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March 20 is the annual World Oral Health Day. To cater to this festival, some oral care brands have made new moves, especially in the toothpaste segment.

First, Shenzhen Xiaokuo Technology Co., Ltd., the affiliate company of oral care specialist brand Canpar, underwent industrial and commercial changes, adding ByteDance's affiliate Beijing Quantum Leap Technology Co., Ltd. as a shareholder. Then, Yunnan Baiyao partnered with People's Daily Online to release a science report titled "Report on Oral Microdamage in Chinese People," focusing on "eating habits and oral microdamage." Additionally, some toothpaste brands took this opportunity to launch new products.

Of course, these moves are aimed at promoting healthy industry development while gaining more market share. It is reported that up to 97% of adults are currently suffering from oral problems. As the world's largest single toothpaste market, experts predict that China's toothpaste industry market size will exceed 30 billion yuan in 2020, with broad prospects. With the evolution of marketing methods and biotechnology, a new wave of toothpaste seems to be rolling in. However, after 120 years of development, can the toothpaste market really extract new "vitality" from the outside?

-01- Tianqi and Liangmianzhen Fall from Grace, Yunnan Baiyao and Darlie Create a "Toothpaste Myth"

With the classic slogan "Good teeth, Liangmianzhen," Liangmianzhen ranked first in sales for 15 consecutive years and was listed on the Shanghai Stock Exchange in 2004, earning the title of "first toothpaste stock." Tianqi, from the same era, became deeply ingrained in people's minds with the advertisement "Say Tianqi when taking photos." Around 2004, it achieved annual sales revenue of 1 billion yuan, selling over 400 million toothpaste tubes a year.

Unexpectedly, Tianqi and Liangmianzhen failed to survive their "life cycle." Tianqi toothpaste was forced to stop production in 2014 due to high financial costs and capital shortages at Aqili. Liangmianzhen sold a total of 1.54 billion toothpaste tubes in 2017, of which 1.5 billion were travel toothpaste. According to calculations, the average selling price of Liangmianzhen travel toothpaste was only 8 cents, with extremely thin profit margins.

In the view of "Mantis Finance," the main reasons for their decline are as follows:

First, foreign brands such as Procter & Gamble and Unilever entered China, and Tianqi and Liangmianzhen were no match for them.

From a timeline perspective, the decline of Liangmianzhen and Tianqi coincided with the intensification of competition in the first tier. In 1992, Colgate entered the Chinese market; in 1994, Unilever obtained the operating rights of Zhonghua toothpaste; in 1995, P&G introduced Crest to China. Foreign giants used high-profile marketing and heavy advertising investment to successfully establish a high-quality, high-end brand image.

Second, the "boundary-crossing" diversification strategies of Tianqi and Liangmianzhen accelerated their decline.

In 2008, Liangmianzhen aggressively expanded into eight industries: oral care, washing products, travel products, household paper products, pharmaceuticals, fine chemicals, pulp and papermaking, and real estate. Tianqi also launched extended products such as Tianqi hand sanitizer, Tianqi hand wash, Tianqi shampoo, and Tianqi laundry detergent after achieving some success with toothpaste.

The results are visible: Aqili, due to diversification, had to stop producing Tianqi because of high financial costs and capital shortages. Liangmianzhen's 2019 financial report also showed that its paper products, real estate, and import/export trade businesses declined by 20.63%, 54.82%, and 17.08%, respectively, with the gross margin of the paper business even reaching zero.

However, although Tianqi and Liangmianzhen have fallen from grace, some brands remain active on the stage, with Yunnan Baiyao being the most prominent.

At the end of 2003, Yunnan Baiyao toothpaste was just developed, and in 2004, its trial sales reached 3 million yuan. After 2014, Yunnan Baiyao's performance grew steadily. From 2014 to 2019, the company's revenue and net profit attributable to the parent company achieved compound annual growth rates of 9.53% and 10.79%, respectively. In the first three quarters of 2020, the company's operating revenue was 23.931 billion yuan, a year-on-year increase of 10.56%; net profit attributable to the parent company was 4.253 billion yuan, a year-on-year increase of 20.08%.

But it must be admitted that in this market, the only truly successful domestic brand over the years has been Yunnan Baiyao. With the rise and fall of toothpaste companies, and in today's era of new marketing methods like short videos, some new brands are emerging, hoping to stir up the "spring water."

-02- Big Players Enter, Internet Celebrities Rise, and the Toothpaste Market Still Has Untapped Potential

According to data from Haitong Securities, the CAGR of China's toothpaste market from 2017 to 2022 will stabilize at 5%-7%, indicating the market has entered a mature stage. However, compared with developed countries such as the United States, the United Kingdom, Japan, and South Korea, where the CR3 market share is generally 80%-90%, China's CR3 market share is only about 50%, which means there is still room for improvement. For this market with untapped potential, brands are showing their prowess.

First, in the original segmentation, some brands have launched more novel flavors.

From the perspective of various toothpaste segments in China, whitening toothpaste has the largest market share, reaching 28%. The main reason is that most consumers consider whitening effect first when choosing toothpaste, and the new generation of consumers pays more attention to whitening than other groups. Next is herbal toothpaste, accounting for 21%.

