---
title: "Zhao Bo: Viewing China's FMCG Retail Channels from an Abstract Perspective"
description: "Zhao Bo, founder of New Distribution, discusses the theme 'Rebuilding: A New Era' for the 5th China FMCG Conference, emphasizing the need for businesses to think across cycles and use abstract thinking to navigate channel fragmentation and changing consumer demands, rather than relying on simplified models."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-10-09"
language: "en"
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# Zhao Bo: Viewing China's FMCG Retail Channels from an Abstract Perspective

> Zhao Bo, founder of New Distribution, discusses the theme 'Rebuilding: A New Era' for the 5th China FMCG Conference, emphasizing the need for businesses to think across cycles and use abstract thinking to navigate channel fragmentation and changing consumer demands, rather than relying on simplified models.

Hello everyone, I am Zhao Bo, founder of New Distribution. It is a great honor that you have taken time out of your busy schedules to travel from afar to attend the 5th China FMCG Conference and the 1st China FMCG Distributor Conference after the Mid-Autumn Festival. The theme of this conference is **"Rebuilding: A New Era"**. It may sound a bit awkward, but this theme was determined after repeated discussions by the New Distribution team. So why is it called "Rebuilding: A New Era"? At last year's Autumn Sugar Fair, Mr. Hou, Chairman of China Resources Beer (Holdings) Co., Ltd., stated at the New Distribution conference that China is currently undergoing changes unseen in a century. Based on this, Mr. Hou proposed the slogan "New World," which sparked heated discussions in the industry. Whether it's the old world or the new world, our environment may not have changed; what has changed is mainly our understanding of this world. I've noticed that there are many conceptual terms this year, such as: balance sheet liabilities, M-shaped society, L-shaped economic trends, K-shaped consumption divergence, consumption downgrade, and so on. But are these all correct? It's hard to say. In the midst of complex and diverse information, it's difficult for people to step outside themselves and think objectively. We also cannot exhaust all information to make a good summary. To reduce the brain's energy consumption, people tend to use models and concepts to simplify our understanding of the world. This is not wrong in itself, but if you are the head of a company or need to make major decisions at a certain point, you cannot use simple, simplified models to make decisions about yourself and your company's future. Because many major historical events are often hidden within this complex information.

Let me start with a historical story. 1921 was an extraordinary year in Chinese history. As friends who know some history are aware, the Communist Party of China was born that year. But if you were in that environment at the time, you might have been more focused on the following news:
  * The May Fourth Movement
  * The establishment of the National Government in Guangdong, with Sun Yat-sen as President
  * A strike of over 9,000 people on the Yuehan Railway
  * The opening of the Beijing-Zhangjiakou Railway
  * China joining the League of Nations
  * The divorce of Shanghai gangster boss Huang Jinrong and his first wife Lin Guisheng
  * Hitler becoming the leader of the German Workers' Party
  * The assassination of Japanese Prime Minister Hara Takashi
Of course, these events are also particularly important when viewed today, but I want you to focus back on the First National Congress of the Communist Party held in July. Can you imagine? This party congress was a very important meeting even within the party, yet the two most important founders of the Communist Party of China, Li Dazhao and Chen Duxiu, did not attend. Why? Chen Duxiu was serving as the Chairman of the Education Committee in the Guangdong National Government at the time, and he was in the process of applying for education funds. If he left, the funds would not be approved. Li Dazhao was organizing a hunger strike by students and teachers in Beijing to protest the Beiyang government's salary arrears. If he left, the protest might fail, and the arrears would not be recovered. So Chen Duxiu sent Bao Huiseng as his representative, and Li Dazhao sent Zhang Guotao and Liu Renjing. Unfortunately, all three of these representatives later left the party. Looking at this from a broader perspective, people at that time were overwhelmed by various dazzling news events and found it hard to pay attention to a small meeting of a dozen or so people. Similarly, even the initiators of the meeting found it hard to see its importance from an outside perspective. Even the participants could hardly realize that the young secretary from Hunan, Mao Zedong, who attended this meeting, would help the Chinese people remove the "three big mountains." Looking back now, all the events that happened at that time, whether national or individual, may not have been as important as this party congress. **Many things, only after a long historical cycle, when we look back, can we discover that truly important things may not have been so conspicuous at the time.** It is difficult for people to step outside themselves and view events from a long-cycle perspective. The purpose of telling this story at the beginning is to express that in the past two years, many things have really happened. In the long run, the various events in the FMCG industry in 2023 may be like the many news items of 1921, not that important. Returning to the present, regardless of how the external world changes, as a business owner, entrepreneur, or senior manager, you must possess the ability to think across cycles to view what is happening today. Facing industry changes, I want to start by using three ways of thinking to view change:

