Fengrui capital Li Feng: eight new consumption trends in China in the next 10 years!

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insight into the “change” and “invariance” of consumption.

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Instructor: Li Feng; Editor: Chaos business research team   

Source: Chaos Academy (ID: hundun University)

 

“The performance of most new consumer brands in this year’s double 11 is not ideal. A large part of the reason is caused by the change of traffic structure. Some brands are unwilling to burn money and no longer pursue year-on-year rapid growth or even require growth.”

Li Feng said: most of the consumption phenomena we see in 2020 and 2021 are short-term phenomena. We should pay attention to some long-term problems. The debate on the efficiency of the whole chain is about to begin.

Why is consumption and investment hot in 2020? What is the general trend in the future when the consumption track is cold? Which are short-lived phenomena and which are invariable laws?

Li Feng, founding partner of Fengrui capital, combed the essence and reasons behind the change of consumption track from the perspectives of capital, flow and supply, and had an insight into the “change” and “invariance” of consumption.

Contingency and inevitability of new consumption fever

1. Why is consumption and investment hot in 2020?

1) Sought after in the secondary market

Last year, consumer goods were very popular in the secondary market. A large part of the reason was the epidemic, because we did not know how long the epidemic would last or how much it would affect different industries. Based on such uncertainty, we gave priority to certainty.

What is certainty? In short, it is the necessary consumer goods that are necessary for everyone’s life and are not affected by uncertain factors such as the epidemic, especially the consumption of food and drink. They bring the so-called relative certainty in the secondary market.

Of course, in addition to food and drink related industries, some medical enterprises and Internet enterprises will also benefit more or less from the epidemic and show an extraordinary growth trend. However, these two types of companies are relatively scarce in China’s secondary market, so a large amount of funds are invested in a more deterministic “food and drink” Therefore, even though those industries may not show an immediate high growth trend last year, they perform well in the capital market.

2) The consumption of necessities is on the rise

In the first three quarters of 2021, compared with 2019 without epidemic, the average annual growth rate of total retail sales of social consumer goods is close to 4%. Is this a good data? Of course not. In about 10 years before 2019, the consumption growth has reached or even exceeded 10%.

A set of special data: in 2020, the total retail sales of social consumer goods decreased by 3.9% year-on-year, while the consumption of tobacco, alcohol and food as necessities increased by 5.1% year-on-year.

This means that in more than a year and a half from last January to now, China’s retail sales of social consumer goods have not recovered well. However, when the growth of the consumer industry has not fully recovered, the consumption of necessities has increased in the same proportion in the declining data, so we are still actively investing in consumer goods.

3) Changes in the direction of the fund

In recent years, the mobile Internet has developed rapidly, and the network traffic has reached a ceiling. People will feel that there are few opportunities and emerging models on the Internet, so TMT is no longer the most promising direction by the fund, and consumption has become a new hot spot. Many capital originally invested in the Internet has turned to focus on retail related models.

4) Wealth effect

The investment results of the primary market will bring some wealth effects to the secondary market. For example, the perfect diary for make-up, bubble mart for trendy play and Yueke for e-cigarettes have a demonstration effect. In the past, we thought that only companies investing in pure Internet had the opportunity to achieve a company of 10 billion US dollars in six or seven years, but today it is not. It is also possible to invest in consumer goods companies.

5) The most important push: the change of flow structure

The change of flow structure is mainly manifested in two aspects:

a. The media form has changed to video

Stimulated by the epidemic, short videos have received more traffic, and the length of user use has soared. According to the 2020 Research Report on China’s network audio-visual development, in the second half of 2018, the average daily use time of short video applications exceeded that of comprehensive video applications; As of June 2020, short video has exceeded instant messaging by 110 minutes per person per day.

What impact does the change of flow structure have on consumer goods? When the media form develops from text to graphic, and then to video, we have to think about which products are more suitable for expression and sales with video rather than text and graphic.

For example, in the graphic era, users usually upload a photo coated with lipstick, and then add a line of words to indicate the specific color number, price, etc. However, if it is in the form of video, someone will let you see the use process and the intuitive comparison before and after use. This is the difference between video expression and picture expression. In the future, many consumer goods will benefit from this change in traffic structure.

b. Search based becomes recommendation based

It turns out that most of the e-commerce traffic of Amoy is allocated to user search. After the user searches, the page will display a lot of single products. Now more than half of the traffic of Taobao and tmall is allocated to recommendation and guess what you like.

