Click the image above for details In recent years, innovative consumer brands have emerged one after another. I have consulted many industry insiders about the underlying logic behind their rise. Everyone has an answer, but it usually boils down to consumption upgrading, consumption stratification, or the popularity of mobile internet, which enables real-time reach to consumers, easier communication, and instant feedback. This is the big picture, but it's not enough. For industry practitioners, this is insufficient to support our judgment and insight into the industry. Recently, New Distribution interviewed Mr. Zhou Weiping, founder of a1 Snack Research Institute. After a conversation, I felt that Mr. Zhou's answer could help industry insiders truly understand the deeper reasons behind the rise of innovative consumer brands: "Observant practitioners can notice that since 2012, the sales of food companies as a whole have almost all declined to varying degrees. Strictly speaking, 2012 was the last feast for traditional food companies. At that time, everyone was confused, couldn't figure out why, and couldn't find the root cause. But with the data changes in the following two years, the answer surfaced. In 2013, China's outbound tourism population was 64 million; in 2014, nearly 100 million; in 2016, 160 million. This reflects the improvement in consumption capacity. Free trade zones and cross-border purchasing via daigou saw a boom. Additionally, in 2012 and 2013, Tmall, the online e-commerce platform, began to explode. The combination of these factors is essentially consumption upgrading. In the past, consumers had no chance to go out, and good products had no chance to come in. As the saying goes, 'no comparison, no harm.' Through e-commerce, cross-border shopping, and outbound travel, consumers discovered many better-tasting products they hadn't known before. From 2015 to 2016, many hit products appeared on the market, such as Samyang Fire Noodles, Tao Kae Noi seaweed, dried mango, bread sticks, etc. They almost did no marketing; they became popular purely on product strength, not driven by channels or brands. They didn't even have a representative office in China; they relied on traders and consumer votes. Undoubtedly, from that point on, China's consumer goods market began to enter an era of product power. The underlying logic: consumer demand has moved to the forefront of the entire supply chain. As a popular saying from two years ago goes, 'All consumer goods are worth redoing once.' We, as relevant practitioners in this environment, discovered a market and an opportunity. Starting a business in 2015 or 2016, choosing a familiar category and redoing it once—that's the essence. This is Mr. Zhou Weiping's answer. I think it can clear the fog for practitioners under the big logic of 'consumption upgrading.' Now, back to a1 Snack Research Institute. a1 was founded in 2016. Over the past three years, it completed three rounds of financing, totaling 350 million yuan. In April of this year, even under the shadow of the pandemic winter, it still completed a Series B+ financing of nearly 200 million yuan. Since 2017, it has maintained a growth rate of 3 times per year. It is expected that in 2020, its sales will exceed 1 billion yuan. With such achievements, I think it has definitely reached the forefront of many innovative consumer brands. △Zhou Weiping, founder of a1 Snack Research Institute How exactly did a1 Snack Research Institute achieve this? Zhou Weiping, who has 20 years of experience in the FMCG food industry and has held senior positions at well-known brands such as Yake, Fuma, and Xuerong, what is his innovation methodology? I hope his understanding of innovation and insight into the industry can provide some inspiration and food for thought for relevant practitioners. -01- Industry changes and personal needs trigger entrepreneurship Speaking of founding a1 Snack Research Institute, Zhou Weiping told New Distribution that he has been in the food industry for 20 years and has fully experienced the industry's changes. Consumers' demand for products has shifted from 'whether it exists' to 'whether it is abundant' and now to 'whether it is good.' His career experience made him keenly feel the change in demand. Of course, this accompanies a generational shift: the post-95s have begun to stand at the center of social discourse, and the post-90s have basically become the main force of social consumption. The change in user groups is a fundamental factor driving the change in demand. Demand is clearly changing, but Zhou Weiping found that traditional enterprises are somewhat slow to respond to these changes, easily trapped in their existing comfort zones and difficult to change. Their original advantages have now become burdens. Sometimes change is not as good as creation. This is the external environment that triggered Zhou Weiping's entrepreneurship. From a personal perspective, because he has been in the food industry, he clearly knows the craftsmanship of existing products. Because he understands the craftsmanship behind them, he has become dissatisfied with many current products, not daring to give them to his family. His 'forbidden food list' is growing, and the core issue is that there are not many good products. In Zhou Weiping's view, this is not only his personal pain point but also the pain point of most consumers. The pain point of the majority is a new demand. These are the two fundamental reasons for founding the a1 brand, both internally and externally. As for how to start the business, Zhou Weiping did not build his own factory but invested limited resources in product R&D and raw