Article from WeChat public account:Huaxing Capital (ID: iChinaRenaissance), title map from: Oriental IC
This is our first publicly shared investment research report.
In 2019, it was widely regarded as the inflection point of the investment industry. Uncertainty increased and the madness era never returned. In an increasingly tight investment environment, some institutions have turned the bow and reshaped the investment value; others have kept their strengths and strengthened their internal strength. But no matter which option, it is to be able to stand up to the tide when the next trend is coming.
Huaxing Capital Group has started private equity investment management business since 2013. As of now, the asset management scale has reached 4.7 billion US dollars. In the past six years, Huaxing Investment Management has been driven by research and maintained rapid growth. We believe that the future can be expected, and we are willing to share insights and judgments with you.
The first phase of the research report, we focus on the beauty industry, we believe that beauty is a marketing-driven, channel-driven industry – and every marketing change, channel change, may bring a new wave The opportunity to overtake the corner. In the process of industry research, we surveyed nearly one hundred beauty brands, and saw the gold from the dust, with rich data and cases to sort out the macro opportunities, the intergenerational switching of “people”, the “details of the goods”, ” The channel of the field has changed dramatically. May you read it happily.
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If you want to use a word to describe the cosmetics industry, we think it will be “segmentation”, far exceeding the high-level and dynamic segmentation of other industries. Look at your dressing table at a glance. Subdivision has created an unparalleled long tail in the cosmetics industry – small brands, new brands, and entrepreneurs always have opportunities. The secret of cutting in is always niche, flexible, and quick to respond; but it is easy to cut in and make it difficult. The vast majority of branding aims to build awareness on the consumer side and reduce the cost of decision making for instant purchases. Manageable is brand awareness, and brand loyalty is hard to expect.
Revenue growth, standby switching is the key to driving growth
1. Per capita consumption is still low, and the growth potential of China’s cosmetics market is huge
China is the second largest cosmetics market in the world. According to Euromonitor data, the size of China’s cosmetics market in 2017 was 361.6 billion yuan. From 2008 to 2017, the market compound growth rate was 9%, far exceeding the growth rate of 2% in the global market. However, the current per capita consumption of cosmetics in China is 38 US dollars, far behind the spending of more than 240 US dollars per capita in Japan, South Korea and the United States. The size of China’s cosmetics market still has a large growth potential.
Figure: China’s cosmetics market size and growth rate from 2008 to 2017 Source:Euromonitor
Figure: 2016 Cosmetics Market (100 million Euros) and Proportion Source: Euromonitor, Everbright Securities
Figure: Per Capita Cosmetic Consumption (US$) Source: Euromonitor, Ipsos, Essence Securities
2. Revenue growth is the foundation driver
Revenue growth is the driving force driving the rapid growth of the cosmetics industry and the upgrading of consumption. The overall consumption scale of the Chinese cosmetics market and the per capita GDP show a strong linear correlation. As women’s spending power grows, consumer willingness increases, and policies actively support cosmetics consumption, reducing cosmetics consumption tax and import tariffs, driving the growth of the cosmetics industry and market size.
Figure: China’s cosmetics market size and per capita GDP Source: Euromonitor, National Statistical Yearbook, Huachuang Certification
Figure: Per capita GDP is strongly correlated with the size of the cosmetics market Source:Euromonitor, National Statistical Yearbook, Huachuang Securities
3. Intergenerational switching drives market change and upgrade
In addition, cosmetics consumption is becoming younger and there is a clear intergenerational switch. Young consumers drive market changes and drive the market further. It is estimated that more than 70% of the online cosmetics market is supported by 80/90, and mainstream target consumers are rapidly shifting from 70 to 80/90.
图: Total consumption of all people in 2017 Source: China UnionPay & JD Finance “2017 Consumer Upgrade Big Data Report”, Huachuang Securities, Star Figure data, Caitong Securities
图: The proportion of cosmetics online shopping in 2017 Source: China UnionPay & JD Finance “2017 Consumer Upgrade Big Data Report”, Huachuang Securities, Star Map Data, Caitong Securities
The intergenerational differences in cosmetics are mainly derived from the age group of consumption awakening, the brand of initial consumption, the difference in the concept and willingness of consumption.
