Source | CBNData ID | CBNData Author | Xiong Yi Editor's Note Almost within the past two years, many new consumer brands that started online have made a decision: to go offline. Their motivations for going offline vary, but they share a striking commonality in building more stable channels and creating brands that are closer to people's hearts. Undoubtedly, the essence of offline is still a business. Just as consumer brands need to manage relationships with e-commerce platforms online, new consumer brands coming offline also need to re-establish relationships with property owners, channels, and distributors. This is an area many new consumer brands have never touched before. Limited shelf space and points of sale, high operating costs, complex stakeholders, and new, diverse consumers all make competition here more complex. At the same time, this is not a simple story of "discarding online methodologies and rebuilding offline methodologies." These consumer brands, born from e-commerce platforms, carry a strong online DNA and cannot completely separate offline from online. Realistically, online business remains their cash cow. Ideally, the organic combination of offline and online can achieve a 1+1 greater than 2 effect. Compared to traditional giants that have been entrenched offline for years, with thousands of stores across cities of all sizes in China, these new consumer brands are only offline novices. We cannot find a standard answer from their development trajectories to definitively judge the success or failure of "new consumer brands going offline," because it is too early. But exploring the stories of these brands has still clarified some of our confusions—how these new species from online leverage their strengths and avoid weaknesses in the offline arena, why they come offline, and how they open up the offline landscape. This still holds great value for other new consumer brands eager to try. Selling Products Offline With the 14th Double 11 coming to a quiet end and Tmall's GMV declining quarter-on-quarter, new consumer brands may feel an unprecedented sense of powerlessness. Although in the past few years, with the support of agents and service providers, they have thoroughly mastered the extremely complex gameplay of e-commerce platforms and navigated different platforms with ease, online is no longer a blue ocean for wealth creation. Dark horses are common, but legends are no more. They suddenly remember those old brands that have been rooted offline for years, survived several consumption winters, and remained resilient in supermarkets and mom-and-pop stores, and then reached a consensus: rather than fighting for existing market share online, it is better to sell products offline. In the past, new consumer brands accustomed to explosive growth in the e-commerce dividend era would not earn this "hard money." Building a nationwide distribution system is too heavy, labor-intensive, and costly, while the foundation of e-commerce channels lies in cutting out intermediary distributors, lowering prices, and attracting consumers to buy online. But as online traffic becomes increasingly expensive, many brands fall into the dilemma of revenue growth but perennial losses, forcing them to seek new outlets. Some brands that have taken the lead in entering offline channels have already achieved higher revenue. In 2021, Three Squirrels established a distribution division, and distribution accounted for 16.5% of the group's revenue that year; Yongpu Coffee's offline channel revenue accounted for 27%; and some, such as Daily Dark Chocolate, Mo Xiaoxian, and Wang Xiaolu, have already achieved 65% of revenue from offline channels. From a broader perspective, the revenue composition of new consumer brands is gradually approaching the overall consumer market. According to the latest social retail data in 2022, online retail sales of physical goods accounted for 27.2% of total retail sales of consumer goods. This means offline consumption remains the main market in China, accounting for over 70%. Specifically, in offline retail formats, retail sales of supermarkets, convenience stores, specialty stores, and brand stores increased by 3.0%, 3.7%, 3.5%, and 0.2% year-on-year, respectively, while department stores decreased by 9.3%. Compared to the shrinkage and flatness of department stores, shopping malls, and brand stores, the growth of distribution channels such as supermarkets, convenience stores, and specialty stores is more stable. These all convey the huge space and positive signals of offline, but entering offline channels is not simple. Compared to online platforms, offline channels are even more segmented. Here, there are not only traditional channels such as supermarkets, convenience stores, membership stores, collection stores, and mom-and-pop stores across villages and towns nationwide, but also new platforms emerging in recent years, such as Hema Fresh, Dingdong Maicai, and other new retail platforms, flash sale channels like HotMaxx, and large B-end markets such as hotels, restaurants, and gyms nationwide. Different channels have different main