, and audiences.
Where consumers are, we must go. We should use channels like O2O to quickly influence consumers and update product portfolios. Design product forms based on the consumption motives of discount store consumers. Redo the 4P logic for live-streaming e-commerce; the channel is the product.
Brand owners need to compress supply chain links, reduce unnecessary costs, improve supply chain efficiency, and value data feedback from the chain.
Make targeted R&D investments for scenarios, create hit products and scenario-based products, and quickly summarize methodologies for new channels, new traffic, and new playstyles.
Cooperation models: multi-channel, multi-category, multi-distributor models; special forces channel leverage model to drive rapid product distribution.
Combination, operation, technology, shortening links (as few links as possible to build a supply chain) (flexible supply chain). 3. Distribution side: B2b, distributors
Facing today's market, everyone must deepen operational capabilities and be able to provide fast and effective product combination packages for different scenarios.
Be able to have a multi-channel, multi-scenario, multi-batch efficient supply chain delivery system (capital, information, logistics), achieving all-weather, digital, all-scenario, one-stop service.
Be able to go from B2b to B2C capabilities.
Distributors without digital capabilities will basically be eliminated within the next three years. The trading field is no longer a business that a nobody can do. The entry barrier is much higher than opening a restaurant.
Distributors must become platform-based and supply-chain-oriented. Understand the Sysco logic and how 7-Eleven came to be, and you'll know what to do in your local market: claim territory, grab resources, and provide one-stop service.
Distributors must evolve into platform providers. If they cannot evolve, they should expand their agency scope by province, or thoroughly penetrate a single national channel, such as Pinduoduo.
Being a platform provider is not enough; zero-supply integration is an inevitable result. You must do agency, B2b, retail, lightning warehouses, hard discount, and CVS—none can be missing.
If you don't know how, join a larger organization and let it empower you. For example, join the "Tower Alliance," which will bring together the best national resources in product, retail, and platform to empower local retail.
The supply chain revolution is essentially an efficiency revolution. Efficiency comes from technology, scale, operations, and management. It's not that the internet defeated distributors; it's that high efficiency replaced low efficiency. 4. Retail side:
Unique product portfolios and unique services will be competitive advantages.
Private labels, low-priced products, quality services, and all-day service. About the particularly hot hard discount

Hard discount is more like a product of a certain stage. Previously, consumers also wanted to buy cheap products, but they couldn't find them or hadn't consumed them. The major hardware conditions for the rise of hard discount in the past two years:

Consumers have had good times and experienced high-end living, but the high-speed growth has ended, and they are pessimistic about future expectations, yet they do not want to downgrade consumption.
Large-scale rapid growth in the industry has ended, entering a slow growth stage with decreasing increments.
Brand owners and retailers are competing more fiercely and can tolerate lower gross margins.
The social supply chain infrastructure is complete, capable of solving supply chain problems at low cost, efficiently, and with informatization.

Personal views:

Private labels are still far off because retailer brands are not premium enough, consumer trust endorsement is insufficient, and product insight is not deep enough. There is still a long way to go in controlling and understanding the supply chain.
It is said that hard discount should compress links. What does compressing links mean? It's not really compressing links, but one link doing the work of two links, reducing the profit of one link.
At this stage, snack collection stores and hard discount stores cannot truly operate with white-label products; they are still taking advantage of big brands. Final words "This year is the worst year of the past decade, but it may be the best year of the next decade." This phrase has almost become this year's catchphrase. But this phrase is emotion, not fact. Le Bon in "The Crowd" pointed out that when an individual is isolated, he has his own distinct personality traits, but when he integrates into a group, all his personality is submerged by the group, and his thoughts are immediately replaced by the group's thoughts. When a group exists, it has characteristics such as emotionality, lack of dissent, and low intelligence. A large amount of negative emotions on the internet are sweeping up public sentiment, misleading many people's judgments. In the next decade, China will become the world's largest consumer goods market, with extremely rich products and continuous innovation. National prosperity and people's strength are not just a wish but a visible fact. But market competition is extremely fierce, and involution and shrinking total consumption are also indisputable facts. For practitioners, to find the key to the future, you must open your eyes to the world, find the most advanced productive forces of this era, learn, iterate, evolve, and then bravely face this new era. **From March 14 to 16, 2024, the 9th China FMCG Innovation Conference, co-hosted by New Distribution and Ande Zhilian, and the 2nd China FMCG Hard Discount Conference & the 2nd China FMCG Distributor Conference will be grandly held in Chengdu! The 2nd China FMCG Distributor Conference will be hosted by New Distribution and co-hosted by Zhoupu Data. This conference will revolve around the theme of "Supply Chain Revolution." Over 3 days, there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, more than ten sub-forums and closed-door exchange meetings, and the first major debut of the "Extreme Supply Chain" Brand Factory Direct Procurement Fair. We will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and ways out in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a worthwhile meeting! For conference business cooperation, please contact: 🔺Scan code for ticket consultation🔺