Recently, as the large To C sector becomes increasingly barren, the consumer track is a thriving oasis. After 2019, the number of people cultivating this land has noticeably increased. In 2020, the COVID-19 pandemic dealt a heavy blow to most consumer goods companies, but outstanding emerging brands did not stop moving forward. For example, during the pandemic, convenience foods sold like hotcakes. Cai Hongliang, founder of Zihaiguo, made up his mind to build his own core supply chain because the pandemic caused partial supply chain disruptions. Zihaiguo's production requires mixing more than twenty kinds of raw and auxiliary materials; if one or two are not supplied, the entire finished product production is greatly affected. On one hand, Cai Hongliang completed Series B and C financing for Zihaiguo in May and October 2020 respectively; on the other hand, he quickly built 8 factories to ensure stable and high-quality supply of core raw materials, which also provide flexibility for subsequent new flavor development and testing. Another Matrix Partners China portfolio company, Zhongxuegao, began moving offline early this year. Leveraging the brand momentum accumulated online, it was well received and achieved 500% growth. Before this, it was hard to imagine high-priced ice cream achieving such success offline. When studying the consumer sector, many people benchmark against Japan or Europe and the US, but we believe China will ultimately take a different path because China's infrastructure is unique globally, whether it be mobile internet (data), supply chain, logistics, or other aspects. This will create unique opportunities and make the growth and valuation of some companies very different. Since 2010, when the first wave of Taobao brands rose, we began paying attention to the consumer track. At that time, we invested in core Taobao brands like Liebo and Qigege. Since then, we have continued to be optimistic about China's development potential in the consumer sector: ● In 2015, we invested in lifestyle brand Beast, maternal and child knowledge service and e-commerce platform Niánnián Māmā, etc.; ● In 2016, we invested in online travel platform Klook, personal care brand Plant Culture, etc.; ● In 2017, we invested in high-end idle trading platform Plum (Hongbulin), second-hand trading platform Duozhuayu, etc.; ● In 2018, we invested in new retail ecosystem platform KK Group, high-end ice cream brand Zhongxuegao, etc.; ● In 2019, we invested in high-end additive-free yogurt brand Jane, children's cheese brand Miaofei, seafood e-commerce supply chain platform Weiku Seafood, new retail fresh food brand Happy Tomato, etc.; ● In 2020, we invested in emerging convenience food brand Zihaiguo, healthy food brand Wangbaobao, new maternal and infant domestic brand bebebus, new domestic contact lens brand moody, etc. As of December 2020 data, only some projects are shown, in no particular order. Since consumer products are highly diverse and growth logics vary, this article will be a bit different: we will briefly discuss investment logic, but focus more on companies to examine new consumption trends.
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Seeking "Innovators in Mature Categories" and "Definers of New Categories" If we were to summarize our investment approach in the consumer sector in one sentence, it is to seek "innovators in mature categories" and "definers of new categories." "Innovators in mature categories" refers to finding brands that innovate in the gaps of a relatively mature large category, such as Jane in the yogurt category, Zhongxuegao in the ice cream category, etc. "Definers of new categories" are those that define a new track and create a new demand, such as self-heating convenience food brand Zihaiguo, baked instant oatmeal brand Wangbaobao, etc. Previously, consumer goods companies were constrained by the number of offline outlets, making rapid explosion difficult. But now, benefiting from the internet, growth speed has greatly increased. Like the most successful consumer goods companies in global history, growth momentum must come from new user groups, new channels or media, and new technologies. For example, Nike seized the opportunity of TV broadcast popularity and sponsored star endorsements to rise; LV seized the opportunity of European train popularity and developed lightweight, durable suitcases... Now China is in such a major transformation, which has become increasingly evident in the past two years. First is the change on the consumer side. Each generation has its own brands. Today's core consumers are "Generation Z" (generally referring to those born between 1995 and 2009), who have different characteristics. They live in an affluent era and have not experienced material scarcity, which greatly influences their consumption behavior. "This influence is not just about price sensitivity," said Wang Huadong, partner at Matrix Partners China. He saw a similar typical example in the gaming industry. Two to three years ago, new-generation games like Honor of Kings rose, while large consumption games like Zhengtu declined. The reason behind this is user change. The post-70s and post-80s experienced material scarcity, so their consumption psychology tends