Source: Guosheng Securities (Note: 55 years old is the retirement age for women)
The consumption structure of Chinese cosmetics is a clock curve, which is significantly different from the logarithmic curve in Europe and America. Women in Europe and the United States increase their spending on cosmetics as they get older. In China, cosmetics consumption is dominated by young consumers, with greater consumer awareness and willingness to pay, and more spending than older people.
Figure: Distribution of cosmetics market by age of consumers Source: Guosheng Securities
In the future, with the ageing of consumers and the popularity of cosmetics consumption, China will move closer to the European curve, but the change will be 10 years. Given the investment cycle of most VC/PE, the research focus can be on the brands and models after borrowing 80/90.
4. Low-line city cosmetics consumption power is in release period
The current growth rate of the cosmetics market is mainly contributed by the second- and third-tier cities and below. According to data from the Jingdong Consumer Research Institute, the growth index of low-tier cities below the third- and fourth-tier cities is significantly higher than that in the first- and second-tier cities. In 2016, the growth index of the third, fourth and fifth-tier cities was 139% and 160% respectively. With 203%, much higher than 100 in first-tier cities% and 118% of second-tier cities, the coverage of low-line urban logistics services is gradually improved, and the supply capacity is strengthened. At present, the consumption power of cosmetics in low-tier cities is in the release period.
Figure: Year-on-year changes in retail sales of key large retailers Source:Euromonitor, Caitong Securities
图:2016 City Consumption Growth Index Source:Jingdong Consumer Research Institute, Caitong Securities
New Generation Consumers Change Consumption, Information Channels
1. Word of mouth? quality? Young people want to like it more
Young cosmetics consumers are more self-esteem, more concerned with their own preferences and brand tonality. A single brand was forced to narrow its positioning, further segment its own customer base to form a match, and the new brand also found more room for growth, which objectively led to the dispersion of brand concentration. Compared with the choice of brand after 80/90, it is more inclined to “self-like”, “friend recommendation”, “newest trend” and other factors. The simple product brand and word-of-mouth quality are no longer so important.
图: After 80, 90 after consumption concept Source: Analysys think tank & Tencent “China Post-90s Youth User Survey Report”
Figure: Beauty target group to WeChat Top10 Beauty brand interest concentration TGI Source: Tencent social big data
(Note: TGI is the target group index, reflecting the strength or weakness of the target group for a particular research goal)
We believe that the loyalty of cosmetics brands is not high. Cosmetic companies are not earning money from consumers, but they are washing users like game companies. Low brand loyalty has further driven brand decentralization and given new brands more opportunities. According to Tencent’s social big data, among the beauty brands that WeChat put Top10, there are 6 brands whose interest concentration is within 1 standard deviation of the mean, and the difference is small.
2. Category expansion never stops, “component party” is popular
Early consumers have only one step of makeup, and now they have advanced to more than eight steps. The increasingly complex makeup demand has pushed the increasing complexity of product categories, and has also made consumer demand increasingly fragmented.
Figure: Skin care steps tend to be complicated Source:Kaidu Data,Tianfeng Securities
Figure: Personal average skin care steps are gradually increasing Source: Kaddu Data, Tianfeng Securities
Consumers no longer only use the brand as a purchasing decision indicator, but instead pay more attention to the principle of beauty makeup. The “component party” is popular, and the proportion of beauty bloggers who see the elderly in the composition analysis has also increased significantly.
Figure: Top Skin Care Ingredients Discussion Source: CBNData
3. New Media: Keeping young consumer groups together
The habitual preference of young consumers has increased the importance of new media channels, and the traditional delivery model of cosmetics companies is facing reform. Online attention to cosmetics is gradually becoming younger, and more than two-thirds of users who pay attention to cosmetics on Weibo are after 90/00.
