The Underlying Logic Behind Sluggish Consumption

  1. 70% of Chinese people's assets are in real estate.
  2. The vast majority of people have leveraged their assets.
  3. Falling real estate prices drag down the value of people's investments; due to leverage, assets decline at an accelerated pace—this is the so-called balance sheet recession.
  4. When balance sheets shrink, people's tolerance for error in life decreases; they cannot withstand any fluctuations in work or life.
  5. Because of debt, people must work hard to earn income, but in the current market, everything is oversupplied, competition is fierce, and making money is increasingly difficult.
  6. With shrinking balance sheets, intense market competition, and severe work pressure, people naturally have pessimistic expectations for the future.
  7. To cope with future uncertainty, people are saving frantically—both to prepare for emergencies and to accumulate funds to deleverage.
  8. It's not that people have no money; it's that the real estate downturn has made all their assets illiquid.
  9. If people don't consume, the country doesn't grow; without corresponding economic stimulus, the economy could spiral into a deflationary trap, like Japan's lost decades.
  10. The wealthy are emigrating, the poor are losing money, young people aren't marrying, married couples aren't having children, and the middle class is aging en masse.

Why Low-Price Retail Will Spell Doom for the Entire FMCG Supply Chain

  1. Low prices in retail seem like competition but are actually a lack of innovation. Hypermarkets were too comfortable with slotting fees and didn't want to upgrade or evolve. Hema's transformation, Yonghui's renovation, RT-Mart's 'M-ization'—discounting is spreading. Walmart closed its first store in Nanjing, and RT-Mart, the 'King of Land Warfare,' has closed stores consecutively. Store closures essentially mean this business model can no longer keep up with the times.
  2. Giants with traffic are using low prices as a weapon, which will inevitably lead to the ruin of the entire FMCG supply chain.
  3. Douyin's low-price strategy is very sad. A platform that doesn't produce products or create value in the supply chain, its so-called low-price strategy is just using traffic to squeeze the profits of the supply chain! With traffic, it wields the butcher's knife against the brand equity that brands have built over decades, forcing the value chain to be harvested one cut at a time.
  4. Whether brand owners, distributors, or retailers, all will see their gross margins vanish due to the low-price strategy in retail.
  5. Whether online or offline, when retail only sells at low prices, it will be difficult for new brands to emerge, and it will be hard for quality brands to go global.
  6. Low prices plus traffic concentration will further squeeze the living space of distributors and mom-and-pop stores. The distributor business, without scale, will only get harder. Mom-and-pop stores without supply chain support will face death if they try to transform into omnichannel retail stores.
  7. From another perspective, low profits are also a sign of market maturity.
  8. The discount business model for ordinary products is a fake model; premium discounting is the real demand.
  9. Those who need discounts are not the poor, but the middle class who have tasted the good life and are now 'exquisitely poor.' Having seen good things, experienced good products, and enjoyed good services, they can't go back to hard times, so they live in exquisite poverty.
  10. The truly poor have no purchasing power; even if they did, they have plenty of alternatives.
  11. Why are there no discounts in pharmacies? Because users only want price discounts, no one wants effectiveness discounts. So remember, consumers want to feel they're getting a bargain, not necessarily a real bargain.
  12. Every time a consumer buys your product in a discount store, it deducts a point from your brand equity account.

Supply Chain Is an Inevitable Standard in Mature Markets

  1. The more dispersed the traffic, the longer the supply chain; the more concentrated the traffic, the shorter the supply chain.
  2. Market growth has disappeared; distributors must compete for existing market share. Competition in the same city is a knockout match—only by becoming a major distributor or being eliminated. Whoever has scale, efficiency, low cost, and true barriers will get a ticket to the second half.
  3. Today, the market is shifting from a dispersed-traffic, single-type retail landscape to a concentrated-traffic, multi-type retail market.
  4. Supply chain is an inevitable standard in mature markets.
  5. In mature markets, scale, concentration, and low gross margins are three typical characteristics of supply chains.
  6. If you study the history of commercial circulation in Europe and America, you'll see that from wholesale to retail is the historical trend of commercial circulation.
  7. Single-brand distributors that rely on dispersed traffic are seeing their living space greatly compressed due to traffic consolidation, making business increasingly difficult.
  8. The evolution path for distributors: brand distributor survival → category distributor development → same-city supply chain differentiation → franchise retail chain → own product/brand creation.

Brands Must Learn to Deal with Sophisticated Consumers

  1. Information is values, information is power, information is brand.
  2. Consumption is shifting from eating and drinking to entertainment, from satisfying needs to stimulating desires. Being full is a need; eating well is a desire. Needs can be satisfied, but desires must be stimulated.
  3. The product logic is shifting from brand products under the STP logic to KOL-oriented channel/value-based products.
  4. Decent consumption—buying higher-quality products at lower prices—has become the mainstream consumer concept, and in a sense, it's a sign of consumption maturity.
  5. Media fragmentation has led to a 'tribal cognition' model in consumer attitudes; unlimited supply has created 'scenario-based consumption' needs, posing huge challenges for brand owners on the product side. The big single-product model is gone forever.
  6. Competitive barriers are built on occupying scarce resources, so creating scarcity elements must be a core corporate strategy. From the bottom, today's market exists in structural scarcity and psychological scarcity.
  7. From the supply side, there are four values: functionality, emotion, social, and addiction. The top brands' triangle: scarcity, desire, and accessibility.
  8. Brand owners can no longer use lengthy, redundant, and complex distribution agency models to validate and promote a product. They need a complete product-to-distribution system that is fast-reacting, small-scale trial, iterative, continuously upgrading, and extremely efficient.
  9. Deep distribution is only effective in lower-tier markets.
  10. The Chinese market has great depth. When building a brand, you must understand what 'going down' means. No matter how fast the market changes, as long as there is depth to go down, there is enough time to respond to market changes, because any business model penetrates from high to low, from high-tier to lower-tier markets.