Key Points: Some new consumption players are merely catering to capital's valuation methods, boosting sales through marketing, with considerable bubbles behind their high valuations. Capital's logic for paying premiums is that valuation should not only consider current scale but also future plans and imagination. With the support of the internet and funds, new brands that have achieved 'sales takeoff' through marketing have passed the first stage, but balancing growth expectations and brand value will be a common challenge for new brands. In a year when capital is generally cautious, the consumption track is bustling:

  • According to 36Kr, Genki Forest will complete a new round of financing with a post-investment valuation of approximately $2 billion, nearly tripling in less than a year;
  • According to The Information, Perfect Diary secured $100 million in financing in March this year, bringing the company's valuation to $2 billion. Additionally, rumors of an IPO for Perfect Diary have circulated;
  • Nayuki Tea, a new tea beverage brand, has also faced IPO rumors, while its competitor Heytea received a post-investment valuation exceeding RMB 16 billion after its latest financing round. New brands with both scale and momentum are the darlings of the current capital market, but they also face skepticism within the industry—their incredibly high valuations defy 'common sense,' and when will the game of hot potato end? A consumer industry practitioner told Deep Echo, Many new consumption players are merely catering to investors' valuation methods, using financing primarily for marketing and boosting sales, without improving profit margins or solidifying supply chain capabilities. Behind the high valuations, there are many 'bubbles.' Some investors explicitly stated they would never pay for high valuations, preferring projects with reasonable valuations and technical barriers. At the same time, some industry insiders fully accept the high valuation logic of hot targets, viewing it as a brave game where only those who strive can win. In 2020, everything starts anew. With changes in channels and investment enthusiasm infinitely stimulated, what is the core of the consumption track—marketing, product, channel, or brand? Where lies the era dividend that no one wants to miss? What exactly is 'new' about new consumption? **-01- **New Brands: Expensive? Worth It? "We can only accept a PS multiple of 2 to 3 times; we won't invest in players with already high multiples," a surnamed Z investor told Deep Echo. According to information gathered by Deep Echo from investors and financial advisors (FAs), the primary market currently uses the price-to-sales ratio (PS, market cap/sales) to value new consumption brands. Investment institutions typically calculate a brand's valuation by multiplying its previous year's revenue by a PS multiple. The higher the multiple, the higher the premium the brand commands in the primary market. Under this logic, the most direct way for a brand to raise its valuation is to increase sales, and the direct indicator of whether a brand is 'highly valued' is the PS multiple. Take Genki Forest as an example. According to media reports, Genki Forest's sales revenue in 2019 was close to RMB 1 billion. Based on this, its latest valuation corresponds to a PS multiple of over 14 times. If estimated based on its sales of RMB 800 million in the first half of this year, its PS multiple might be around 7 times. Whether 14 times or 7 times, this is clearly higher than the industry's basic 2-3 times. When capital values a brand, the valuation multiples of peers or similar players in the secondary market are important references. In the A-share beverage industry, Xiangpiaopiao's PS multiple is 3.21, Tsingtao Brewery is 3.99, and Chengde Lolo is 4.13. In the view of some industry insiders, Genki Forest is only a new brand founded four years ago, and its sugar-free sparkling water products have almost no barriers to entry. The PS multiple corresponding to a $2 billion valuation is clearly on the high side. "Investment institutions need to exit. If the valuation is too high and no one takes over, it will be very troublesome," the Z investor told Deep Echo. In addition to being sensitive to valuation, another investor told Deep Echo that because some new consumption players have almost no barriers in supply chain, channel operations, and products, their institution has been restrained in related projects, and they would prefer new consumption brands with technical barriers. In the eyes of the cautious, some new brands 'rely on financing for marketing and boosting sales,' appearing to be 'driven by capital.' If they expand blindly without a solid foundation, it's like laying hidden dangers for future development. However, there are cautious strategies in the industry, as well as relatively optimistic and aggressive attitudes. For example, Stephanie, an FA in the consumption track, told Deep Echo, Valuation is not only about the current scale of the enterprise, but also about future plans and imagination. Those who readily accept high valuations for new brands believe that the imagination space comes from untapped online and offline traffic, as well as the industry's sufficient SKUs. Since leading players have proven the feasibility of their business models and team execution with data, and with a high ceiling, their growth is still worth expecting. New growth space can also come from category expansion—'Genki Forest can make sugar-free sparkling water and also enter other food and beverage categories.' Regarding the premium on hot projects, Stephanie gave a straightforward logic: 'With so many projects, only this one can achieve over a billion. You can't find a similar team. If not this, then who?' Overall, amid the boom, capital's views on high valuations of hot projects are diverging, related to each investment institution's preferences. But both cautious investors and relatively optimistic insiders agree: The consumer industry has indeed ushered in new opportunities, and