At a time when the upsurge of new consumer investment is receding, private equity giants in the “heavy” Chinese consumer sector still need to make firm bets.
Perhaps many people don’t know that behind a long series of well-known FMCG enterprises, new consumer brands and platforms, such as Feihe, Zhou Heiya, Yunuo China, Naixue’s tea, chayan Yuese, Zhong Xuegao, Santun and a half, master Bao, jiangxiaobai, wonderlab, Baiguoyuan, Dezhou grilled chicken, Guoquan Shihui, xiaohongshu, and flash, there is a common investor – Tiantu capital (hereinafter referred to as Tiantu).
“We believe that the golden age of China’s consumer industry is coming.” Tiantu said in a document yesterday, “although we are in a short-term adversity, the development prospect of the consumer industry is full of hope.” Xiaoshidai noticed that yesterday, the investment institution planning to go to Hong Kong for IPO disclosed the above listing application documents for the first time, which discussed in detail the judgment of investment in China’s consumer industry.
Some investment cases of Tiantu
According to insight consulting, from 2019 to 2021, Tiantu’s investment projects in China’s consumer industry ranked third among all private equity investors (second only to Tencent investment and Sequoia Capital) and first among all private equity enterprises focusing on consumption.
It is worth noting that once listed successfully, Tiantu will not only become the first share of China’s venture capital institutions, but also obtain more “ammunition” through financing to find and bet on the “rising star” of the consumer industry. Next, we might as well listen to the latest views of this investment institution, which has been deeply involved in China’s consumption field for more than ten years.
Four trends
“China’s large population base and per capita consumption potential, coupled with the new demand of the new generation, new technologies and new channels in supply and other long-term driving factors, continue to promote the development of the consumer market.” Tiantu said, “we firmly believe that we are at the crossroads of the times, and all the elements are ready for the next wave of Chinese brands and enterprises to succeed.”
According to insight consulting, despite the impact of the epidemic, the scale of China’s consumer industry still increased from 43.8 trillion yuan in 2017 to 55.5 trillion yuan (RMB, the same below), with an annual compound growth rate of 6.1%, and it is expected to reach 73.9 trillion yuan in 2026, with an annual compound growth rate of 5.9% from 2021 to 2026.
Tiantu believes that several obvious trends can be observed in China’s consumer industry in the past decade and are expected to continue in the near future.
First, the rise of China’s middle class and consumption upgrading. According to insight consulting, the population of China’s middle class increased from 502million in 2017 to 607million in 2021, and is expected to reach 745million in 2026.
“In general, China’s per capita disposable income rose from 25974 yuan in 2017 to 35128 yuan in 2021, resulting in the increasing willingness of domestic consumers to consume and seek to meet their higher quality and more diversified consumption needs.” Tiantu said that taking dairy products as an example, China’s per capita consumption increased from 12.1 kg in 2017 to 14.4 kg in 2021 and is expected to increase to 19 kg in 2026.
Second, the rise of new consumption. “Driven by new technologies (such as high-quality freeze-dried instant coffee), new lifestyle activities (such as the” tea break “and entertainment content of high-quality milk tea) and the emergence of the younger generation of consumers (generation z+), new demands have been formed and new forms of innovation have emerged.” Sky map representation.
It said that this benefits brands and companies that adopt new business models (such as D2c brand and sharing economy), promote through new media (such as live broadcast and little red book), and distribute through new channels (such as community group purchase). In addition, China’s domestic infrastructure and supply chain have become more perfect, enabling the development of customized products with small batches and fast response.
Under the impact of the epidemic, many new consumer brands with huge business pressure are facing a “dilemma” of life and death. But on the whole, Tiantu said that despite the impact of the epidemic, China’s new consumer market has experienced strong growth in the past few years and is expected to maintain stable growth in the near future.
Tiantu pointed out that the market size of China’s new consumption increased from 5.3 trillion yuan in 2017 to 10.6 trillion yuan in 2021, with a compound annual growth rate of 18.7%. It is expected to grow at a compound annual growth rate of 15.7% and reach 21.9 trillion yuan in 2026.