to spend money on powerful equipment to defeat opponents and gain immediate pleasure. But the game rules designed by Honor of Kings mainly spend on skins, catering to the personalized needs of post-95s. Similarly, for consumer goods, post-70s and post-80s prefer to show off through high-end brands, but post-95s pursue self and individuality. Under this change, the new generation of consumers does not chase overseas big brands as strongly but cares about the product itself and the values the brand advocates. Brands that align with new trends have new opportunities. Second, China's channels are highly diversified. In the US, the iteration order between different formats is relatively clear, often moving from one format to another when it declines. But in China, because offline retail itself is not strong, various formats are developing almost simultaneously, from C2C e-commerce to B2C e-commerce, and more recently fresh food e-commerce and social e-commerce. Offline is also booming, from hypermarkets and convenience stores to premium supermarkets. This means any brand that can find a suitable channel can develop. For example, in milk, giants Mengniu and Yili hold absolute market share, but "Adopt a Cow" can still achieve a scale of several billion through social e-commerce channels. Because this channel values the recommendation of group leaders more than the brand. Not to mention emerging marketing methods like Xiaohongshu, Bilibili, and live streaming, which have completely changed the previous strategy of relying on brand advertising, instead reaching consumers closely through more fragmented multi-channels. Third is China's mature supply chain, which is the foundation of everything. Since the reform and opening up, China has accumulated an extremely mature industrial chain as the world's factory. We can see that some new consumer brands start online and rely on OEM in the early stage, yet still deliver good products, based on China's mature supply chain system. Based on these three points, we must look at new things in the consumer track with new eyes, and for many companies, we cannot rely on traditional thinking models. The rise of DTC brands is deconstructing traditional giants, a global trend. Data source: CBInsight For an emerging consumer brand, growing up is not easy. It needs to have no shortcomings in four aspects: product (positioning), marketing, channels, and supply chain, and at least one strength. The emerging brands that eventually grow up are a combination of tactics. Many emerging brands, with product strength as the foundation, each have their own characteristics. For example, Zhongxuegao and Wangbaobao excel in online marketing, Zihaiguo in brand promotion, and Jane Yogurt and Miaofei Cheese in offline channel construction. Below, we analyze through core cases in three aspects: product (positioning), marketing, channels, and supply chain. 1) Product (Positioning) ● Two Moments of Truth for the Product Itself The foundation of any consumer product is the product itself. Using P&G's tool, to see if a product is good enough, look at the two moments of truth. The first moment of truth is whether the product attracts consumers' attention when placed on the shelf. Without this, nothing else matters—mission, vision, values are all useless. The first moment of truth is especially important for startups. They can design a unique brand color or a unique cup shape, but in general, they must make consumers see you at first glance among so many products and have the desire to try you. The second moment of truth is whether consumers will buy again after the first purchase, testing whether the product has sufficient accumulation. Xia Haitong, founder of Jane Yogurt, has a deep understanding of the two moments of truth, and Jane Yogurt does this. In terms of product, Jane took the lead in achieving zero additives and sugar-free while not having a sour taste. For yogurt, making a simple product is actually harder. Initially, the Chinese yogurt market was flooded with low-priced yogurts made through flavoring, with various tastes. The market trend was to make flavors more complex, which was a quick-money business. But Xia Haitong saw that high protein, low sugar, and zero additives was a trend, but it meant higher prices and shorter shelf life. But when the market was not yet mature, Jane indeed went through a very difficult period. Xia Haitong believes: "What ultimately determines the product life cycle is the company's values and product technology accumulation." Ice cream brand Zhongxuegao also made new breakthroughs in product. The traditional ice cream market is highly competitive, but homogenization is also severe. When most ice creams are round, square, or filled, Zhongxuegao made a tile shape, giving the product a distinct visual symbol that is simple, clean, and memorable. Like Jane Yogurt, Zhongxuegao also achieves zero additives, with better ingredients and better flavor. Whether Jane or Zhongxuegao, they both meet the aesthetic upgrade needs of the new generation of consumers, including visual, taste, and brand sense, forming a sharp contrast with traditional brand products. Behind this evolution is also an upgrade in the company's organizational structure. In traditional