After 90, consumers mainly learn about new products, new brands through social platforms and e-commerce platform recommendations, online marketing (social platform, etc.) It has a unique carrier advantage for the new generation of cosmetics.
图: Weibo pays attention to the distribution of cosmetics crowd Source: Weibo Data Center, Caitong Securities
Figure: After 90, learn about new products/new brands. Source: Ai Rui, a little information
The growth after 80/90 is accompanied by the rapid development of the Internet. As this group enters the growth period of consumption, the e-commerce channel has also begun to flourish. From 2009 to 2017, Taobao’s average annual growth rate is 47.37%, which is the period of independence and life after the 85s and 90s.
At the same time, the rapid development of e-commerce channels, corresponding logistics distribution, e-commerce platform to promote the standardization of merchants, the credit mechanism is gradually improved, online shopping is more convenient, more consumer groups alsoStart “touching the net” shopping. The online shopping market has reached a total of more than 20% of the company’s total, and the online shopping penetration rate has reached 2/3. The proportion of e-commerce sales of cosmetics companies has also increased year by year, and many cosmetics companies have launched online channels to expand sales.
Figure: The size of the online shopping market accounts for the total amount of zero in the community. Source: Ai Rui
Figure: Internet shopping and mobile Internet shopping netizen usage Source:WIND
Highly subdivided, exploding strategies, becoming the best choice for the rise of the company
Based on the positioning of the market, we use 500 yuan as the line, 500 yuan or less as the mass market, and more than 500 yuan as the high-end market. From the data from 2003 to 2007, Volkswagen products occupy a major market share. Although the growth rate of high-end products is high in recent years, in the long run, Volkswagen single products will still occupy the absolute mainstream.
Figure: China’s cosmetics market high-end vs. mass proportion Source:Euromonitor, Everbright Securities
Figure: High-end vs. Volkswagen Composite Growth Rate from 2012 to 2017 Source: Euromonitor, Everbright Securities
By category, in the five major categories of cosmetics, we classify hair care, bathing, and teeth (oral) into personal care. Skincare and make-up are classified as beauty. Data from 2003 to 2017 show that the beauty market share is large and growing rapidly, while the personal care market is gradually stabilizing. The Volkswagen+Beauty segment has a core growth market opportunity that cannot be ignored.
Figure: China’s cosmetics segment market size (100 million yuan) and proportion Source:Euromonitor, Everbright Securities
Figure: Changes in major categories from 2003 to 2017 Source:Euromonitor, Everbright Securities
Microblog data center data shows that 62% of cosmetics buyers’ annual consumption of skin care products and 82% of buyers’ annual makeup consumption are below 3,000 yuan, which shows that pricing is still the primary factor in positioning. The price of a single cosmetic product is below 500 yuan, and 250 yuan is the core price segment.
Figure: The annual consumption of skin care makeup is concentrated below 3,000 yuan Source: Weibo Data Center, Caitong Securities
Figure: Consumers with a single skin care product spending below 250 yuan are high Source: Weibo Data Center, Caitong Securities
The subdivision of cosmetic products is rare and meticulous, each of which has about 100 million to 10With a scale of 100 million or even 5 billion, the market space for subdivided products is still not small. In addition, the penetration rate of skin care products and make-up products has a huge room for improvement. The annual growth rate of the segmentation categories is large and needs close attention.
Figure: 2017 Skincare Product Category Permeability Source: 2017 Micro-Appreciation Survey, Guosheng Securities
Figure: 2017 Cosmetics Product Category Permeability Source: 2017 Micro-Appreciation Survey, Guosheng Securities
The growth rate of cosmetics category is also high and the annual difference is also large, so you can pay close attention to it by means of data. One of the main functions of Taobao’s category Xiaoji is real-time monitoring, and organize activities/promotions/new concept promotion in advance according to changes.