this is the key driving force behind capital's rush. **-02- **From 'Internet Celebrity' to 'Brand' Across industries, entrepreneurs and capital are unwilling to miss the dividends brought by trend changes. Even the more cautious Z investor said, The consumption track has bubbles, but it's still worth watching because 'new variables have emerged.' Specifically, changes in the consumer industry in recent years are multifaceted: the development of the internet has brought continuously penetrating e-commerce channels and emerging content platforms; the maturity of supply chains and overcapacity have made 'asset-light' entrepreneurship possible; and the rise of offline formats such as shopping malls and convenience stores means new entrants in the consumer field can get a 'good hand' as soon as they enter. Stephanie has communicated with many investors and entrepreneurs in the consumption track. She told Deep Echo, Top capital has always been paying attention to the consumer industry, not just looking when it's hot. They entered because variables emerged. Zooming out further, the current consumer investment boom shares many similarities with past situations. According to a recent conversation between Qian Kun, partner at N5Capital, and Buzhizhi, there have been three investment booms in the consumer industry over the years:
  • 2007-2008: PC internet became a settled matter, offline shopping malls were built in large numbers, and investments in numerous consumer and catering brands occurred;
  • 2012-2013: The e-commerce platform landscape took shape, and Taobao brands gained capital favor;
  • 2016-2017: Social media flourished unprecedentedly, driving rapid growth of new consumer products and services. In Qian Kun's view, every consumer investment boom occurred when internet platform companies were at a certain scale. On one hand, investment targets for tech companies decreased; on the other hand, internet platforms began monetizing traffic. During the shift of consumer attention, many new brands and services emerged. Consumer investment is about investing in targets that can grow rapidly and form brand recognition during this process. Deep Echo also received similar views from other industry insiders: Money originally intended for TMT projects has no suitable place to go. Although consumer targets may not bring app-style explosive growth, a 10x return is also good. Interestingly, while the industry environment provides dividends for entrepreneurs, new pain points also emerge on the demand side. As the status of post-90s and post-00s generations rises in the consumer market, the aging of traditional brands becomes increasingly prominent. Some brands do not focus on products themselves, habitually resting on past laurels, or even only engaging in high-margin OEM businesses. Young consumers are dissatisfied with their high prices and outdated experiences, creating new demand. Gao Yang, Managing Director at Hongsheng Capital (formerly President of GuangKong Zhongying), has led and completed investments in projects such as Genki Forest, Xiaobai Xinli Ruan, and Biyao Mall. He once described the domestic consumer goods market as follows: The consumer goods industry currently has a very typical characteristic: good industry, poor competitors. It's a period of temporary shortage of good brands and good products. In other words, the consumer goods market may seem like a red ocean, but the demand side has actually created new space. The changing industry environment brings dividends for new players, and the enthusiasm of capital and entrepreneurs is traceable. From the development trends of leading players, capital has already spawned many new brands with both scale and momentum. However, compared with established domestic and foreign peers, most new brands are still 'internet-famous products,' far from being true 'brands.' Compared with sales revenue and market share, 'brand' sounds somewhat 'mystical.' In exchanges with Deep Echo, industry insiders generally stated that it is difficult to quantify 'brand' with a single indicator; it can only be tested over time, to see if products can sustain hot sales. Some industry insiders also provided a data-based judgment method: specifically, if a product is priced not low but has good repurchase rates, and consumers are willing to continuously pay a premium, then to a certain extent, it indicates that the company's brand marketing and cultural penetration are successful. Looking back at the history of domestic and foreign consumer goods giants, the growth path of consumer brands is roughly the same: First, use large-scale marketing to occupy consumer minds, and then through brand marketing, become a lifestyle choice rather than a functional one. Take Coca-Cola as an example. In its early years, it also used numerous billboards to capture consumer minds. During World War II, Coca-Cola supplied beverages to the U.S. military, successfully connecting with the world and establishing a brand perception as an 'American icon.' Soldiers drinking Coca-Cola during WWII From this perspective, new brands that have achieved 'sales takeoff' through marketing have already completed the first stage. Brand building is their future required course. But how to balance growth expectations and brand value will be a common challenge for new brands. A practitioner with over ten years of FMCG marketing experience told Deep Echo, The industry's current problem is overemphasizing communication while underestimating brand. Content marketing, digitalization—these 'tactical' applications do not directly affect brand value. With the support of the internet and funds, new brands are racing ahead at a growth rate significantly higher than traditional brands. But no matter how things change, new brands must still be tested by the industry's original logic to see if they can avoid being left behind by the times and establish brand value amid cultural trends. Source: Deep Echo (ID: deep-echo); Author: Hong Jian Tips will be paid 400-2000 yuan upon adoption.