consumer goods companies, R&D and brand are often two independent departments, but a batch of emerging brands like Zhongxuegao have broken through the two departments and cultivated product manager-type talents similar to internet companies. This comprehensive talent is also a new species accompanying emerging brands. ● Defining a New Category Jane and Zhongxuegao successfully found new growth opportunities in the gaps of mature categories. For emerging brands like Zihaiguo and Wangbaobao, they took a different path and defined a new track themselves. Yihai International, a related company of Haidilao, launched a self-heating hot pot product in 2017, when this market was almost blank. Zihaiguo was established in 2018, initially entering through self-heating hot pot, but quickly found a new segment of self-heating rice, becoming a breakthrough for creating a "big single product." In terms of price band, Zihaiguo hit the market gap between the original 3-5 yuan low-end instant noodles and the over 40 yuan takeout market. Initially, it focused on outdoor/field scenarios, using freeze-drying technology to preserve the taste and nutrition of food. Now, the name Zihaiguo almost equals self-heating rice/hot pot. Being able to define a track with a company name is a huge success for the product and brand. Baked oatmeal brand Wangbaobao has a similar growth path. Initially, the founding team tested through self-media placements and selected oatmeal as a category with good results among many types, and oatmeal has relatively high gross margins and much room for product form optimization. Before Wangbaobao launched baked oatmeal products, no one in China mainly promoted this type because domestic oatmeal was not in this product form at all; it was almost all instant drink type, targeting the middle-aged and elderly market. But baked high-fiber oatmeal has a different taste and can be eaten directly. For example, Wangbaobao launched novel products like Yogurt Guoran Duo Baked Oatmeal, Strawberry Youcuirui Baked Oatmeal, and Peach Oolong Roasted Oats. Wangbaobao is the pioneer. There are also some categories that may be mature abroad but are still blank in China. For example, Miaofei Cheese focuses on the niche market of children's cheese sticks and has achieved high growth. Cheese is a product that many post-80s and post-90s encountered while living or studying abroad. Cheese is indeed nutritious. When made into stick form, it quickly expands from an ingredient to a snack that children can hold and eat. Although the overall scale is still small, the growth rate is astonishing. Currently, there are certain barriers in raw material acquisition and production equipment. Defining a new category requires full adventurous spirit and patience, but once you become the industry leader, the returns are also astonishing. ● Is the Category Ceiling Low? How Strong is the Ability to Expand Categories? The ability to expand categories determines the ceiling of a consumer goods company. Launching a hit product is only the first step; how big you can ultimately become depends on the category itself and its richness. Among global consumer goods giants, none does a narrow product line; they all have countless product lines, such as Danone and Mars. After successfully creating a hit in self-heating hot pot/rice, Zihaiguo has now launched more than 100 SKUs, greatly exceeding the initial product scope. It has a multi-category product matrix including self-heating hot pot/rice, clay pot rice, noodles, vermicelli, and braised food, covering main consumption methods such as self-heating, brewing, quick cooking, and ready-to-eat, gradually covering the entire convenience food segment. Zihaiguo's market ceiling has expanded from 20 billion for self-heating food to 100 billion occupied by instant noodles. Another company making efforts is Zhongxuegao. Zhongxuegao has achieved success in the ice cream category, but ice cream is a typical seasonal business, with sales declining severely in winter. So Zhongxuegao opened up frozen food as a second track, launching "Lixiangguo" dumplings. Just as Zhongxuegao is positioned in the high-end ice cream market, "Lixiangguo" dumplings are also positioned in the high-end dumpling market. Founder Lin Sheng said: "The reason we chose dumplings is a simple logic: revolve around the consumer's refrigerator." On one hand, the off-peak and peak seasons of frozen food and ice cream are roughly opposite, effectively complementing sales seasons; on the other hand, based on Zhongxuegao, a good cold chain system and dealer system have been established. A considerable portion of Zhongxuegao's offline dealers do ice cream in summer and frozen food in winter, so the cold chain and dealer channels can be reused for frozen products. In addition, the frozen food market itself will maintain a good growth trend in the next 10 years because more and more young people do not have time to cook or do not know how to cook. Some will choose takeout, but if there is better product supply, more people will choose frozen food and convenience food. Channel brand KK Group also defines itself as a new retail ecosystem platform that can continuously incubate new brands and grow into a relatively stable business