This article is a transcript of the presentation "The Inevitable Path for the FMCG Industry from the Perspective of China's Internet Development" given by Zhuang Jing, President and Co-founder of Huoquanquan, at the FDIC 2018 China FMCG Digital Innovation Conference, edited by New Distribution for our readers.

Let me start with a question: How many of you watched the World Cup? How many supported the German team? When you learned that Germany reached the quarter-finals, what did you think was the probability of Germany winning the title? Did you think it should be over 50%? I'll give you three choices: 10%, 20%, 30%. Did anyone think 10%? No. 20%? A few in the back. 30%? Many. So the rest think it's over 50%? Actually, with eight teams in the quarter-finals, theoretically each team's chance of winning should be 12.5%, equal for all. But why did most people think Germany's chance was over 30%? Suppose everyone thinks their supported team has a 30% chance; then the total probability for all eight teams would be 8*30%=240%, far exceeding the total probability of 100%. Why does this happen? Because many small-probability events are magnified infinitely. Often, what we think is not necessarily right; we have subjective biases. That's the first question today.

Second question: Do you think doctors can cure diseases? This question seems a bit strange. From childhood, when we get sick, we see a doctor. Some might say, "I just tough it out." You can tough it out for a day or two, but by the third or fourth day, you go to the doctor. But my question today is: "Can doctors actually cure diseases?" Some people in the world have conducted experiments to prove whether doctors can cure diseases. How? By looking at whether mortality rates change when doctors don't see patients. When do doctors not see patients? When they strike. Many countries around the world have experienced doctor strikes. Let's look at some data.

In 1976, doctors in Los Angeles went on a short strike. What was the result? The overall mortality rate in the country decreased by 18%.

In 1976, doctors in Manitoba, Canada, went on a two-week strike, and the mortality rate dropped by 20%. During the same period, doctors in the UK struck for three weeks, and mortality dropped by 30%. In Bogota, Colombia, doctors struck for 52 days, and mortality dropped by 35%. These are data from 1976 across different countries.

If this data isn't representative, let's look at a single country: Israel. Historically, doctors have struck three times. In 1973, a one-month strike reduced mortality by 50%. In 1983, an 85-day strike reduced mortality by another 50%. In 2000, a strike reduced mortality by 40%. These two sets of data fully demonstrate that when doctors don't work, mortality decreases; doctors can't cure diseases. But some might ask: Is it because during the strike there are no surgeries or treatments, and these patients' mortality will spike after doctors return? No. After the strike, mortality only returns to pre-strike levels, not higher. This result may overturn many long-held beliefs. Indeed, what we see is not necessarily true or correct.

Next, let's look at this chart. It shows the performance of Chinese stocks listed in the U.S. in 2016. That year, many Chinese companies went public in the U.S. These stocks fall into two categories: those with "China" in their names and those without. Theoretically, regardless of the name, they are all "China concept stocks" and should perform similarly because they are all favored. But in fact, the dashed line represents stocks without "China" in the name, and the solid line represents those with "China." The price trend for stocks with "China" in the name is more than double that of those without. Economics assumes that every economic agent is rational, and rational thinking should aim for maximum return at minimum cost. However, from this case, we can see that investment behavior in the stock market is not rational at all; it's even overly emotional. Just because of the presence of "China" in the name, the gains can differ by a factor of two. Often, we think investors have keen insight and following their steps is always right, but that's not necessarily true. So, are companies favored by Tencent, Baidu, etc., necessarily good? Not necessarily.

After sharing these three cases, are you starting to doubt some things you firmly believed in the past? Or is the person on stage a fraud? Or are you shocked? The shock comes from the overturning of many things you believed. Or some of you might start thinking: What is the reality of many things we take for granted?

Back to today's topic: From China's Internet development to the inevitable path of the FMCG industry. Why look at China's Internet to understand the FMCG industry? Because since the reform and opening up, China's Internet industry has undoubtedly been the most promising sector. Let's first look at the history of China's Internet. I'll share a picture. Does anyone know this picture? Most don't, because you are all young. This is Zhongguancun in 1996. A billboard reads: "How far is the Chinese people from the information superhighway? 1500 meters north." This company is Yinghaiwei, and its founder is Zhang Shuxin. Before 1995, most Chinese didn't know what the Internet was. Zhang Shuxin educated China's first generation of netizens, teaching them what the Internet is. In the 1990s, going online required dial-up and phone charges. At that time, China's Internet infrastructure was not yet complete. Zhang Shuxin did something very important: she popularized what the Internet is to all Chinese and built the basic infrastructure, laying the foundation for all future websites and the spread of the Internet.

After that, Sina, Sohu, and NetEase were established. These three companies were called "portal websites." What did portal websites do? The most important thing they did was to move traditional media information (newspapers, magazines, books, etc.) online. On these three sites, we could see news and information without geographical restrictions, and the speed of information dissemination was greatly increased. The path of dissemination was no longer a single linear structure but a network structure. This is China's Internet 1.0 era, the era of content and information moving from offline to online, where online content and information began to flourish.

At this point, I must mention Baidu, founded in 2000. Baidu was also a product of the times. From initially providing embedded search for other websites to independently indexing, while portal sites like Sina, NetEase, and Sohu were putting information online, people found that information was exploding, and obtaining information became less simple. Now you can search for what you want to know on Baidu, and Baidu helps you find the most precise information. What Baidu did was to structure and informatize a large amount of information, delivering it to users in a better way. This is China's Internet 2.0 era.