**1. Induction and Deduction of Phenomena**
**2. Change and Constancy of Demand**
**3. Complexity and Abstraction of Supply**

Let me first talk about something discussed in the FMCG Intelligence Group a couple of days ago: In the past two years, business has been tough, and everyone's first reaction is consumption downgrade. Although bulk snack and discount stores are booming, please think carefully: With the emergence of these retail formats, are consumers really downgrading their consumption? I won't keep you in suspense; let me share my view: Discount stores are a typical example of consumption substitution. Could the emergence of consumption substitution be a manifestation of consumers' more mature consumption concepts at this stage? And the proliferation of bulk discount stores—could it be the result of the retail industry being squeezed by online channels, with no growth for years, and merchants competing fiercely? **If we must say consumption is really downgrading, in my view, what is downgrading is actually expectations.** Today's problem is not assets and liabilities, but balance sheet liabilities. For major FMCG brands, I believe there are three real problems:

> **1. The reduction in total consumption due to population decline means the market no longer has growth in consumption volume;**
>
> **2. Economic development, higher income, information transparency, and mature consumer views mean consumers no longer blindly trust big brands;**
>
> **3. Young consumers' demands for personalization, subculture, and emotional expression conflict with the universal values of big brands.**

Second, the change and constancy of demand. Technology is developing, and times are progressing. Although humans have landed on the moon, our bodies have not yet left Africa. So, **consumption demand should be viewed separately: human physiological, underlying needs are hard to change; what changes is our environment, scenarios, and relationship with the world.** **The biggest change I see in the past two years is not the iteration of technology and business models, but the way information is exchanged and the changes in consumption methods and attitudes among young groups.** But beneath this change is the upgrade and leap of people's basic needs in the new environment. So, we must grasp what is constant and understand what is changing, so that we can remain unaffected in a constantly changing world.

Third, the complexity and abstraction of supply. Channel fragmentation is a headache for everyone here. A very important reason is that the complexity of channels has increased exponentially, and excessive channel fragmentation and dazzling price promotions make channel management extremely difficult for companies. We must have the ability to abstract, to find commonalities, unifiable elements, or higher-dimensional patterns in complex channels, and use these abstract patterns to guide our work.

Returning to the topic itself. We may need to possess several abilities to cross cycles: to discern what is changing and what is constant, to abstract models based on our own business from noisy media, rather than following the crowd. This is the core ability of a company that can cross cycles. Here, we have to think about several philosophical questions in marketing. Mentioning philosophy may seem profound, but let's think simply, returning to the essence, using first-principles thinking to ask about people's most basic needs. I've thought of a few simple questions:
  * Concept: What is people's consumption view in the post-pandemic era?
  * Demographics: How do the facts and value judgments of the new generation of consumers differ from the previous generation?
  * Product: How to find a balance between aesthetics and cost-effectiveness?
  * Value: Is consumerism really shifting from "more" to "better"?
These are not all the questions, but in this era, if we don't think deeply about these issues, facing the constantly changing world, I think it will be really difficult to make correct strategic judgments. What is a correct strategic judgment? I summarize a way of thinking to face problems: **Broader scope, higher dimension, and longer cycle.** If we use this way of thinking to examine China's consumer market, we will quickly draw a conclusion: China's assets are not in debt, China's consumption is not downgrading, and China's market is getting better and better. From the perspective of economic development laws and consumption cycles of various countries around the world, China's consumer market is indeed undergoing a huge consumption cycle: **China is transitioning from a growth market to a mature market.** It is certain that China will not move toward Japan's M-shaped society, nor will it have an L-shaped economy. China has a huge market, the world's largest middle class, and a massive population. The consumption potential has not been fully released. With China's technology, represented by companies like Huawei and BYD, continuously climbing the industrial Everest, China's economy will usher in the most glorious 20 years. These 20 years will be significantly different from the past 20 years. It is both a deep and unified market. This contradiction and conflict require every company to spend enough time researching, observing, and exploring, and then find its own ecological niche in this market. At the same time, we also see that China is deeply aging, and total consumption is no longer growing. Undoubtedly, surplus and involution are the norm. But which mature market is not surplus and involuted? **When you feel you can't hold on, maybe your competitors are also about to collapse.** At the Spring Sugar Fair, I proposed: **In the era of involution, the best way to break involution is "innovation."** Professor Schumpeter believed that the essence of enterprise innovation is a "new combination." It is the enterprise's use of existing new products, technologies, talents, resources, and other elements to recombine and design based on current market demand, thereby obtaining a new product, technology, market, or organizational form to meet consumers' constantly changing new needs. In the past two years, new processes, new technologies, and new infrastructure have emerged continuously. In a sense, they are important elements of innovation and recombination. For enterprises, innovation is not difficult; what is difficult is having an organization that can sustain innovation. Of course, if you don't want to compete domestically, Chinese consumer goods companies can also consider one of the most important propositions for the next 20 years: **Going global.** **Some companies have proposed diversification and transformation ideas in response to weak market growth, but the most frequently heard is "going global," repeated by various companies.** Indeed, Chinese consumer goods companies going global, although unfamiliar, is an unavoidable topic for every leading company. In the next few years, New Distribution will gradually focus on the topic of "going global" to help the industry find cases and methods that can guide industry development.