format. KK is a domestic chain of selected imported products. The yellow logo and containers, white shelves, black numbers, and classic yellow-white-black color scheme support the entire store's main visual, making it a photo-taking holy place for girls. Following the initial imported product buyer store KK Museum, KK Group launched the large-space hit collection store KKV in May 2019, with jewelry walls, mask walls, lipstick walls, red wine walls, etc., full of visual impact. In October 2019, it launched the pure makeup collection store THE COLORIST. In October this year, KK Group launched a fourth format—the trendy toy collection store X11, which mainly sells blind boxes, figures, and dolls, including many trendy culture brands, with an overall style leaning towards two-dimensional. KK's ability to continuously incubate and stably operate new brands based on data-driven is the foundation of its growth. In short, product (positioning) is of utmost importance for a consumer goods company. Compared to other high-tech tracks, consumer goods have weaker technical barriers, and a slight technical advantage cannot guarantee how long a company can lead. "Consumer goods have no status quo; you cannot defend it, and you cannot stop others from imitating. The key is where your core is and whether you can always stay ahead." Xia Haitong of Jane Yogurt once said. 2) Marketing ● Rapid Changes in Media Environment We often say that each generation has its own brands. The reason behind this is that the media channels used by each generation are rapidly changing. Lin Sheng believes that from Zhongxuegao to Lixiangguo, although only two years have passed, the entire marketing environment has changed greatly. Many marketing methods used by Zhongxuegao may not be reusable for Lixiangguo. It is not like the original Chinese market, where methodology did not change much in ten years. Now, traffic forms have become a network structure, with very scattered touchpoints for consumers. Everyone influences a group of people around them, meaning it is difficult to reach all users through a unified approach. lululemon is the most successful in grasping this trend. In the yoga niche, lacking star-centered traffic in the early stage, lululemon built the brand through a large number of mid-tier KOLs, with over a thousand "sports ambassadors," a number so large that Nike and Adidas could not compete by signing high-priced contracts. So this trend is favorable for new brands. Whether it is Wangbaobao, Zhongxuegao, Zihaiguo, or the fast-growing contact lens brand moody this year, they all practice reaching the same group of consumers through multiple channels and multiple touches. For example, many brands plant seeds outside the platform, then directly search the brand name on Tmall or JD.com to purchase. When consumers watch Douyin, Xiaohongshu, Kuaishou, or Bilibili, they have already been planted for the brands they want to buy. Wangbaobao was one of the first brands to use beauty product placement methods to place food categories, heavily using emerging channels like Xiaohongshu and Bilibili for "saturation attacks." This is also related to the capabilities of Wangbaobao's founding team, who previously had mature food KOL operation experience. Zihaiguo also used celebrity带货, creatively using celebrity endorsements in early 2018 when Li Jiaqi and Viya were not as influential as now. By inviting celebrities to try the food and post on Weibo, it created a resonant topic of "half the entertainment circle is eating Zihaiguo." Zihaiguo also embedded advertisements in TV dramas and movies like "An Jia," "Lost in Russia," "Young You," and "The Lost Tomb 2," quickly opening up brand awareness. Zihaiguo product placement in the movie "Lost in Russia" How many orders a brand has that are generated by users directly searching on Tmall is also an indicator we value highly, as it means whether brand power is strong enough. Some brands may have 80% from Taoke, which is just sales generated by spending money on traffic. From private domain traffic, short videos, to live streaming, media channels change rapidly. For entrepreneurs, they need to maintain maximum sensitivity and vigilance, always observing new changes. ● Brand Power "Like lululemon" Today's market is no longer an era where good results can be achieved simply through marketing and communication. Whether consumers buy or do not buy a product is no longer a simple functional need. Beyond functionality, what is attached is lifestyle, identity recognition, etc. "The Fourth Consumption Era" mentions: "The idea of modern young people is that it has nothing to do with the consumption method of purchasing goods. As long as they can establish connections with others and build a common circle, everything else does not matter." lululemon can be said to be the best example in this regard. lululemon both follows and creates trends, conforming to people's greater emphasis on clothing comfort, and was the first to propose the "athleisure" style. Girls who like lululemon can even wear stylish yoga pants to the office. Community marketing is a major tool for lululemon's consumer education. When lululemon expands to a new city, it contacts the most popular local fitness coaches