material procurement. a1 invests more than 5% of its annual revenue in product R&D. At the same time, in the second half of this year, a1 will invest 40 million yuan to build a national-level food laboratory in Xiamen. Zhou Weiping explained that in the food field, in fact, what is lacking is not factories, not production capacity, and certainly not equipment. Nearly half of the world's good equipment has been bought by Chinese people, and in the past 10 years, China's equipment manufacturing industry has progressed rapidly. In general, the food industry has excess production capacity. The main contradiction is that production capacity cannot match demand well. A simple example: you have a Mercedes-Benz S-Class at home, but you fill it with 92-octane gasoline every day. Here, good oil is the raw material. What a1 wants to do is to establish a high-standard laboratory that can benchmark internationally, providing continuous R&D and innovation momentum for good products. On the supply chain side, through equity participation and strategic investment, a1 completes R&D, design, and formulas, and lets factories produce, with close cooperation. In addition, for regular products, a1 specifies raw materials, formulas, and processes, and sets standard production procedures, with a1 supervising and integrating. In this production cooperation model, a1 strengthens quality control on one hand, and avoids duplicate investment and time delays on the other. Most importantly, in the early stage of entrepreneurship, it can truly focus on product R&D without distraction. So how exactly does a1 create a good product? -02- Definition of a good product: an extreme product within the affordable range of target users What is a good product? A cake is priced at 5 yuan or 50 yuan in the market. Which is a good product? If only considering the product itself, 50 yuan is definitely good. But if considering the actual consumption capacity of the user group, 5 yuan might be the more appropriate choice. Zhou Weiping said, the current food industry has entered the stage of 'whether it is good,' but the so-called 'good' is not unlimited. An extreme product must be extreme within a certain range. For example, the mainstream price band for a cake is 5 yuan, which is also the most acceptable price range for mainstream users. Can you achieve the extreme at this level? That is the key. Based on the reasonable cost for target users, and on the basis of the cost users are willing to pay, consider how to make the product extreme. This is a prerequisite. a1's products are not for a small group of people but for 800-900 million people. Based on this consideration, a1 strives to find a balance between health and taste. Today's mainstream consumers are highly educated and can access more information through the internet. They prioritize health awareness; under the same conditions, health is the first choice. But if it's healthy but tastes bad, the choice may not be the same. How to strike a proper balance between flavor and health is very important. For a1, not adding or adding less, extending a reasonable shelf life through physical preservation, and taking into account the turnover speed of offline distribution channels are the directions it strives for and focuses on. Regarding quality, Zhou Weiping firmly believes that the food industry is one where there is no shortcut. The choice of raw materials determines 70% of the product's quality. Taking butter as an example, New Zealand butter or European butter is indeed better than ordinary butter, but the price may be ten times different. Therefore, from the perspective of raw materials, a1's costs may be 20-30% higher than the market average. This is the 'painful' process of a1 making good products: within the affordable consumption range of target users, it must be both healthy and delicious. It's about finding the right balance between the two ends. Regarding taste selection, a1's approach is also different from traditional enterprises—doing subtraction and removing the long tail. Most of a1's products have only one or two SKUs. For example, a1 Cloud Cake has only one flavor, unlike before when there were milk, strawberry, and mango flavors. Making one flavor not only satisfies the factory's maximum production principle and spreads costs to the extreme through marginal benefits, but also, on the demand side, Zhou Weiping has his own understanding: "The so-called business operation is because you are more professional than consumers. Consumers pay you some profit to support your professionalism, not to indulge or unlimitedly follow market demand, just to please consumers. So-called demand is often pseudo-demand, fake, not that consumers really have this need." Regarding product testing, a1's product department, in the early stage, will determine categories that are not yet satisfied or not well satisfied in the existing market through category insight and data analysis, and organize forces for R&D. The next step is internal testing, with 5 rounds of internal testing, plus 10-20 rounds of external testing with external users, collecting user feedback to finalize taste, sweetness, and saltiness. Through this method, they find the most authentic feelings of consumers and ultimately achieve what we define as 'extreme products.' -03- a1 has never had the concept of online vs. offline; it operates omni-channel a1 has done a lot at the channel level. In addition to online flagship stores and e-commerce distribution, it also has traditional dealer channels offline, as well as its own direct-operated membership retail stores. In Zhou Weiping's understanding, what is a channel? Wherever consumers go to