The traffic structure of the traffic platform has changed from search to recommendation, which has improved the sense of experience for users and qualitative changes for brands. In the past, when making products, businesses had to do everything possible to let users remember their products, because only when they were remembered would they search. Therefore, the narrower, finer and more accurate products need to buy a lot of traffic. Customers come in to screen and transform, and then a small number of users remember you.

Now businesses can make a very narrow product and buy the most accurate traffic on all platforms. Usually, the more accurate they buy, the less anyone will compete with them. Therefore, those products that do very fine have the opportunity to obtain accurate user traffic at less cost through the change of traffic structure.

6) Lack of new products in offline retail

Many people are not aware of this problem. Since the beginning of 2020, the epidemic has affected large consumer goods companies. They do not know how much the impact will be. Moreover, they are also the most affected because of their large size, such as the resumption of work and production, the supply chain and raw materials prepared in the past, inventory and dealer inventory… All these things, This makes it too late for them to innovate again with offline efficiency, so that there will be no innovative products of these traditional brands on the offline retail shelves in 2020.

7) Foreign trade e-commerce

After you can’t travel internationally, foreign trade e-commerce becomes very important. Last year, the world’s supply chain, only China recovered at the end of the second quarter, and recovered well and stably, undertaking the world’s demand.

8) Big brand flat replacement and national tide

In 2020, among the new consumption and investment, the big brand peace and national tide has become a topic widely discussed by both investors and entrepreneurs. One of the reasons for everyone’s investment is that China has come to an era when Chinese brands do better than foreign countries and Chinese people believe in Chinese brands.

2. What about consumption and investment in 2021?

1) Without much hope, the wealth effect weakens

The consumer market has not recovered effectively. In 2020, with the negative growth of the total retail sales of consumer goods, necessities achieved positive growth, but this is an unusual positive growth. Therefore, it is a challenge for them to continue to grow this year. We can’t expect too much for high growth.

For example, due to the epidemic, 2020 is likely to be the year in which people eat the most convenient food or fast food in the past 10 years. This is an unusual growth, not a continuous phenomenon. People certainly eat less this year than last year. It can be predicted that due to the high base caused by last year, the demand data for convenient food this year will be worse than last year.

The fund direction is similar to that of last year, and the wealth effect of the secondary market is weakening. At least two of the top consumer goods companies listed in 2020 have fallen by more than half this year. The worse they perform, the worse the wealth effect will be, and the investment enthusiasm will decline in turn.

2) From 0 to 1 is easy, from 1 to 10 is difficult

The result of accurate traffic is that the more subdivided it is, the easier it is to go from 0 to 1, but the pain becomes very difficult from 1 to 10. Although we are doing specific products for specific people, in essence, we still hope that the brand can become bigger. This requires the purchase of non-specific crowd flow to expand the influence of the product. However, in turn, the fewer and more extensive traffic labels purchased, the more and more competitive people, the more expensive, the invalid traffic purchased will increase on a large scale, and the original problem will appear again.

From 1 to 10 becomes difficult. What’s another reason? It is a very common behavior to buy things in the live broadcasting room. When most people watch the live broadcasting, they have no clear purpose. They may just happen to have a product that moves them and have an unintentional purchase behavior. At this time, the brand impression of the goods is very small. Originally, users would search for products of a brand specifically and consciously, and they would be more impressed by the brand.

Therefore, for brand makers, although the new traffic structure may achieve accurate sales transformation and obtain a purchase from customers, it becomes much more difficult for users to remember the brand name. If users can’t remember you, you don’t call it a brand, but you have completed some sales.

3) There is no shortage of new products in offline retail

There is a phenomenon. When you go to the convenience store to observe the beverage containers, it is not difficult to find that 2020 domestic innovative brands have got a good position offline, such as domestic sugar free bubble water.

