In the era of new consumption, how to seize new opportunities for brand investment in the next decade?
Editor’s note: This article is from the WeChat public account “New Consumer Internal Reference” (ID: cychuangye), author Nick Chan. The original title “Liu Zehui, founding managing partner of Xingtuo Capital: In the era of new consumption, how to seize new opportunities for brand investment in the next decade? 》
In recent years, the rapid advancement of the Internet has brought great impact to e-commerce, and thus China’s traditional retail has also undergone tremendous changes.
The vast majority of department stores in the past have died out, and shopping malls have migrated. This should be the biggest change brought about by the development of the Internet. Online and offline began to reshuffle, and new consumption and new retailing are getting more and more attention from investors.
But what kind of consumer brand? How to vote? The current gameplay is different from the past, which makes many investors unable to touch the North.
As a new consumer brand, Ruixing has created a brand to IPO in 2017, and has made great progress and has made a bloody road. From an objective point of view, Rui Xing did realize what it is impossible for a start-up company to accomplish in the eyes of ordinary people. Judging from the good trend of Ruixing, half of the success has been achieved.
So, what factors inspired Liu Zehui to complete the earliest round of investment in Ruixing in 18 years on behalf of the old club Junlian Capital? How to judge the future development of the brand from the perspective of investors? How do brands survive in the face of China’s vast consumer goods market? What opportunities are there in the future consumer goods industry?
In the near future, the new consumer internal reference interviewed Liu Zehui, the founding managing partner of Xingtuo Capital. As a veteran in the investment industry, he has been focusing on investing in new consumption since 2006. In 18 years, he founded the Xingtuo Capital with several partners, paying more attention to the development of young brands and young enterprises, and has a precise and unique investment judgment on the “brand survival” logic.
“Every time, every stage, consumption has some different forms of expression, but the connotation and internal logic are still the same.” Liu Zehui said to the new consumer internal reference. Over the years, he has invested in his own unique investment judgment based on the “brand survival” logic. He has quickly invested in the head brands such as Saturday, Pop Beauty, Tongcheng Travel, Yisha Cosmetics Shenzhou Special Car, INXX and so on. Around the above core issues, Liu Zehui shared his own experience.
1, Rising of RuixingInspiration for investing in new consumer head brands
I am the first person to invest in China. From 2006 to 10, it is the first wave of Chinese consumer goods, and I just caught up with that wave.
The investment environment at the time was completely different from the present, but in the long run, a brand can be bigger and stronger. I think there are only a few conditions that need to be met. This is irrelevant to any era:
First, the market is bigSecond, the industry is growing fast enough, and finally it depends on whether the competitors are not so strong.
These three conditions are indispensable, and all professional investment institutions will conduct detailed industry research on the brand around these three conditions before investing.
And we can use these three logics to infer the rise of Ruixing. From our investors’ perspective, Ruisheng itself fully fits these three conditions:
First, coffee is a big market. At present, China’s coffee market is about 100 billion, and coffee is about 20%. In 2030, the coffee market is estimated to be 300 billion.
The second is that the coffee market is growing very well. The good growth of the coffee market comes from the change in the concept of modern young people to the market. In the past, drinking coffee was a very worthwhile thing to show off, usually in special business occasions. But now it’s different. It’s not unusual for everyone to drink a cup or two a day. Become an integral part of the lives of many ordinary young people.
Speaking of the big market and good growth, many people have asked me why Ruisheng does not cut from tea. Is the market and growth of tea worse than coffee?
This is a good question. From the market point of view, the coffee market is definitely not bigger than tea. This is natural. Chinese people like tea is a long history.
From a cognitive point of view, tea is bound to be a big trend in the future. Ruixing’s Xiaolu tea is on the line and sales have soared. For the company, coffee is just a market entry point after comprehensive consideration. Tea has developed rapidly in the past, and now Xiaolu Tea has also opened a partnership program.
Doing tea does not mean that you can’t make coffee. Hi tea is not yet making coffee. From the perspective of the investor, Xicha and Ruixing are actually just different starting points. In the future, the categories that everyone will make are likely to be similar or even the same. There will be competition and convergence in the future.
Third, the competitors in the coffee market are not that strong. From my point of view, this is also a major reason why Rui Xing does not cut into tea. At the time of the start-up environment, brands such as Xicha had already grown bigger, and it would be a bloody sea to cut into the tea market. But in the coffee market, there is only one main competitor – Starbucks, and Starbucks has taken the lead in the industry for a long time, and many coffee brands have also retreated. At the same time, our market segments are not the same, just leaving the marketA large blank.
Next, I want to talk about the second question, “Why is the environment good but there are no strong competitors?”