categories, customer profiles, channel characteristics, and profit distributions, posing great challenges to consumer brands' channel-specific layout. This challenge is not limited to negotiations for entering channels; subsequent channel development, differentiated product selection, product pricing, and whether R&D design and production supply can keep up are even greater difficulties. This is also a weakness of new consumer brands that started with e-commerce, so after coming offline, they are quickly recruiting and building offline retail teams. An important source of talent is traditional retail brands. In June 2020, Wang Xiaolu poached an offline marketing director from Nongfu Spring, who quickly opened up channels such as chain supermarkets and convenience stores [1]. In just 3 months, Wang Xiaolu's offline revenue exceeded 10 million yuan. To get products into convenience store channels, Yongpu also spent half a year poaching an executive from Mars, eventually getting its flash-brewed coffee liquid into Lawson and Bianlifeng stores [2]. In Mo Xiaoxian's team, 70% are offline team members, mostly from major FMCG companies like Master Kong, Uni-President, Jinmailang, Qiaqia, and Want Want [3]. The flow of talent also points directly to the situation new consumer brands face when laying out offline channels—despite selling well online and frequently topping hot-selling lists in niche tracks, they still cannot compete with traditional brands after coming offline. The offline story is never achieved overnight; it requires patient management of relationships with distributors and channels, and building a systematic sales network, which often takes years. Online players accustomed to short-term bursts must adjust to a new posture to meet the challenge. Adapting to Circumstances In 2017, Babycare's products began to appear in mother-and-baby collection stores such as Kidswant and Aiyingshi. For a long time, mother-and-baby consumption has been mainly offline; until 2022, offline channels still held over 65% of the market share, with mother-and-baby stores accounting for more than half [4]. Therefore, despite Babycare's strong online development at the time, it decided to lay out offline channels, and the first step was to enter mother-and-baby collection stores. The choice of mother-and-baby stores from many channels was mainly due to the channel shift in the mother-and-baby category—before 2010, traditional supermarkets, as the main consumption channel, accounted for half of the mother-and-baby market revenue, but with the growth of e-commerce and collection stores, this figure had fallen below 10% by 2020. In addition, for Babycare, which had a strong online DNA at the time, its offline distribution and channel management capabilities were insufficient. Entering collection stores with similar categories and customer groups could not only efficiently reach target consumers but also help increase sell-through. Not only Babycare, but also Three Squirrels' baby snack brand Xiaolu Blue, when laying out offline in 2017, first targeted mother-and-baby collection stores like Kidswant, in addition to Three Squirrels' own stores. This trend is also seen in the beauty sector, where new brands like colorkey, Judydoll, Wanhuajing, Huazhixiao, and INTO YOU also first entered beauty collection stores when transitioning from online to offline. New beauty collection stores such as HARMAY, HAYDON, and WOW COLOUR have become important arenas for their offline trials. Beyond collection stores, consumer brands in the startup stage place more emphasis on building user mindshare, so membership stores and premium supermarkets with higher entry barriers and strict product selection, which target core consumer groups like young white-collar workers and middle-class families, have also become important options. In other words, successfully entering these mid-to-high-end channels can have a channel endorsement effect for brands in the startup stage. This is highly attractive to new consumer brands seeking offline presence, and many brands choose premium supermarkets and membership stores as their first offline stop. Amiro, priced over a thousand yuan, first laid out high-end beauty stores and membership stores like Sam's Club and Costco when going offline; Yongpu Coffee, when coming offline in 2020, first entered premium supermarkets such as Ole', Citysuper, Jinguang, and Hema Fresh; Wang Baobao also chose Hema and Ole' as its first offline choices; and Yingwubai, a high-end staple food brand, entered Sam's Club and Hema in its early development. In addition to channel endorsement, membership stores and premium supermarkets are few but refined, with lower store density in a single region, putting less pressure on consumer brands' supply chains and inventory management. Moreover, these channels do not charge consumer brands entry fees, barcode fees, and other fees that traditional supermarkets usually charge, so the cost of entering these channels is lower for consumer brands in the startup stage. In such channels, consumer brands are more inclined to launch localized products and