Since China's consumer goods market has officially transitioned from a growth market to a mature market, the logic of consumption will also undergo drastic changes. I have summarized these changes into several points:
  * AI assistant-style consumption > media-informed consumption
  * KOL-led consumption > expert-recommended consumption
  * Algorithm-driven consumption > shelf-selection consumption
  * Experience-based consumption > satisfaction-based consumption
In this process, our consumption communication, brand communication, and business management concepts must continuously adjust and adapt to the changes in current consumer consumption. But **no matter how it changes, we must see those certainties as anchors. I believe this anchor is called: scenario.** **Today, scenario is the first principle of marketing.** When we re-examine the 4Ps from the perspective of scenario, you will find that consumers have changed, and our marketing methods must also change accordingly:
  * Product: Changes in consumption value (functional, experiential, symbolic)
  * Pricing: Changes in value logic (value transfer and consumer learning costs)
  * Channel: Changes in the logical relationship between shelves and supply chain (point-line-surface-body)
  * Promotion: Changes in consumer communication and operation logic behind sales
Due to time constraints, I cannot elaborate on all these changes. I will focus on abstracting a model from channel changes: point-line-surface-body.

**Point: Scenario**
We all know that in the past, the places where consumers purchased were fixed, but today, where consumers make purchases—in which place, location, or app—is uncertain. So, we can understand that the transaction scene is now uncertain. In the past, all our marketing focus was on channels. All marketing actions revolved around how products reach consumers. But today, the focus of marketing must be on how to trigger purchase desire in front of the shelf. **In the past, marketing was about "brand-driven" purchases in transaction scenarios; now, marketing is about "consumer pain point-driven" purchases in consumption scenarios.** **When transactions can happen anytime, the premise is demand based on scenarios. So, in simple terms: "Scenario is the channel; channel is the transaction."** When communication and transaction behaviors are based on pain points in consumption scenarios, we can understand that all marketing must revolve around the point of scenario. The focus must be on the point of scenario, providing consumers with a unique "caramel pudding" (JTBD: Jobs To Be Done).

**Line: Value Chain**
The solutions that companies provide to consumers used to be media communication + channels. Today, consumers' shopping paths have moved from pure offline to omnichannel, so the value chain path has also changed. I call this change **relationship chain + supply chain**. **The relationship chain solves the problem of where consumers communicate; the supply chain solves the problem of where consumers buy and get delivery.** Note that this does not conflict with the previous media + channel, but uses a higher dimension and a more abstract perspective to understand the value chain logic behind today's shopping behavior. If we cannot understand the logic of these two chains, we will not be able to cooperate with the many new retail channels that have emerged, nor understand why companies like Sishijiu and Hanke can sell billions without e-commerce or traditional distribution.


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