After choosing a specific segment, some brands have started to innovate in toothpaste flavors. CBNData research found that from a regional perspective, the northern region focuses on toothpaste efficacy, East China cares about brand awareness, and consumers in Southwest and Central China pay more attention to taste.

In addition to the mainstream mint flavor, fruit, tea, and floral flavors are now common. In recent years, some new brands have launched more novel flavors to cater to consumer tastes or out of curiosity, such as artist's jam-flavored probiotic macaron toothpaste, BOP's ocean-scented plant essential oil toothpaste, and Bingquan's milk tea and latte-flavored chewing toothpaste.

Second, in the era of the "appearance economy," more and more brands are paying attention to toothpaste packaging.

The American marketing community has summarized the "7-second law," which states that consumers decide whether to buy a product within 7 seconds. In that brief 7 seconds, color plays a role as high as 67%. That is, high-appearance products stimulate consumer interest, leading them to further explore product functions.

Influenced by this, Italian brand Marvis, known as the "Hermès of toothpaste," and French brand Regenerate, popular on Xiaohongshu, have both innovated in toothpaste appearance and stylized packaging. Canpar, invested by ByteDance, has also refreshed potential target users with skincare-like bottles and playing-card-style packaging boxes.

Finally, beyond appearance and flavor, ingredients have become a "battleground" for toothpaste brands.

Recently, Australian bamboo charcoal toothpaste, which became popular on short videos, features coconut shell activated carbon ingredients; bird's nest toothpaste, popularized by celebrities like Jing Tian and Zhang Li, is said to be rich in centella asiatica and caviar; one of Canpar's toothpaste products, invested by ByteDance, also adds bergamot, bird's nest, and sturgeon caviar extracts, claiming that the rich vitamin C in bergamot, combined with various amino acids and minerals in bird's nest, can fight exogenous pigments and whiten teeth.

According to big data analysis, women account for 84.83% of the "ingredient party," with 50.88% of them being young people aged 18-24. This age structure indicates that the ingredient party group will continue to expand in the future, and these young consumers will gradually grow into the main purchasing power.

In such a market with many competitors, who is most likely to become the "alpha wolf" of the toothpaste industry?

-03- Potential Hidden Concerns Remain, When Will the "Alpha Wolf" of the Toothpaste Industry Emerge?

Looking at the entire toothpaste field, it is currently mainly composed of three forces: established domestic brands led by Yunnan Baiyao, internet-famous brands that have emerged through new marketing channels, and foreign brands such as Colgate and P&G.

In the view of "Mantis Finance," the future "alpha wolf" will likely be born among these three forces, but before that, due to fierce competition among brands, some derived hidden dangers need to be resolved.

On the one hand, as toothpaste enters the mouth, safety is paramount.

Many manufacturers, in order to earn high profits, have developed many other functions beyond cleaning, such as whitening and anti-inflammatory. Pure toothpaste is safe, but the safety of other ingredients added to achieve the advertised functions is not optimistic.

According to industry insiders, toothpaste containing plastic microbeads, sodium lauryl sulfate, triclosan, or hydrated silica is harmful to oral health. At the same time, fluoride toothpaste commonly used by adults is indeed effective in reducing tooth decay; tests show that brushing twice a day with fluoride toothpaste reduces the risk of cavities by 40%. However, children under 3 years old may accidentally swallow toothpaste, which could lead to fluoride poisoning.

On the other hand, some toothpaste brands have also engaged in excessive promotion and exaggerated efficacy claims.

For example, the former "IQ tax"—anti-Helicobacter pylori toothpaste—claimed to be able to eliminate H. pylori and prevent or resist gastric cancer.

Yunnan Baiyao toothpaste's "hemostatic" function has also been questioned. According to dentist Liu Xi, a doctor of stomatology at Peking University School of Stomatology, the main cause of gum bleeding is periodontitis. The disease is caused by local irritants, which can be divided into soft plaque that can be brushed away and tartar that cannot be cleaned by oneself. The former can be solved by proper brushing, while the latter requires a doctor's cleaning, and one cannot rely solely on toothpaste.

In addition, because the brand's English name once used the discriminatory term "Darkie," and the original image of Darlie's mascot was an entertainer mocking black people for white audiences, it has repeatedly faced "racial discrimination" accusations.

On June 29, 2020, the State Council promulgated the "Regulations on the Supervision and Administration of Cosmetics," which for the first time included toothpaste under the management of ordinary cosmetics. On November 13, the National Medical Products Administration (NMPA) issued a notice on the "Measures for the Supervision and Administration of Toothpaste (Draft for Comments)" to solicit public opinions.

The NMPA has formulated management measures based on the characteristics and actual situation of toothpaste: the management of new ingredients, filing management system, and efficacy evaluation will be subject to strict review and testing; products whose naming involves efficacy claims must have actual efficacy consistent with the naming content.

In the view of "Mantis Finance," with the introduction of regulatory policies such as the "Measures for the Supervision and Administration of Toothpaste (Draft for Comments)" and the "Regulations on the Supervision and Administration of Cosmetics," stricter regulation will inevitably promote the healthy development of the market. Once specific rules are implemented, they will effectively raise industry thresholds and increase concentration, benefiting Yunnan Baiyao, Canpar (invested by ByteDance), and foreign brands that have been deeply involved in the industry for many years.

Source: Mantis Finance (ID: TanglangFin) Author: Qingyue