Even with Baidu, you can take out your phone and search for "New Marketing Liu Chunxiong" on Baidu. What are your search results? You'll find no purchase information, only many introductions about Mr. Liu and marketing. Here, I must mention two very important companies: Dangdang and Qunar. Dangdang structured all book information. When you wanted to buy a book, you could go directly to Dangdang (in that era), quickly find the price, and complete the transaction. Qunar, founded in 2005, started with flight information, structuring all flight data. When booking a ticket, you didn't need to search on Baidu; on Qunar, you could see quotes from different suppliers for the same flight. This is China's Internet 3.0 era, the era of deep data mining in vertical fields.

From 1.0 to 3.0 represents the history of China's Internet development. Similarly, the FMCG industry has a process from 0.1 to 3.0. The 0.1 era of the FMCG industry is when people began to have brand awareness. In the early days, people had little concept of brands. I recall that the earliest brand I knew was White Rabbit, a childhood memory. As international brands gradually entered China, brands became abundant. When choosing products, besides what I want, I started to use brands to represent things. For example, if I want a bottle of water, I might say "I want Nongfu Spring" rather than "a bottle of mineral water." People began to have a concept of brands, and brands did a lot of preparation for sales.

Next is the 1.0 era of China's FMCG industry: the era of channel construction. This picture shows a supply and marketing cooperative. In the early days of reform and opening up, all stores were state-owned, with unified procurement and sales. In the 1980s, some small shops began to operate independently, and farmers' markets appeared. Besides state-owned channels, small shops could purchase goods from farmers' markets, widening their sales channels.

In the 1990s, Walmart entered China in 1996, and hypermarkets began to appear, changing the consumption environment significantly. Around 2000, convenience stores emerged, making channels increasingly diverse. Where products were sold began to have more varied options. Sales channel choices became more numerous. This is the 1.0 era of the FMCG industry, where brand owners competed in channel construction.

Then came the 2.0 era: the era of information transparency. The picture here happens to be the promotional image for this conference. Whether you are doing SaaS, FMCG B2B, or warehousing and logistics, essentially, everyone is doing the same thing: information transparency, moving offline data online, such as product data, price data, inventory data, etc. Regardless of the external form, the core is putting data online. Even if brand owners and distributors say they don't want prices to be seen, would others really not know if this information isn't put online? Not necessarily. Information transparency is an inevitable trend.

What is the 3.0 era of the FMCG industry? After the 2.0 era, where everyone worked together to put data online, data becomes abundant, and we need an era of data guidance. Online channels provide product information, offline distributors are gradually using various software and management tools, and different channels and roles are accumulating their own data. How to better utilize this data? How to provide better data guidance to small shop owners, wholesalers, and brand owners? This is the 3.0 era of the FMCG industry.

In comparison, each major development in the FMCG industry can correspond to a stage in China's Internet development. What Sina, Sohu, and NetEase did is actually what many FMCG B2B pioneers in this room are doing today. So, for the 3.0 era of the FMCG industry, which company is doing this, or which companies will do it? It doesn't matter. What matters is that data guidance is an inevitable trend. We don't need to argue about whether it's feasible, whether our data should go online, or whether our data should be transparent, because whether you like it or not, the times have begun to change. What we should think about is: What are the different paths to achieve data transparency?

Information transparency is a major trend. From China's Internet development, from all information to vertical fields, information transparency is gradually penetrating every industry, such as tourism, industrial goods, and healthcare. Information and data transparency is an irreversible process. I don't know how long it will take for the FMCG industry to achieve full information transparency, but everyone here today is already part of this process. In the long history of the FMCG industry, information closure has been taken for granted, and price information is the lifeline of brand owners. We often say "what exists is reasonable," but will past rationality be changed in the future? Certainly, many things that seemed reasonable in the past will be changed by the progress of the times.

After sharing so much, I want to say that in today's FMCG industry, what you think is not necessarily right, what you see is not necessarily true, and what investors invest in is not necessarily good. I don't know how many people I might offend with these three statements, but they are true. Thank you for thinking along with me.

Finally, let me briefly introduce myself. "Teacher Zhuang, a female lunatic," I am Zhuang Jing. I spent 7 years in the tourism industry and the last 2 years in the FMCG industry. In tourism, I did many disruptive things, from 0 to 1, such as proposing the concept of non-standard accommodation, always exploring what fun things could be done. My academic journey was also jumpy: first law, then tourism, and finally psychology. I've been learning continuously because at each stage I find I lack something. For the FMCG industry, I also hold a learning attitude, and I ask for your guidance. I'm from Huoquanquan. What kind of company is Huoquanquan? Huoquanquan's original intention is to change the current situation of information opacity in the FMCG industry, helping 5.6 million small shop owners quickly find suitable purchasing channels and prices. To this day, Huoquanquan continues to learn and explore in FMCG data mining. I look forward to discussing with you the path to FMCG digitalization. Thank you!

Click "Read Original" to see more highlights from the 2018 FDIC China FMCG Digital Innovation Conference...

On October 23-24, during the Autumn Sugar and Wine Fair, the "2018 FMCG City Distribution Logistics Conference" hosted by New Distribution will be held. We will invite industry experts, FMCG warehousing and distribution specialists, and distributors who have transformed to unified warehousing and distribution platforms to discuss and answer questions about future trends in FMCG city distribution logistics and practical cases of distributor transformation. We hope to bring you different inspiration and thinking!

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