or yoga teachers, provides them with free clothing, and hangs promotional posters in stores, increasing lululemon's visibility while also enhancing the teachers' influence. As of 2019, lululemon has over 1,500 store ambassadors globally, who drive a high-quality fan group that loves sports and pursues a healthy lifestyle. lululemon abandoned the common practice of top sports star endorsements used by Nike and Adidas, instead choosing to build "mid-tier KOLs" and establishing the "sports ambassador" program. Of course, lululemon also invested heavily in large brand events around yoga or sports, such as the London Sweat Life Festival and the Vancouver 10K run. Now, consumer attention is very scattered, and it is difficult to complete consumer education through a few ads, a few articles, or a few KOLs. lululemon is also eyeing the Chinese market, which is undergoing rapid consumption upgrades, and is expanding rapidly in China. lululemon outdoor yoga event at the Forbidden City in Beijing "A key insight is that purely from a lifestyle perspective, China is converging with the world," said Amber, founder of Beast. When consumption levels reach a certain stage, people will like to put some flowers at home, light some aromatherapy, send flowers on birthdays, or go skiing on weekends. Lifestyle brand Beast revolves around the emotion of "healing." Whether it is flowers or perfume/aromatherapy, they are products that heal emotions. In the second half of this year after the pandemic, such products rebounded quickly, as people pay more attention to home and emotional expression after the pandemic. Based on these new changes, Beast also adjusted its offline strategy, closing some inefficient large mall stores, and the remaining large offline stores turned into experience stores with open exhibitions and check-in activities, rather than pure retail functions. Those offline stores with pure retail functions are composed of core stores full of floral elements and fragmented small boutique stores. To complete consumer education by leading a lifestyle, it depends not only on marketing but also on the company's corporate culture. Emerging brands need to attract people who love this lifestyle and values, let them join the company, and then spread it bit by bit outward. On this point, all companies need to learn from lululemon. ● Content Breakthrough and Creating Hits When you have figured out the composition and direction of brand power, how do you ignite a product? Lin Sheng summarized Zhongxuegao's methodology into three points: first, product breakthrough; second, content breakthrough; third, peripheral momentum. First, there must be a better product, as people pursue a better life; this is human nature. At the same time, product breakthrough and content breakthrough are closely related. When the product has too few material points, even with the best KOLs, it is difficult to generate topics to pass on to users. When Li Jiaqi promotes lipstick, he has a lot of content to share, including shades, ingredients, and effects on his hand or lips. But when selling ice cream, "he holds an ice cream, recites the selling points, and then has nothing to say. He takes a bite and says it is delicious over and over. From that moment, I felt particularly at a disadvantage," Lin Sheng once said. After learning the lesson, Zhongxuegao created a hit product that is an excellent case in this regard. During the 2018 Double 11, Zhongxuegao launched an "Ecuador Pink Diamond" ice cream. This product used extremely scarce natural pink cocoa, presenting a pink color that girls like, and pink natural ice cream was a blank point in the market; in addition, in terms of flavor, it added a very expensive type of yuzu from Japan. Of course, it was not cheap; the production cost alone was nearly 40 yuan per stick, with a retail price of 66 yuan. But in less than ten hours, all 20,000 pieces were sold out. From the beginning, this product had many topics of its own, including raw materials, flavor, and color, arousing the curiosity of a large number of users, playing a significant role in building Zhongxuegao's high-end ice cream brand. This way of triggering content breakthrough through product breakthrough and then bringing brand power improvement is much more effective than overwhelmingly and boringly telling consumers the product is delicious. In recent years, some newly emerging channel brands have also made great efforts in content breakthrough. Content is a broad concept and can also be presented through visuals. Wu Yuening, founder of KK Group, believes that we must seize the post-00s generation; this is the best opportunity to overtake on curves because they have the curiosity and consumption desire to try new things: appearance is justice + social is currency + individuality is power. The stores of KK Group's flagship brands KKV and THE COLORIST are full of visual impact, with yellow logos and containers, white shelves, black numbers, and classic yellow-white-black color scheme supporting the entire main visual. Previously, it was hard to imagine a young woman taking photos while shopping at a supermarket and uploading them to social networks. KKV focuses on large-space store formats of over 1,000 square meters, containing more than 20,000 SKUs, covering 14 major categories including beauty, personal care, accessories, alcoholic drinks, snacks, clothing, stationery, and toys, with jewelry walls, mask walls, lipstick walls, red wine walls, etc., all being internet-famous landmarks for check-in photos. Having said so much, to sum up in one sentence: "Products without soul will find it hard to break through anymore." 