Click to read the original text for details Source: Paidong Business Review (ID: paidongshangye) 2021 is the year of new consumption in China's business landscape. In the Chinese market, whenever a field heats up, it inevitably goes through four stages of evolution:

  1. Truly good teams go from being unnoticed to being appreciated, until they gain many resources and make many valuable innovations;
  2. Speculators find it profitable and enter in droves to fish in troubled waters;
  3. Due to the objective laws of development, the bubble bursts, the shoddy brands are washed out, and those only looking for short-term gains automatically withdraw;
  4. Industry returns revert to the mean, and large resources gravitate toward the truly surviving excellent projects. Overall, we are currently in the second stage of new consumption, the bubble expansion period. But the market ultimately has objective laws and will return to normal. Which tracks are most favored by capital? According to public data statistics, in the first half of 2021, there were at least 247 investment and financing events in the new consumption sector. The investment peak occurred in January and June; after the Spring Festival in February, capital entered a two-month cooling-off period, with February-March combined accounting for only 14% of total investments; starting in April, investment enthusiasm in the new consumption sector rebounded significantly. The five hot areas of food, beverages, personal care, clothing, and beauty together accounted for 73%, while other investment and financing deals were scattered in vertical fields such as alcohol, mother and baby, consumer electronics, sports health, and pets. The above five hot areas can be further merged into three major sectors based on consumption habits: catering, beauty and personal care, and clothing. Nearly half of the investment and financing events occurred in the catering sector. Among them, the food industry had 64 deals, and the beverage industry had 42 deals. Traditional Chinese cuisines such as hot pot, fried skewers, and braised food are revitalizing under the new retail background, breaking spatial limitations, gradually going national, and even heading for IPOs. Among them are veteran catering companies like Weilong, Mixue Bingcheng, and Zuming Soy Products, which are either going public or are one step away from listing, as well as new catering upstarts like Lazzy Bear Hotpot, Jingpai Xianlu, Kuafu Fried Skewers, and Jintang Noodles, which are expanding beyond their regions. At the same time, the health trend driven by the enhancement of national health concepts has also boosted many health food companies, such as healthy light meal brand Shark Fit, meal replacement brand Qingyu, and functional food brands like BUFFX and Nelo. Beauty and personal care together accounted for 18%, with personal care hotter than beauty. The first half of the year's investment and financing situation shows that the personal care industry has seen more sub-categories, such as skin, oral, body, and men's comprehensive personal care. Among them, the skin care track is the hottest. In recent years, the popularity of makeup has brought greater skin care needs, and many functional skin care brands that emphasize scientific skin care, simplified skin care, and natural and safe ingredients have emerged, such as pure skin care brand LAN, natural skin care brand Ximuyuan, etc. In addition, the two hot tracks of men's personal care and oral care have also seen multiple high-value financings, with representative brands including men's comprehensive personal care brand Liran, and oral care brands Canban and Bingquan. The clothing sector ranks third with 11%, and the degree of track segmentation is increasingly obvious. Whether it is comfortable underwear, niche "three pits" clothing, or even single items like white T-shirts, they are favored by capital and the market. Traditional players in the clothing track are also undergoing new changes under the new consumption wave. On the one hand, they are adopting new marketing methods such as e-commerce live streaming, short video content marketing, and KOL seeding, helping domestic brands continuously capture consumer mindshare. On the other hand, as Generation Z's acceptance and trust in Chinese brands continue to rise, the competitiveness of local clothing brands is also growing, gradually taking dominance from foreign brands. In the 2020 Double 11 alone, among the top ten brands on Tmall's women's clothing merchant live streaming list, eight were domestic brands. From the monthly distribution perspective, the above five hot areas show some interesting characteristics: Food is the top priority for the people, and capital continues to favor and increase investment in the food sector. Even in February and March, when overall investment and financing events were fewer, the food sector still saw 6 financings, significantly higher than other sectors. Investment in personal care and clothing alternates between hot and cold. Capital's attention to the personal care industry first rose then fell, with a slight rebound later, overall tending to be stable; the clothing sector has more obvious seasonal fluctuations. Beverages