In addition, the proportion of new consumption in China’s total consumer market increased from 12.1% in 2017 to 19% in 2021, and is expected to reach 29.7% by 2026.
Third, the emergence of new brands. Tiantu pointed out that new brands have been emerging since 2017. In 2019, more than 50000 new brands emerged on tmall; As of July 2020, the cumulative number of new brands has exceeded 220000, almost doubling compared with 2019.
However, it is not easy to survive. According to the statistics of tmall, more than half of the new brands will disappear from the sight of consumers in a year, and only a few final winners can reap profits.
Fourth, domestic brands expand their influence. “With the development of China’s economy, domestic brands are rising day by day, and gradually occupy a large market share in all consumption fields in China.” Tiantu said, for example, in recent years, domestic companies in various industries such as coffee, games and toys, sportswear and hair care have gained market share in China.
“With the support of the increasingly mature domestic supply chain, domestic brands can more easily produce or purchase new products and quickly respond to the changing market demand. With the maturity of industrialization, domestic consumer enterprises have seized the market share of China with their strong learning ability and local advantages.” Tiantu believes that Chinese brands are “about to usher in rapid growth”.
“Broad investment opportunities”
Chasing new outlets, the consumption field has become a hot investment in recent years. Tiantu pointed out that the amount of private equity investment related to consumption in China rose from 163.9 billion yuan in 2017 to 278.3 billion yuan in 2018. The number of investment cases was relatively stable, about 1900 in 2017 and about 1800 in 2018.
Subsequently, there was a “cooling down” – from 2019 to 2020, affected by new asset management regulations, epidemics and other factors, the amount of consumption related private equity investment fell to 113.6 billion yuan in 2020, with about 1500 investment cases.
“However, during the same period, investment in top consumer brands remained active, and leading consumer brands such as Guoquan Shihui, Santen and a half, everything new and jiangxiaobai all received external funds from private equity investment institutions.” Sky map representation.
Investment case
Soon, in 2021, the consumption related private equity investment market “rebounded significantly”, with an investment of 217.5 billion yuan and about 2100 cases in 2021. Tiantu said that although the epidemic broke out in several regions of China in 2022, “in the long run, the consumption related private equity investment market is expected to further expand in the future”.
Xiaoshidai noticed that in the past year, Tiantu investment was still selling frequently.
For example, in April this year, Dongfeng shares disclosed that the consumption investment fund established by the company in cooperation with Tiantu capital, a subsidiary of Tiantu investment, and related parties has invested in the prefabricated vegetable brand “taste lion”, which is also a hot emerging consumption field at present. In addition, last December, weixiaofan, the first digital new fast food brand in China, announced that it had completed a round of financing of nearly 100 million yuan. It is reported that this round of financing was exclusively invested by Tiantu investment, and the financing funds will be mainly used for market development.
“There are many sub sectors and investment categories in the consumer goods industry, and new consumer brands continue to emerge, creating a wide range of investment opportunities.” Tiantu said that the financing needs of consumer brands are usually seen in the “early stage”, because once a stable profit model is established and operated smoothly, the brand will enter the cash cow model, and there is little incentive to seek additional funds.
So, how does this investment institution find “good targets”?
“The consumer industry includes a wide range of divisions, and we tend to invest in brands and technology driven consumer enterprises with outstanding performance results and strong growth potential.” Tiantu said that it has formed a set of comprehensive standards for analyzing and selecting investment objects. “For example, we usually prefer industries with broad markets and high growth rates, rather than industries with small market space and need more customer education. We also give priority to industries that do not expect frequent regulatory changes.”
For seeking investment opportunities in food and beverage, pan pan, the managing partner of Tiantu investment, once told xiaoshidai that Tiantu did not have a particular preference for sub categories.
“The overall logic is that I think every category has opportunities, and there is nothing unshakable, and the giants will also have great competitive pressure. You see, China’s high-end infant formula market is shaken by Feihe.” He said that as a venture capital company involved in early investment, Tiantu’s most important choice of investment targets is “the cognitive and executive ability of the team”.
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