3) Channels and Supply Chain ● Multi-channel Expansion is One of the Core Capabilities Nowadays, most emerging brands start online, which brings a huge misconception: that your sales can continue to grow at the initial high speed. But in reality, this is basically impossible. When online faces bottlenecks, multi-channel expansion is very important. "So we not only look at online sales but also care about the team's comprehensive channel capability. If an emerging brand cannot diversify its channels, its ceiling will be limited," believes Wang Huadong, partner at Matrix Partners China. At the same time, this is related to the product structure. Can the product structure support diversified channels? If the gross margin of the category or product is too low, it is difficult to do offline. In addition, there are details such as whether the packaging design is suitable for offline display. Zhongxuegao achieved 500% growth this year, largely due to offline. Zhongxuegao entered offline very quickly. Starting to gather the first batch of dealers in December 2019, it penetrated all mainstream convenience stores in about 3 months, totaling nearly 100,000 channels. Lin Sheng attributes this speed to brand momentum: the higher the online brand momentum accumulated, the higher the efficiency of entering offline. "Zhongxuegao's offline genes are actually far stronger than online. The biggest dividend online is actually brand dividend, not sales conversion dividend," Lin Sheng said that when Zhongxuegao was purely online in 2019, it covered about 1 million consumers, but this year with offline distribution, the audience can increase to 20 million. Brand momentum includes user awareness and penetration rate; the core of offline lies in sell-through. Only with sufficiently good brand momentum can you have better channel policies after going offline. The core problem most brands encounter when expanding offline is that you need to balance online and offline interests, so you need to put more effort into channel selection, price setting, product form, etc. Baked oatmeal brand Wangbaobao is also an emerging brand that successfully expanded offline. At the beginning of this year, Wangbaobao had achieved stable growth in online business and had widened the gap with the second place in sales. With sufficient brand momentum accumulated online, starting from March this year, Wangbaobao began to move offline, with rapid growth every month. Of course, whether to go online first and then offline, or do both simultaneously, depends on the characteristics of each team. For example, Wangbaobao rebuilt an offline team to do it, but for founders like Zihaiguo who started offline, they chose to do both online and offline together. However, Zihaiguo did not slow down brand momentum accumulation due to multi-channel expansion. In the early stage, Zihaiguo had to compete with giants like Yihai International under Haidilao, Uni-President, and Master Kong, so it had to quickly and aggressively seize user mindshare. Therefore, in the early stage, more than half of the funds were invested in brand marketing. ● Inflection Point for Offline Formats This year, some emerging channel brands are very popular, such as KK and HARMAY. They have been opening stores rapidly in the past year, seizing positions in shopping malls that originally belonged to Watsons and others. These emerging brand stores are often check-in places for internet celebrities, with macaron colors, ins style, etc., very eye-catching. In the view of Wu Yuening, founder of KK Group, for shopping mall formats, China's "Mall economy" has developed for about 20 years. Traditional enterprises of the previous era were too confident, relying on dividends to achieve past performance. But now competition is increasingly fierce, and traditional enterprises have not incubated new brands. From 1996 to 2007 was the "1.0 era" of shopping malls, with supermarkets and department stores as the main store formats, actually playing the role of "second landlords"; the "2.0 era" was from 2007 to 2018, with fast fashion and luxury stores as the main formats. "Each generation has its own brands." For channel brands, it is basically a ten-year iteration cycle, and the inflection point for the upgrade of main stores has arrived. Now, after ten years, the fast fashion stores in malls are still the same few, and consumers will have aesthetic fatigue. On the other hand, the area of commercial centers in China continues to grow, but the diversion brought by e-commerce, rising rents, and rising labor costs have put great pressure on offline retail practitioners. At this time, who can occupy the blank of the third-generation main stores in malls? Scene-based shelves are the method adopted by many emerging brands. It differs from the open shelves of previous supermarkets, becoming "lipstick