and beauty are the steady "old internet celebrities." These two fields have been favorites in the capital market over the past 2-3 years, giving birth to industry leaders such as Heytea and Perfect Diary. In the first half of 2021, except for June, although the overall number of investments and financings was lower than in food, personal care, and clothing, the monthly distribution of investments and financings was relatively stable and even. What are the common reasons behind the hot tracks? Capital's preference is not unfounded. There are three common reasons behind the rise of the new consumption wave: On the demand side, it corresponds to the continuous improvement of national disposable income. People's yearning for a better life drives more personalized and diversified new consumption demands, gradually converging into a consumption force that cannot be ignored. On the industry side, there are two major premises. On the one hand, China is the only country in the world with all industrial categories in the UN industrial classification, possessing a complete industrial system. **This means extremely high production efficiency, that is, a manufacturer in China can complete supporting work in half an hour on the phone, while in other countries it might take half a month. High production efficiency further ensures production capacity supply, allowing the industry side to absorb the massive demand from consumers without relying on imports. On the other hand, in addition to advantages in traditional manufacturing, China is also at the forefront of the world in the development of advanced productive forces represented by digitalization. E-commerce, mobile payment, short video live streaming, and other new business formats are becoming the new infrastructure of the consumer field, greatly improving transaction efficiency. The development and maturity of the demand side and the industry side cannot be separated from the positive guidance of the policy side. In the past 5 years, the state has issued more than 130 regulations and policies related to brand building, continuously promoting the construction of information infrastructure, leveraging information consumption to release content potential, encouraging independent innovation by enterprises, and step by step leading consumption expansion and quality improvement, providing a guiding framework for the development of new brands. The food sector is brewing three trillion-yuan opportunities Jiang Kaiyang, director of Taihe Capital, believes that "China's 'food' track is brewing three trillion-yuan opportunities: branding of basic ingredients, industrialization of prepared dishes, and chain operation of catering." Judging from the investment and financing events in the food industry in the first half of the year, the above observations are gradually becoming reality. The basic ingredient market is vast with big fish, and the branding trend is emerging: Basic ingredients include rice, flour, grains, oil, meat, eggs, poultry, dairy, etc. In the past 30 years, transactions in this field have mainly been concentrated in the B-end channel. Although a small number of well-known enterprises have emerged among C-end companies, most mainly sell in bulk in residents' vegetable markets, department stores, and other channels, with low brand premium, and consumer decisions mainly depend on product cost performance. As the basic plate of the food field, the basic ingredient market is vast with big fish. In the past, consumer brands with market values of hundreds of billions such as Yili, Arawana, and Lee Kum Kee have emerged. In the first half of 2021, fresh beef brand Niuchi and natural food brand Gushengmi both received financings of over ten million yuan. With the continuous expansion of domestic demand, the upgrading of retail channels, and the increasing maturity of digital infrastructure, basic ingredients are expected to give birth to more consumer brands above the hundred-billion level, with a promising future. Long-term accumulation on the supply side leads to the explosion of the prepared dish market, with strong demand from both B and C ends: From the supply side, there are four main reasons for the growth of prepared dishes:
  5. The increase in the industrialization of agriculture and animal husbandry promotes the decline of raw material costs;
  6. The development of cold chain logistics reduces distribution costs and expands distribution scope;
  7. Precise marketing under big data reduces waste losses;