This is actually a paradox. The market is big and the growth is good. Why haven’t there been any particularly good players in the past? I think there are three reasons:
One is that coffee prices are still expensive in the past. Starbucks has done a good job in the Chinese market, and now the third and fourth tier cities are gradually sinking. I think Starbucks is still expensive, and its coffee products start at least 30 blocks. Starbucks is unable to penetrate larger markets, and prices are still a large part of the reason.
The second is that the rental cost is too high. In China, except for Starbucks, all big-store models are not making money, and 99% of Chinese coffee shops face such a pain point. In order to avoid these pain points, offline small businesses have to turn to the store model, which is also a major reason why coffee brands have been unable to grow bigger and stronger.
The third is that the brand is not young enough. Starbucks has been in the Chinese market for more than 20 years. It is still the same. In the eyes of young people, it is still a traditional brand and does not meet the new needs of young people.
The more core logic is that Ruisheng Coffee, like the new-born brand in the future, meets the new needs of young people in the traditional category. Young people are eager to find new consumer brands on the traditional category channels and find their own labels and symbols. Although I still drink coffee, Rui Xing has a more convenient way, a lower price, and more interesting gameplay. I have labeled “Young”.
Consumer goods are not just functional things, they contain more of a lot of emotional appeals. For example, there is also a emotional appeal behind the tea. Is it because you want to drink a cup of tea? If you just want to drink milk tea, why not choose Lele tea and CoCo brands? This is not a price issue.
Holding tea is cool and versatile, and you can take pictures and socialize, etc. The emotional appeal behind it is the real reason why hi tea is expensive and hot.
Finally, I want to talk about how Rui Xun cracked users through “coffee to find people”.
In today’s Internet age, products with good IP are still far from enough, and there must be new operational methods and gameplay, especially social marketing. In the past, China’s CRM system was very poor, and traditional retail brands could not passThousands of transactions to capture the user’s portraits, consumer behavior, consumer preferences, and the source, channel, conversion rate, etc. of the consumer’s access to product information.
But there has been a disruption in user operations today, and the “IP+Social Marketing” model is gradually breaking down industry barriers, and the boundaries between industries are becoming increasingly blurred, which is “coffee” that was not possible in the past. Finding people” mode offers opportunities.
Rui Xing now has a strong and efficient team to operate users, through social, point-of-sale advertising and other channels, using “coffee to find people” to quickly collect users, can easily reach the end users. The concept of “flow pool” is pure.
Technology empowerment and data-driven makes this new brand of Ruixun quickly become the second-best Starbucks brand in China within two years, and even sales and overlay stores may surpass Starbucks at the end of the year. Ruixing’s first day of market closing price of 4.8 billion US dollars, although the size and sales compared with Starbucks seems to be somewhat high, but Ruixing’s network value and operating methods have indeed given it unlimited market value .
With technical support and business sense, from the perspective of our investors, Ruisheng is not a traditional coffee company, more like a new retail company. In addition to its own user data analysis system, powerful IT systems, Ruixing and the timely delivery capabilities of small stores, this minute-level logistics distribution capability proves that it is more like an Internet company.
Now, we evaluate companies in the consumer industry with two important references: one is technology and the other is culture. The two elements must be supported by the company, either a technology utility or a cultural utility, and it is best to combine the two. That power is endless!
2, Why did you suddenly have a big wave of brand investment opportunities today?
In answering this question, I first expressed a point that “China’s past brands are not brands.”
First we look at the first wave of manufacturing brands. In fact, in our view, before the arrival of the first wave of new consumption, China’s so-called brand is not a brand. Most companies are dominated by manufacturing and have no brand awareness. For example, footwear, in the past are Wenzhou shoes everywhere.
Products are not obvious in terms of difference. Like many so-called cosmetic brands in the past, they were only slightly better in design, communication and image than other brands.
In the current consumer market environment, it was actually placed on demand. Most of the products started from sales and distribution. Consumers are less mature and their perception of brands is not mature. So for a long time, it is very difficult for China to have a good brand.
Secondly, let’s take a look at the Amoy brand. Many people are very curious about a phenomenon: the market has demand for the brand, but why did the brand appear in the Taobao traffic? Is the Amoy brand a brand?
The core is also that there is no brand awareness and concept. In my opinion, this has a lot to do with the founders and the founding team. At that time, in the wave of Taobao traffic, everyone was busy harvesting traffic dividends, making money too easy, who is willing to build their own brand? Moreover, building a brand has to go a long way, and it will last for a lifetime.
As for the Amoy brand, I don’t think it can be called a brand. There are two main reasons:
First, the user population of Taobao cannot support the brand’s survival, that is, the Amoy brand has no fixed customers. For the Taobao brand, the price is too low, the customer is extremely sensitive to the price, and there is no customer stickiness to talk about.
Second, Taobao brand customers have no fear and no loyalty to the brand, and naturally they are not willing to give value to the brand.
The biggest value of Taobao’s soil is to serve customers who are extremely sensitive to price and pursue cost-effectiveness, but it is not a brand in essence.