walls, mask walls, jewelry walls," etc. Young people are accustomed to a relaxed shopping environment, and even do not need oppressive sales guides. This is the approach of emerging collection stores. In KKV stores, there are both imported quality brands and eye-catching trendy domestic products, constantly approaching young people's preferences in product categories. White T-shirts, jeans, and white sneakers are KKV's DTC clothing, belonging to young people's versatile items. Imported snacks, health soup packs, red wine walls, pet supplies, stationery and hand accounts, etc., conform to the diverse and fragmented consumption trends of young people. KK Group's greatest capability is to create new store formats and operate them stably. Of course, this has gone through a long period of exploration and iteration. The 1.0 version of KK Museum was established in 2014, with an area of 80-100 square meters. At that time, the founding team observed that online e-commerce could not solve the last-mile delivery problem, so they opened stores in communities, starting with four popular categories: snacks, beauty, personal care, and maternal and infant. But after one year of operation, the team found that this model overlapped too much with offline supermarkets and was not effective, so they began to turn their attention to large shopping malls. In 2015, with the rise of cross-border e-commerce like NetEase Kaola and Tmall Global, KK Museum wanted to seize the opportunity of imported retail and opened the first 400-square-meter 2.0 version KK Museum, focusing on imported retail in product selection, with coffee and book bars in the store for customers to rest. The first single-store model operated well, but subsequent national replication encountered problems. In some inland stores, sales quickly poured cold water on the team. The seemingly lively stores saw a decline in product purchase conversion, and the format that worked in first-tier cities had problems when replicated inland. So KK Museum began to do subtraction, removing book bars and coffee, returning to minimalist decoration, changing shelves from the 2.0 version's solid wood color to white, removing all wall decorations, and returning to pure white. Product categories were only selected and hit products based on overseas imports. In 2017, the 3.0 version of KK Museum was launched and has been operating relatively stably since then. Generally, the area is about 300 square meters, with 3,000 SKUs in the store, covering six categories: beauty, personal care, snacks, home, stationery, and accessories. Nearly 5,000 SKUs are eliminated each year, and 300-400 new ones are added each month. Based on these experiences, KK Group continued to incubate new formats, launching the pure makeup collection store "THE COLORIST" and the trendy toy collection store X11. Being able to continuously create new stores and operate them stably is not easy. Behind KK is the establishment of a data middle platform as the foundation to support the front-end continuous incubation of new formats. KK Group's business model is anti-traditional at the bottom. Unlike traditional channels that make money from entry fees, KK cooperates with all retail brands with zero entry fees. KK's approach is data-driven product selection: if good, stay; if not, make room. First, secure suppliers to obtain stable and low-cost quality goods, then secure malls because there are not many hit store formats that can attract a large amount of offline traffic. Finally, replicate store formats on a large scale to increase sales scale and repurchase rate. At this time, you can strive for better business conditions from suppliers and earn the price difference of goods. This is a very good "flywheel effect." For channel brands, we place great emphasis on the stability and replicability of the business model. Most channel brands find it difficult to stabilize their early business model, limiting replication ability, and the more they expand, the more losses they may incur. Regardless of the type of brand, what matters is how long it has been polished, what the boundaries of cognitive ability are, and what level of integration capability with upstream and downstream is. From 0 to 1, look at business construction; from 1 to 10, look at iteration and organization; and ultimately, victory is determined by values. ● Self-controlled Supply Chain is a Necessary Path China's supply chain has been OEM for the world for many years, and the supply chain advantage is fully in place. At this time, if there are entrepreneurs who better understand the C-end and have market understanding and perception, it is easier to quickly create a new brand based on the supply chain dividend. Unlike traditional companies that need years to build factories, we see that many new brands that have become popular in recent years, such as Three Squirrels, Genki Forest, and Li Ziqi, rely on OEM to quickly land products. After 2015, a large number of foreign trade factories turned to domestic sales, and many second-generation successors took over, showing strong interest in contacting new brands. Based on the technical foundation and talent provided by China's mature supply chain, many emerging brands have taken a path of first