The epidemic has affected the supply chain of large companies. The larger the company, the stronger the uncertainty, and the greater the impact. After that, when these large companies realized that the epidemic situation was stabilizing and could make some attempts, it had been after the middle and late May of last year. It took another three or four months to prepare raw materials, production capacity, dealer inventory purchase, dealer retail terminal distribution and so on. At the same time, domestic innovative brands melted money and invested in advertising during the epidemic. Therefore, when the epidemic improved in May and new products need to be laid at offline retail terminals, they are willing to put these new products of domestic innovative brands on the shelves.

In 2021 and 2022, the market will show a completely different state. Those companies that didn’t innovate last year will hold their breath and work hard at this time, so the competition of offline shelves will be extremely fierce in 2021 and 2022. Then, the key question behind all this is: which brand can stay in the hearts of consumers after fierce competition for all these new products you see offline in 2020.

4) Foreign trade e-commerce, return to oversupply

In 2021, the supply chain will be gradually repaired, the demand side will return relatively, and foreign countries will return to online and offline consumption. Over the past year, a large number of foreign trade people have learned to do e-commerce, so the supply in China has increased, but the demand has become smaller. Therefore, the competition between foreign trade e-commerce will probably be particularly fierce in 2021 and 2022.

5) Big name flat replacement has a window, but it also has challenges

Although the epidemic has caused some special effects on consumption, there is almost no possibility of earth shaking changes in one or two years. These changes are always in line with common sense. History will be relatively reincarnated and repeated. This is true of many changes we have seen in the past two years.

Sinochem achieved great development in the 1990s. Its production has huge advantages in the processing end industrial chain. At the same time, it began the first relatively overall consumption upgrading after 2000. Therefore, there was the first big brand replacement in the mainland market of China – all kinds of domestic daily chemical household cleaning products competed with the crown brand P & G at that time.

It seemed almost successful, but later most of these domestic brands failed. First, P & G cut prices. Second, in the three or four years before the financial crisis, the price of raw oil for chemical products doubled. Therefore, when doing flat replacement, the cost of raw materials accounted for a high proportion of the selling price. When P & G lowered the product price, the profit space of some domestic products was squeezed and finally “dead”.

This matter can also see some special mappings today. In the double 11 in 2020 and 2021, in the top 10 of tmall cosmetics, except for the Chinese brand Winona, the rest are all international brands such as Estee Lauder and L’Oreal. Why did big names dominate the list again? Where are the domestic goods? On the one hand, these international brands give special discounts to operating companies in China, allowing them to sell below the lower limit of the normal promotion price. On the other hand, in the past year, oil has risen from 40 yuan to 80 yuan, which is very similar to what happened that year.

There are two important points for Guochao to succeed:

One is to have their own differentiation, the other is to have a sustainable supply chain.

3. 2021: polarization of consumption behavior gradually returns

After the epidemic, the rich are the first to recover, because the epidemic has the least impact on their consumption patterns, and even they may make more money through the capital market in this process. But the epidemic did affect the so-called low – and middle-income groups. Last year, Mercedes Benz, BMW and Audi were the first to return to normal in China’s automobile consumption. In other words, the consumption of the rich was released first, and the middle and low-income people will choose cheaper models.

However, after the epidemic has passed, with some policy adjustments, this polarized consumption behavior may gradually return to the middle state from next year.

Future: focus on the long-term phenomenon of consumption

In 2020 and 2021, almost all we see are some short-term consumption phenomena. What will China’s consumer market look like in the long run? China will become the world’s largest consumer market.

According to the prediction and planning, in nine years, the living standard of 1 billion people in China will be higher than the average living standard in Shanghai today. At present, CPI (consumer price index) is rising, but the relatively high proportion of disposable income is related to housing. Because of relevant policies, real estate prices have been restrained. In other words, although the CPI is rising, the decline in real estate investment can be offset. On the other hand, the third distribution of wealth will certainly expand the size of the middle class, the main group contributing to consumption. This is probably what the Chinese market will look like in the next 10 years.

What is the relationship between consumption and retail entrepreneurship?

1. Long term vs short term: from 9 years later to today, judge what to do

If you start a business in the consumer field today, it may take 8 or 9 years when the company goes public. Then we should look from nine years later to today, where to start, who to do it for, what problems to solve, and how large the market scale can be.