Photo: 2017 Cosmetics Product Growth Source: Yunguan Data, 2017 Tmall Makeup Perfume Data Report, Guosheng Securities
In the face of such a high degree of market segmentation, it is difficult for a single brand to have a strong single item in each category. Full coverage is difficult to succeed, and it is a successful choice to create a burst or even a classic. At the same time, product innovation, category innovation, and concept innovation are the core ways for emerging companies to create explosives. The innovative launch of pheno-grade explosive products BB cream is a representative case of the industry.
From the point of view of the single item, the explosion is necessary for the start-up phase. How to precipitate into a classic model is a problem that plagues entrepreneurs. Not only the market leader, but also the up-and-coming talents are sticking to the explosion strategy and creating their own star.
From the cosmetics group, the multi-brand (>20) matrix is the only way to become bigger and stronger. L’Oreal has nearly 50 brands (L’Oréal, Lancome, Kashi, Obiquan, Vichy, Keyan, La Roche-Posay, Maybelline, etc.); Estee Lauder There are also up to 29 brands (Essence Lancome, Clinique, Tom Ford, La Mer, DKNY, etc.).
China Head Cosmetics Group’s single or second brand sales accounted for a high proportion, and long-term growth may have ceilings:Polaiya’s main brand in 2016, Polaiya contributed 88% of revenue; Royal Mufang 2017 main brand Yumifang contributed revenue 70%; Baique Ling Group’s main brand, Baique Ling, has a sales of 13.8 billion in 2016. The rest of the brands such as Sanshenghua, Qiyun and Haizhiji are almost unknown; Shanghai Shangmei relies mainly on Hanshu and Yiye, two main brands; Jialan Group mainly relies on The two main brands of Nature Hall and Beauty.
According to CBN Data, there are approximately 3,500 to 4,000 major cosmetic brands worldwide, except for the brand owned by CR10 Group (38.5% of the market), the remaining 3,000+ brands compete for 61.5% of the world’s share, the long tail effect is significant, and the small and beautiful brands that are favored by consumers after 90s are rising.
Figure: The penetration of small and beautiful brands is further enhanced Source: Ali Platform, CBNData, Zhongtai Securities
In addition to the high degree of subdivision and concentration reduction, consumers’ beauty thinking, brand low conversion/attempting costs provide opportunities for small brands and domestic brands to rise.
In the market of Volkswagen vs. high-end, beauty vs. a total of four, the market concentration of the public + beauty market declined particularly sharply. CR5/CR10 decreased from 36.1%/49.7% in 2008 to 2017 respectively. 30.2%/44.9%, CR20 dropped from 61.7% in 2014 to 59.8% in 2017.
Figure: CR5/CR10 changes in the Volkswagen and high-end markets (Note: The true single-brand dimension will be more dispersed here by brand group) Source :Euromonitor, Huatai Securities
Compared with the high-end market that requires brand accumulation, in the mass market, the emergence of domestic brand groups and small brand groups.
The internationally renowned cosmetics companies in the high-end market rely on strong brand status and strong financial strength, which mainly occupy the high-end cosmetics market in China’s first-tier cities. Today, in the outbound travel and the emergence of Haitao, this brand has gained further momentum. strengthen.
When most domestic brands rise, in order to avoid competition in first-tier cities and international brands, relying on cost-effective advantages and in-depth understanding and rapid response to Chinese consumers’ consumption habits, they chose the channel leading and the first to sink the third and fourth lines. The market, relying on operational capacity enhancement, has seized a portion of the international brand market share. But this also indirectly leads to low product and brand positioning.
Figure: Changes in CR10 in the Beauty Market (in group sales) Source:Euromonitor, Billion Power
The channel has changed a lot and the new wave of grass brought goods
1. Changes in channel structure, bringing opportunities for overtaking in corners
The main sales channels of cosmetics (by market share) is a supermarket and hypermarket, e-commerce, beauty store (CS), department stores and single-brand stores.
Figure: The main channel for cosmetics sales Sou