services to get a channel ticket. Like premium supermarkets and membership stores, new retail platforms such as Dingdong Maicai and Meituan Maicai also do not charge entry fees. Because they have unlimited shelves, lower product selection requirements, and do not require consumer brands to give up too much profit, these platforms are favored by consumer brands in the startup stage. Currently, new consumer brands such as Genki Forest, Yongpu, Meijian, and Heytea have all entered Dingdong Maicai and Meituan Maicai. As new consumer brands gradually develop, they begin to consider entering channels with higher costs but denser terminal outlets, such as convenience stores and supermarkets. These channels usually charge higher entry fees and barcode fees, requiring strong financial strength from brands. Distributors also play an important role in this process; most KA channels (large supermarkets) require distributors to enter, and high-quality distributors require brands to give up more profit, posing higher challenges for new consumer brands. Specifically within supermarkets, different players have different attributes. After laying out mother-and-baby collection stores, Babycare began to extend into the supermarket system. But it did not lay out traditional supermarkets; instead, it strategically placed itself in O2O supermarkets (new retail supermarkets with online and offline layouts), such as Walmart, RT-Mart, and Yonghui. According to Babycare's offline channel head Nie Jing, O2O supermarkets are omnichannel layouts. Through Meituan, Ele.me, JD Daojia, and its own APP, Babycare can acquire many new offline users, especially young consumers who are good at using the internet. Beyond KA channels, with the help of mature distributors, some consumer brands have even sold products into supermarkets and mom-and-pop stores across counties and towns— By the end of 2022, Mo Xiaoxian had cooperated with more than 800 distributors, with terminal channels covering county-level cities; in 2022, Babycare's retail terminals exceeded 30,000, accompanied by an expansion of distributors from 30 in 2019 to 400, and provincial agents were refined into city agents; Genki Forest, besieged by giants in the past two years, also expanded its offline terminals to 1 million in Q1 2022. Its vice president Li Guoxun told CBNData that compared to competitors' millions of offline terminals, "Genki Forest is still at an elementary school level." The expansion of offline channels has no end; a strong distribution system is of utmost importance, which depends on the selection and management of distributors. Some brands control the quality of distributors by setting high standards, such as Three Squirrels' "top-notch" principle for selecting distributors: either the TOP customer in a local channel or firmly committed to making Three Squirrels one of their company's TOP2; other brands improve the efficiency of the distribution system through refined management, such as Babycare using different distributors for different regions and categories to deepen and refine as much as possible. Youxianggu, a beverage brand that increased single-product sales from 0 to 400 million yuan in over a year, has performed well in the catering channel. Its founder and chairman Song Wei told CBNData that in distributor selection, Youxianggu prioritizes cooperation with local leading liquor distributors, especially those with well-known beer distribution rights. Leveraging such channel players' three-dimensional terminal coverage, strong store control, and exclusive distribution capabilities, Youxianggu's double-citrus juice can quickly penetrate local mainstream catering channels. Because offline shelf space is limited, to compete for shelves and "win over" core distributors, consumer brands have launched a large number of preferential policies to strengthen their binding relationship with high-quality distributors. For example, Babycare sends marketing specialists to assist distributors in developing terminal merchants and provides distributors with certain financial support; Mo Xiaoxian leaves 6-12% profit margin for distributors and rigidly locks in the settlement cycle for distributor-advanced fees; in the previous "shelf battle" with giants, Genki Forest also changed the convention of returning freezer deposits to distributors over 3-4 years, allowing distributors to recover 90% of funds within 3-4 months [5]. Sometimes, this is also a two-way choice between brand and distributor. Taking Youxianggu as an example, compared to beer's gross margin of less than 10% per case, Youxianggu's bargaining advantage lies in its gross margin of up to 40% per case, which is an attractive choice for distributors. Moreover, double-citrus juice also provides liquor distributors with a new option in product portfolio diversification, avoiding the awkwardness of representing the same product. Beyond distributor management challenges, new consumer brands entering convenience stores, supermarkets, and mom-and-pop stores also face another challenge: how to digest inventory and reduce losses when a large number of slow-moving