We should pay attention to some long-term issues. The description of China nine years later is a definite change, and targeting it is a relatively definite process.

2. Cheap vs expensive: consumption continues to upgrade

The first consumption stage is the consumption of durable goods plus mandatory consumer goods, and the second consumption stage is the consumption of optional consumer goods. These two stages basically emphasize the cheap characteristics of products. When all countries are at this stage, it is a period of rapid development of manufacturing industry. They need to accumulate social wealth and improve social productivity. Therefore, it is their ability to do things fast, good and cheap.

In the third consumption stage, when people’s disposable income increases and consumption upgrading is realized, many consumer goods no longer only aim at cheap products, but pursue to make customers feel the spiritual difference. They can have the characteristics of cheapness, but they are not only characterized by cheapness. Even many people are not willing to make cheapness the main feature of their products.

3. Offline vs online: online is not big enough, offline is not big enough

a. In the past, offline was the starting point, and now online is the starting point

Ten years ago, people’s consumption mode was to search offline for goods they wanted to experience and buy, and compare prices online. Today, most of people’s consumption behavior has become planting grass online and experiencing offline. People just see some goods in xiaohongshu, Zhihu or live broadcasting room, and have a desire to buy, and then go offline to experience this product. This way of obtaining commodity information has been transferred to online. This is the first thing to combine online and offline.

In 2015, a parameter was added to China’s total retail sales of social consumer goods, that is, the proportion of e-commerce in total retail sales of social consumer goods, which was about 15% at that time. In 2020, statistics show that it is 27%.

Once offline accounted for 85% of the total retail sales of social consumer goods, but today it only accounts for 70%, which has decreased a lot. This means that for businesses, only doing online is not big enough; Only offline contact with users is not enough or large enough. This is the second thing to combine online and offline.

b. Problem of medium-sized companies: how to do online and offline at the same time

So how to do online and offline at the same time? Although online and offline users may overlap more and more, the forms of the two distribution channels are completely different.

• Business forms are different. For example, when three squirrels first started to expand offline retail, they found that all their packages did not have holes that could be hung on the shelf, which was no problem with online channels. Moreover, offline sales need retailers and wholesalers, and there will be a sharing problem.
• Users purchase in different ways. Offline users buy retail, that is, impulsive purchase. People rarely buy a large box of snacks offline at one time. However, all online e-commerce companies will formulate various combinations for consumers to buy in a planned way.
• The flow of goods is different. Offline logistics needs the hands of dealers and retailers, while online logistics directly delivers goods to customers out of the warehouse.
• Brand efficiency, price, product and sales strategy are different. Businesses turn online and offline sales into one thing, which poses a huge challenge to all medium-sized companies.

Other countries have not yet reached the stage where online accounts for 3 points and offline accounts for 7 points, while China needs to integrate online and offline development at this stage. The digital efficiency brought by the Internet can make the information obtained by consumers consistent with their consumption behavior, that is, you can buy when you see it, and you can receive goods quickly when you complete the purchase. At the same time, today, shopping malls have spread to all line cities, and offline shopping malls have begun to become relatively mature and developed.

No matter which merchant can integrate online and offline, who can have world-class high retail efficiency.

4. Efficiency vs scale: we must do well before we can expand

In the past, in the first and second stages of consumption, when China’s online and offline retail development just started, if there were good commodity resources, good production mode, or traffic dividends, as long as we grasped any part, we could expand rapidly and develop to a certain scale.

Today, competition has developed to a certain extent, and it is far from enough to rely on a single point of advantage. It can only be better first and then bigger, or at least it should be better and bigger at the same time. It doesn’t work to rely on one thing to make it bigger in advance and then slowly repair it later.

• New brands return to the dispute over full link efficiency

The performance of most new consumer brands in double 11 this year is not ideal. A large part of the reason is caused by the change of traffic structure. If you want to achieve 1 to 10, you have to burn money. Some brands don’t want to burn any more money, so this year’s double 11, many new consumer brands no longer pursue year-on-year rapid growth, or even don’t require growth.

From 2010 to 2014, at least 30% to 50% of the top 10 brands in the annual double 11 tmall clothing category sales list were Internet brands. However, from 2014 and 2015 to the past year or two, few Internet brands have appeared in the top 10 brands in these lists (especially women’s clothing).