OEM and then self-control. Zhongxuegao, on the production side, is deeply bound with OEM factories. The newly released dumpling brand Lixiangguo completely rents a factory, manages equipment and personnel itself, and moves towards "self-controlled OEM." Wangbaobao, to achieve low-temperature baking and large fruit chunk addition, also deeply binds OEM factories and transforms production lines according to new needs. After the pandemic, Zihaiguo has been more aggressive on the self-control path, building 8 factories in one go this year. Because the entire convenience food market exploded during the pandemic, but Zihaiguo's production requires mixing more than twenty kinds of raw and auxiliary materials; if one or two are not supplied, the entire finished product production is greatly affected. The contact lens brand moody, established only one year ago, also attached importance to the supply chain from the beginning. moody quickly completed two rounds of financing totaling 60 million RMB in April-June this year. Contact lenses are rapidly transitioning from a medical product for vision correction to a daily consumable FMCG, and many consumers regard them as beauty products. Taking moody's sales as an example, due to the pandemic, there were almost no sales from January to March, but in April it reached 3 million, in June 10 million, and during Double 11 it achieved as high as 40 million. Contact lenses are an ancient yet very new category. Currently, there are mainly two types: one is traditional brands with quality assurance, such as Johnson & Johnson and Bausch & Lomb, but they cannot meet young consumers' pursuit of fashionable patterns and colors; the other is Japanese and Korean brands, which are fashionable but have limited purchase channels, only through daigou and WeChat sellers, making safety and quality difficult to guarantee. Since contact lenses are a fast-fashion business, many patterns suddenly become popular with a trend or a topic, requiring high supply chain response speed. moody founder Ci Ran believes that if you always follow others, you may react slowly, and you need to cultivate the ability to lead trends. This requires better design capability on one hand, and more flexible supply chain on the other, shortening the cycle of new product production testing. Now, moody has begun to build its own factory to achieve faster response speed. For channel brand KK, supply chain is also the largest investment. Data-driven is KK's killer feature. In addition to referencing online cross-border e-commerce and offline import channel data, KKV connects all information from product management, ERP, display, and replenishment across national offline stores. The headquarters' product selection team analyzes product sales data in a timely manner, develops new products, and tracks the supply chain. KKV's new product testing period is two weeks. New products are matched according to regional and business district characteristics and placed in the best positions in high-traffic stores. If the test results are poor, the product is quickly removed. Through monthly product selection and retention, only hit products and quality products are on the shelves. With large monthly purchase volume, suppliers give preferential prices. Only in this way can KKV have product price advantages, mostly consistent with online platforms like Taobao and JD.com, and some categories are even lower. For emerging consumer brands, the supply chain is like originally fighting guerrilla warfare, where you often use local resources and rely on the mountain. But when you reach a certain scale, it becomes large-scale group warfare. The biggest difference from guerrilla warfare is that large-scale group warfare fights not the front but the rear. Therefore, as consumer goods companies develop further, going heavy is an inevitable choice.
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With a batch of consumer track unicorns going public, hot money is pouring in. But consumer brands will not detach from the essence of retail, and growth should not be thought of too easily. A possible growth curve is from 0 to 1, relying on online to achieve exponential growth; then entering a plateau period, and with the expansion into offline and category expansion, achieving "stepwise growth." "There are not many emerging brands with sales exceeding 2 billion so far. This is something investors must recognize. You cannot assume a brand will do 100 million this year, 500 million next year, and 2 billion the year after," said Wang Huadong, partner at Matrix Partners China. The ability to expand categories and diversify channels is of utmost importance. In short, based on China's mature supply chain foundation, with changes on the consumer side, the rise of Generation Z, and the complexity and diversity of China's channels, just like the most successful consumer goods companies in global history, growth momentum must come from new user groups, new channels or media, and new technologies. This makes it particularly meaningful today to seek "innovators in mature categories" and "definers of new categories" in the consumer sector. Source: Matrix Partners China (ID: matrixpartnerschina) Tips will be paid 400-2000 yuan once adopted.