Finally, let me talk about why, today, China has a very good investment opportunity for new brands?
1. Demand side: User population iteratively subverts the situation that “China cannot produce big brands, China is always a small brand”
The integration of online and offline promotes the subversion of “China can’t get big brands, China is always a small brand”, but the core factor that makes the startup environment better is the iteration of the user population. The more mainstream users are willing to pay for the brand today.
There are now three main categories of core consumer groups:
The first category is the urban Z generation crowd. This type of group generally refers to young people after 85s and 90s. Their quality of life is relatively high. They have paid more attention to educational resources and information acquisition since childhood, and are willing to pay for the brand and know how to be happy. They want to be different from others and look for their own labels from good brands.
The city Z generation is holding the “I like to buy” mentality to buy the brand, instead of “I want what, give me the right price to buy”, they have the pursuit of quality, willing to premium for the brand. Such features are extremely valuable to the brand.. In the past, I used to exhaust my energy to build a brand. In the end, I was killed by Taobao. So who is willing to do it?
The second category is the new town of the town. This group of people in the second and third tier cities have good family conditions. Although they don’t earn much, the happiness index and spending power are very high. They usually know the world by shaking hands and are willing to pay for Starbucks.
The young people in the town have their own methods for new lifestyles and consumer brands. I went to Fuyang, Hubei Province some time ago. A local friend opened a fine wine brewing bar and found that local consumers consume refined wine. At that time, they had their own ideas, and they asked them to sell their craft beer to meet the local people’s low concentration. This is the performance of the rising consumption of young people in the town.
This revelation to me is that the brand sinks: it is necessary to redesign the style in order to meet the tastes of the user. The culture, region and geography of the Chinese market are too complicated. This has brought inspiration to the sinking of first- and second-tier cities: brand sinking cannot be single-handed. It is necessary to focus on local brands and increase product categories.
The third category is the new middle-income group, that is, the first-tier cities have established a family. They pay more attention to the quality of family education and home life. They tend to live more in the balance of work and life, and pay more attention to life consumption instead of earning money.
The iteration of the user population has brought more consumers to pay for the new brand after the upgrade, and also promotes the rapid update iteration of the new brand during today’s brand surplus period.
2, supply side: More founders have a great sense of brand mission
The founders of the current brand are no longer as casual as they used to be, and most have a strong sense of mission. For example, if you are a brand new cosmetics brand, you will want to make “L’Oreal in China”. The brand created from the company’s tonality, product design and quality, etc., has indeed achieved fineness.
Other generations of young entrepreneurs who have grown up have more tastes for life. They tend to build brands based on their own value propositions.
3. All major consumer brands are facing opportunities for brand upgrades
In my opinion, in the next 10 years, all industries will first have new brands derived, and some brands can achieve hundreds or hundreds of billions.
The food and beverage industry is the same. For example, if you visit a supermarket and see a lot of goods, there are not many new brands to choose from. Compared with American supermarkets, the new brands of Chinese supermarkets are inferior.
In China’s local brands, the old brands are not strong enough, the brand is aging, and the user’s operation is not good enough. You can focus on the segmentation field and look for a deeper brand development space. Also, goodTraditional regional brands are expected to cut into larger markets from online segments through online channels, but opportunities still need to wait.
China has a large population of 1.4 billion people, but the only Chinese company that has achieved hundreds of billions of dollars is Maotai. It is still far from the dozens of hundreds of billion companies and dozens of billions of companies in the United States.
A large number of markets like Haitian Soy Sauce, we have roughly calculated that the average population of 1.4 billion people in China is not enough to eat a bottle of Haitian soy sauce every year. And its price is still very cheap, there is no brand upgrade, and there is room for market value.
Once the brand fully penetrates the Chinese market, the volume can become very large. Selling bread to the billions in the Chinese market is not big. If you want to get tens of billions, you can really make the market really hit. Through.
4. Simply branding online is no longer possible, and there will be a new generation of online and offline brands
The US e-commerce department store retail is stronger than China’s, but why only Amazon will open online channels? To put it bluntly, just other traditional retails have not found the feeling of being omnichannel. Amazon has suddenly activated, and the online and offline systems have merged and immediately opened the track.
Internet e-commerce needs offline. E-commerce companies like Ali and JD.com have turned around and closed their stores in 13-15 years. It is not that online e-commerce is strong, but that e-commerce itself needs offline resources and channel expansion.
Why is there no e-commerce company on the 100% line? Why do offline assets have important value? Looking back at the social attributes of people, there are only a handful of people who stay online at home every day. Why do people go out shopping? In fact, they are eager to socialize and want to integrate into society. This social attribute is only difficult to obtain from online channels, which is why online cannot completely replace offline.
From the above points, I believe that China has an unprecedented opportunity to invest in new consumer brands in the future. This is a great opportunity given to us by the times.