  8. Channel diversification and payment convenience reduce transaction costs and improve shopping experience. As cost reduction and efficiency improvement become a continuous rigid demand for catering enterprises, and social division of labor changes lead to reduced cooking time and changes in the cognition of emerging consumer groups, the demand for prepared dishes from both B and C ends will remain strong, and the industry is expected to continue its growth trend. In the first half of 2021 alone, there were at least 15 investment and financing events in the prepared dish track, with players emerging in hot pot ingredients, Western food, Chinese noodles, and other categories, with amounts ranging from several million to over a hundred million. The chain catering market still lacks giants, and the inflated valuation of beef noodles is a microcosm of the industry: Currently, the chain rate of Chinese catering enterprises is 10%, compared with 54% in the United States and 49% in Japan, leaving five times room for improvement. The Chinese chain catering market still lacks giants. In the first half of 2021, multiple investment and financing events in the chain catering track were distributed in hot pot ingredients, braised food, fried skewers, stewed soup, baking, and other sub-sectors. Recently, chain catering represented by Lanzhou beef noodles has frequently received financing, with valuations remaining high, reflecting the popularity of the chain catering track. Behind the billion-yuan valuation of Lanzhou beef noodles is the reflection of the general trend of consumption upgrading and the internal logic of category reinvention, as well as the investment mentality of capital that would rather make mistakes than fall behind, "casting a wide net to catch more fish." Beef noodles are just the beginning. The investment boom in the chain catering track is expected to continue in the second half of 2021, and more high-valuation projects may appear in sub-sectors. For brands that have already stocked up on ammunition with the help of capital leverage, they still face issues such as category scaling, supply chain costs, and food safety control in future expansion. Only after the bubble is squeezed out can we see who has filled the short board. (July 2021, Chen Xianggui announced the completion of a new round of strategic investment, with a valuation of nearly 1 billion) Personal care awareness strengthens, sub-categories frequently emerge, and skin care under the appearance economy becomes a rigid demand In the first half of 2021, brands that received financing in the personal care industry were mainly concentrated in four sub-categories: skin care, oral care, hair care, and body care, of which nearly half came from the skin care track. The increase in problem skin caused by the popularity of makeup has brought more skin care needs, and functional skin care brands have emerged in large numbers. In the future, functional skin care products will continue to penetrate, and leading brands have high barriers. From the perspective of beauty sub-categories, with the enhancement of scientific skin care awareness under the consumption upgrading trend, efficacy has become a new trend in beauty consumption, driving the rapid growth of the functional skin care track, with a compound annual growth rate of 25.4% in the past 5 years, far higher than the overall growth rate of the beauty and personal care industry. In addition, functional skin care is a high-quality track with deep barriers and strong repurchase. Its R&D barriers are relatively high, usually the result of interdisciplinary research, and it may take 2-3 years from R&D to clinical trials and then to market. At the same time, the basic customer base of functional skin care products is people with sensitive skin. Since frequent changes of skin care products by sensitive skin people can easily cause allergic reactions or increase sensitivity, the switching cost and risk are high, so brand loyalty is high and repurchase intention is strong. With the support of both supply and demand, the moats of leading brands are expected to continue to widen and deepen, achieving continuous improvement in market share. Supply chain transformation and the rise of circle culture bring a new round of prosperity to the clothing industry The efficiency of collaborative synergy in the clothing industry chain has improved, and the response speed to terminal consumer demands has become faster. The industrial synergy efficiency of the traditional clothing supply chain is very low. The degree of internetization of upstream fabric and accessory trading and design is low. Clothing factories are constrained by upstream fabrics and design cycles, respond slowly to market demand, and have long replacement cycles, unable to meet consumers' pursuit of freshness and individuality. In the words of Wang Qi, partner of Yuanjing Capital, the clothing industry as a whole needs to transform from a "push supply chain" to a "pull supply chain." A push supply chain means whatever I produce, you sell; a pull supply chain means the demand side pulls the factory's production. Those fast fashion brands that are closer to the source factories and have more digitalized terminal channels can rely on more extreme fast-response supply chains and become new giants. SHEIN is a typical example. It has become a fast fashion brand influencing the world because it has achieved the ultimate in design, production, new product launches, and single-style quantities, achieving absolute fast response and flexibility. The improvement of the supply chain and the transformation of the retail end have also boosted the prosperity of Hanfu and pan-secondary consumption. Hanfu, JK uniforms, and other niche clothing are overall young, vertical, and circle-oriented. Their consumers have a strong sense of identity and cultural belonging, are more sticky, and are prone to repurchase. Moreover, most