buy is the channel. Everything revolves around consumer changes. Twenty years ago, consumers were in wholesale markets and grocery stores, with mixed wholesale and retail. Later, they were in hypermarkets. Now, they are in e-commerce, convenience stores, and snack stores. Always follow the consumer. At the current stage, in the snack field, the overall e-commerce penetration rate is not high, due to two attributes of snacks: randomness and immediacy. The offline snack market share is much higher than online. Therefore, both online and offline need to be laid out, not just online. But in terms of specific tactics, based on the characteristics of online and offline, a1 will adopt different strategies. For example, online is essentially a battle for attention. Although the shelf is infinite, attention is limited, even scarce. Traffic tends to concentrate on the top, making it more suitable for hitting single products, creating hit products, and making external noise. Online, because attention comes and goes quickly, the product life cycle may only be 3-6 months, which is unfair for a brand like a1 with high R&D investment. By creating a hit product online and then introducing it offline, the product life cycle can be extended, and the scale can be large enough. In terms of consumer awareness, unlike the past when you could concentrate on one media and run one ad to quickly build a new brand, now both consumers themselves and the communication channels and sales channels are fragmented. 'Long-term and steady' is a1's overall strategy. In terms of specific communication methods, at the current stage, a1 focuses more on building awareness at the product level rather than the brand level. Zhou Weiping told New Distribution that perhaps 80-90% of the budget is spent on products, with a small amount on brand exposure. When consumers' awareness of the product accumulates to a certain level, it will naturally internalize into the brand. -04- Opening membership stores is not about communication experience stores, but brand snack stores Recently, a1 Snack Research Institute has opened many offline direct-operated membership stores. From the logic of innovative consumer brands, many might think it's for better communication with consumers, brand communication, and customer acquisition and traffic generation. But in Zhou Weiping's view, 'communication experience' is a byproduct. The core of a membership store is still a retail business. In the future, a1 will open 2,000 stores, but the way and means of achieving sales will be different from the past, which relied solely on natural foot traffic. In the past, when building a brand, whether online or offline, companies often had a shallow understanding of user tracking. They only knew the general profile but couldn't identify specific individuals or engage in two-way communication. In the past, limited by technical conditions and market environment, companies could only continuously acquire customers and wait for customers. But now it's possible, with improved technology and complete tools. It's entirely feasible to establish two-way communication channels, connect online and offline, and achieve direct links between a1 and consumers. Through membership stores, on internet tool platforms, a1 can accumulate its private domain traffic. In the past, a user might buy 30 yuan worth of goods and then disappear. But now, you can find them anytime, anywhere. Through information outreach and themed activities, they might buy 500 yuan or 1,000 yuan worth of goods a year, or even become your 'recommender.' With the support of internet technology tools, one-to-many services can be achieved. For example, one a1 customer service representative manages 200 community groups, manages them in layers, communicates with them at an appropriate cost, and then drives sales conversion. a1's membership store is not a communication experience store; experience is just an additional attribute, and retail is the essence. -05- Conclusion The above is the innovation methodology of a1 Snack Research Institute. But the exchange with Mr. Zhou Weiping was not limited to this. Due to space constraints, I won't elaborate further; I'll write a separate article later. As someone from a traditional FMCG background, I deeply feel the changes in the industry. New Distribution has also reported on dozens of innovative consumer brands. In my understanding, innovation is a basic requirement; without innovation, there is no possibility of survival. But we must not ignore the fundamentals of the market because of innovation. Returning to the enterprise itself, sustainable development is the key. In the past, we usually used a 'three-stage' approach to talk about business operations. The basic element of the 0-to-1 stage: whether there is innovation. Category innovation, product innovation, scenario innovation, etc. China has a large population; as long as there is a little innovation, going from 0 to 1 is not a big problem. The basic element of the 1-to-10 stage: whether there is a market. How large is the market size? The market size described here is not a big track like snacks, meal replacements, or sparkling water, but as Mr. Zhou Weiping said, within the range of consumption affordability, how large is the market size for a specific sub-category? How many users do you actually have? Many innovators often stop abruptly at the 1-to-10 stage due to market size limitations. I think this article should be inspiring for relevant practitioners who are starting businesses and innovating. Innovation is what we advocate, but don't forget the real market and the 'affordable' consumer group while in the 'innovation' cage!