Why? Since about 2017, clothing has entered the stock market, which means that the overall market of the clothing industry is declining.

Entering the stock market is the beginning of efficiency competition. In the stock market, we should pay attention to who is good and who is big. Whoever can achieve the highest efficiency in this chain is powerful. Therefore, only one point is not enough. We should fight who knows the whole chain better. Foreign trade e-commerce has a famous company called sheen. It is said that sheen is good because it changes the backstage supply chain very well.

New consumption will also return to the dispute over the efficiency of the whole chain. Assuming that many new consumer brands do not pursue growth after the double 11, what will happen in the future? If this situation persists and the consumption investment bubble decreases, who will have a relatively good performance from the beginning of next year?

5. Retail vs service: service retail, retail service

a. Ruixing and Xi tea, retail or service?

The bottleneck of the service industry lies in improving productivity. Behind many interesting business models in the past, the service industry was retailed. The drill from Starbucks replaces a series of manual operations by baristas; Three and a half meals of freeze-dried coffee, in a sense, also wants to replace the coffee master. These belong to the retail of service industry. Takeout is the most typical retail service industry.

In fact, Ruixing and Xi tea can be regarded as service industries in essence, because they are both ready to drink. However, generally speaking, people will recognize Ruixing’s retail attribute and think that Xi tea is more like a service industry. Because almost 100% of Ruixing’s orders are completed in the form of takeout, people think it is more retail. More than 70% of Xi tea’s orders are also completed through takeout, but Xi tea has a concept of hall food. The service and experience in the store environment make customers feel that this is a service industry.

Many people want various methods to solve the efficiency bottleneck of the service industry, but the challenge still exists, because the process needs to be experienced, and the efficiency is difficult to control.

b. New attempt: retail service and enhance brand power

In the past, efficiency evolution was to retail the service industry. Today, some brands choose to service the retail industry. Although there may be a bottleneck in efficiency, it has improved the retail experience and brand strength.

For example, there is a 200 square meter coffee shop under the line, with a very considerable turnover, of which retail turnover accounts for nearly half. Because when customers go to the store, in addition to buying special hand brewed coffee, they will also draw a limited amount of No. 8 Anfu Road on the wall and No. 0 coffee on the table.

Another example is box horse, which invited consumers to come down the line and cook lobsters for them on site. As a result, the customer found that it was only more than 60 yuan for a lobster meal, which was worth it. Box horse belongs to the retail industry, but the concept of “value for money” is compared with the service industry. When customers benchmark with the standards of the service industry, they feel that its retail products bring a good sense of experience, and the brand degree is gradually improved.

6. Brand innovation vs category Innovation: now most of them are product innovation and old brands are renovated

In short, brand innovation is really creating a consumer’s cognition. Today, many new consumer brands make small product innovations for a specific group of people according to their needs. However, product innovation is not category and brand innovation. There are still several big steps to be taken to truly represent a category and become an excellent brand in consumers’ cognition.

For example, the overall market of the garment industry shows a negative growth trend, but with one exception, sports and leisure is the only garment category with positive growth and annualized growth of about 20%. Among them, Anta, Li Ning, Tebu and other national fashion brands that have risen in recent years are relatively good growth among China’s sports and leisure brands. But these are not new brands, but renovated by old brands.

7. Young consumers: it depends not only on cost performance, but also on values

In the past, we emphasized value as long as it was cost-effective. However, you will find that today’s young consumers are very difficult to serve. Their efficiency in obtaining information and ability to think independently are very good. It depends not only on cost performance, but also on values. They are the beneficiaries of higher education. They have the ability to find information, collect enough information for identification and judgment, and make consumption decisions and judgments after persuading themselves.

There is another change: new consumers do not want you to do everything for them as they think. They require space for CO creation and the satisfaction of their own participation in creation.

For example, if we search the notes about Haidilao in the little red book, we will find that the most is about how to make delicious dipping in our own way. All kinds of dipping will bring people a sense of creative satisfaction. The fancy drinking method of three and a half meals is the same. These things created by themselves are of special significance and unique to consumers, which is also a small way to make users become their loyal users.