Hanfu brands produce according to sales, adopting a pre-sale method, generating orders first. The limited-time group opening model also makes such products very active in the second-hand market. Category characteristics such as easy volume, low R&D, inventory, and turnover pressure promote the rise of clothing sub-categories like underwear. The rise of underwear and niche clothing is related to their category characteristics. Compared with fast fashion brands, their category width is small, and a single SKU is easy to scale; they focus more on comfort and functionality, with relatively less pressure on design iteration, effectively extending the life of styles, thus alleviating inventory and capital pressure. In terms of promotion, their selling points are more focused on comfort and technology. For example, emerging underwear brands Bananain, ubras, and NEIWAI all emphasize comfort and freedom. In addition to comfort, Bananain is positioned as a "body sensation technology company" combining technology and design; there is also the men's clothing brand Baixiao T, which takes "letting technology redefine clothing" as its core. Various new consumer companies are talking about marketing, channels, supply chain, R&D, and other issues. From the perspective of enterprise development and brand building, these issues are unavoidable and must be considered and actively addressed. But returning to the underlying logic of consumption, the most important thing for consumer goods companies to survive sustainably is actually the cultivation and maintenance of consumption habits. No matter how fierce the advertising, how wide the channel distribution, or how affordable the price, it can only make the enterprise do well for a period of time. But to always have food on the table, the key is to let target users develop long-term consumption habits, not an occasional behavior. For example, mouthwash as a single product can cover many consumption scenarios, such as bathrooms, after meals, social occasions, travel, etc. But it is still an occasional behavior. Many people who haven't bought it often don't realize they need mouthwash when encountering a certain problem; most people who have bought it only use it occasionally. The consumption habit of mouthwash among Chinese people is far from being cultivated, and consumption frequency and repurchase are big problems. Perhaps this is also why some mature international brands, although they continue to observe the development of Chinese new consumer brands, rarely cause them to respond specifically. The establishment of a brand is not achieved overnight. The real barrier behind it is actually the deep understanding and practice of consumer psychology and behavior built by generations after countless failures. Many truths are not something you can avoid just by hearing them. Effective experience and lessons must be deeply engraved and successfully implemented after truly experiencing failure. Under the macroeconomic situation, policies will be favorable to the consumer field in the long term. In July, investment and financing news in the new consumption sector was frequent, and many investment events with controversial valuations proved that the consumption bubble is still continuing. But with the outbreak of negative news such as the food safety issues of Nayuki Tea, supervision, laws, and regulations are expected to become increasingly strict and improved, giving good money more opportunities to come ashore. Looking forward to the second half of 2021, a large number of enterprises will still ride the wave in the bubble, and the new consumption field will remain a turbulent market. We will continue to pay attention to the development and trend of this field and provide you with more in-depth and objective annual observation content at the end of the year. PS: From September 23 to 25, 2021, the 2021 (4th) China FMCG Conference hosted by New Distribution will be held in Shanghai. Focusing on industry trends + practical cases + growth docking as the core, 3000 FMCG practitioners will gather at the event. 11 themed forums involve 0 Snack Era · Light Health, Small Categories · Big Explosion, Generation Z · New Wine and Tea under new consumption; Community E-commerce, Midfield? Finale? Interpretation, Heavy Investment in Same-City Retail (O2O), Short Video and Live Streaming under new retail; Digitalization, BC Integration, Martech, DTC and Private Domain Traffic, Distribution B2B, Big Merchants and Digital Distribution under new marketing, etc. Operators in various sub-fields will bring the latest case interpretations. Some of the heavy guests confirmed so far include: 1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, global expert partner of Bain & Company and former vice president of marketing for Coca-Cola China; 4. Chen Xiaodong, senior vice president of Nestlé Greater China; 5. Zhang Fujun, president of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; 7. Yang Hongbin, vice president of Junlebao Dairy Group; 8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operation Center; 10. Li De, general manager of Gold Hong Ye Paper Group E-commerce... A grand event for FMCG people, you must be there! Are you "watching" me?