A new generation of young consumers, brand awareness comes early, emotional appeal is much more. Because they haven’t experienced material scarcity, they don’t have such a strong need to meet material desires, which leads to their high requirements for spiritual attributes. Businesses are required to have the so-called correct values, that is, they should be responsible for society and meet the emotional expression of culture and history, such as paying attention to environmental protection, protecting animals, being fair enough, etc.

8. Deep connectivity: stronger brand power and product power are required

Some changes have taken place globally in the past few months.

First, antitrust. Once there is a serious polarization between the rich and the poor due to the increase of wealth, antitrust is what all countries will do, because it is the easiest way to rebalance wealth.

Second, personal data privacy protection. China’s foreign trade e-commerce is facing the challenge brought by this change, because the advertisements put by businesses on Google and Facebook are required to change from precision advertising to brand advertising, which allows businesses to track a lot of user data, and they are put after removing the user’s privacy label. In the past, it was relatively easy to go from 0 to 1 because you can master accurate user data and carry out targeted advertising. Based on this change, it is more difficult to go from 0 to 1.

Interoperability means the elimination of barriers between platforms and platforms, tiktok, Tmall, WeChat and other platforms, so that all platforms can focus on their own platform. This means that A only works on A. Only users can really remember your brand and then buy products on a platform voluntarily. Your brand power and product strength become more important than before.

In the past, customers couldn’t remember themselves. The brand can also find ways to track them and let them complete sales transformation, but now it can’t accurately put advertisements to specific people, so the brand is required to find ways to influence users and let users remember themselves.

New opportunities for consumption and investment in China

1. One feature: incremental category

In the stock age, whoever is “good” is big; In the incremental era, whoever is “fast” is big.

In principle, China’s biggest and first opportunity is in the “incremental category”. Even in a stock category, there will be incremental opportunities to subdivide categories. Categories with Internet traffic and content advantages are the fastest growing and main direction of investment in China. Give a few examples——

• Coffee. In 2017, there were only more than four cups of coffee per capita in China. It is predicted that Japan will develop to 180 cups of coffee per capita and more than 200 cups of tea per capita. Will China also develop to more than 100 cups of coffee per capita in the future? We are not sure about this, but we can be sure that today, four years later, in first and second tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, the number of coffee cups per capita in a year must be more than four. This is the so-called incremental category.
• Contact lens / beautiful pupil. The rate of myopia in China is very high. The number of myopia is increasing and showing a trend of younger age. Now most children don’t want to wear frame glasses when they are 7 hours, for convenience and beauty. Some non myopic people also choose to wear beautiful pupils in order to make themselves look better. These are incremental users.

2. Special opportunities in China: supply chain transformation and supply chain capacity

In China, the use of excess capacity to change other industries after capacity spillover can only be completed by the world’s high-quality and high-tech processing plants and supply chains.

In the 1960s, Nestle invented freeze-dried coffee. In the past three years, the upgraded version of freeze-dried instant coffee represented by three and a half tons has rapidly opened the Chinese market. At present, China has become a major country to popularize freeze-dried coffee. Most other countries in the world use dried coffee, and its cost is relatively low. Nevertheless, why can freeze-dried coffee still be popularized rapidly in China?

This is closely related to China’s supply chain. Freeze drying technology was originally used to make biological products and blood products. Due to the further development of this technology in China, we have higher freeze-drying technology and production capacity, and it is relatively the cheapest. In addition, China’s coffee upgrading, consumption upgrading and Internet high penetration sales are encountered. These factors are combined to promote the popularization of lyophilized coffee in China by using the overflow lyophilized capacity.

The same is true of the chip industry, and the supply chain capacity will overflow. Today, China’s large-scale investment in new energy and chip capacity will certainly lead to China’s chip overcapacity in two or three years. What does the excess chip capacity do? This is the next problem to be solved. There may be huge opportunities. When some new micro processing technologies are combined with these excess chip capacity, they will become factors to change other industries.

Looking back at so many consumption phenomena in the past year and a half, in fact, most of them are artificially created short-term phenomena. The relatively certain thing is very simple. It is a very special market that China will face. This market is three circles: the best connection measures, the largest consumer market and the most complete supply chain. Innovation can be achieved if these three circles can be aggregated.

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