products become remaining stock and near-expiry goods. Flash sale stores have thus entered the vision of new consumer brands. Flash sale stores, which initially existed as channels for selling near-expiry and surplus goods, have become very popular in recent years under the impact of the pandemic. HotMaxx's shelves are filled with Genki Forest's "deadly cherry blossom white" grape-flavored sparkling water, jokingly called by distributors, as well as sparkling water brands like Shidianyike and Nezha, and plant-based milk brands like Plant Label and Daily Box. These excessive supplies that cannot be digested under the sparkling water and plant-based milk craze are all being discounted. On the one hand, flash sale stores provide new consumer brands with a channel to dispose of surplus goods; on the other hand, as flash sale channels scale up and regularize, more and more new consumer brands are actively entering them. Currently, Yongpu, Wang Xiaolu, Mo Xiaoxian, and Xihuiluo have all entered HotMaxx. To avoid the flash sale channel impacting the price system of other channels, they often customize products for flash sale stores. For example, Xihuiluo, in collaboration with HotMaxx, launched a double-serving luosifen, and even the single-serving luosifen has different packaging and specifications from the Tmall store. This is also a problem that new consumer brands need to face head-on after coming offline: the challenge of price control. Generally speaking, new consumer brands that started with e-commerce usually have four prices online: "standard retail price," "daily sales price," "Taobao C-store price," and "live streaming price," with absolute prices decreasing from standard retail to live streaming [6]. When entering offline channels, the price at which a consumer brand enters determines whether the channel has price competitiveness. If prices are inconsistent across channels, it will lead to brand price chaos, thereby affecting distributors' interests and impacting the distribution system. This is why many consumer brands consciously differentiate product packaging and specifications when entering different offline channels. New consumer brands either establish a price management system to ensure the same product at the same price, or develop customized SKUs to avoid price comparison across channels. For example, Maizihema's bulk-packaged oat breakfast milk launched on Dingdong Maicai's own channel "Qingyang Xingqiu" packages 3 standard boxes together for sale, avoiding same-product price comparison while also reducing the cost of channel customization. Although the layout of offline channels has some stage-specific characteristics, it is not static. For example, Red Elephant in the mother-and-baby track, backed by Shanghai Jahwa Group, had already opened up offline KA supermarkets and CS stores when laying out brands like Han Yu and One Leaf. Therefore, Red Elephant was founded in 2015 and fully laid out channels like Watsons, RT-Mart, and Walmart in 2016. Genki Forest, Plant Label, Daily Box, and other beverages first laid out convenience stores rather than membership stores, mainly because convenience stores focus on beverages and are suitable for new product testing, and the young white-collar customer base behind them is also the main consumer of new beverage brands. There is no fixed methodology here; for new consumer brands, it is most important to adapt to circumstances based on their own situation. Game and Symbiosis When new consumer brands think about how to integrate into channels, channels are also using their own methods to select brands. Due to different interest considerations, this integration process is full of both game-playing and symbiosis. For many new consumer brands that have just come offline, despite considerable online sales, they still have little say offline. Especially compared to international giants and traditional brands, new consumer brands need to first prove themselves to offline channels and gain their trust. To this end, they often need to make many compromises, including actively catering to channel-customized products, paying higher entry costs, and even giving up some sales and revenue. Taking membership stores and premium supermarkets, which consumer brands are vying to enter, as an example, these channels have strict product selection. To successfully enter, consumer brands often need to launch localized products for the channel. For example, the luosifen brand Choubao, to enter Sam's Club, launched a 6-bag "rich soup Liuzhou luosifen" with larger specifications and added braised chicken feet on top of the standard version, offering high cost performance. STARFIELD also launched two products, "plant-based tuna rolls" and "plant-based beef rolls," when entering Sam's Club in 2022. At the same time, their entry filled Sam's Club's gaps in the luosifen and plant-based meat meal categories. In fact, finding gaps in the channel's current product matrix and launching products that meet its needs is often the key to quickly and accurately obtaining a channel ticket. When entering mother-and-baby stores, Babycare studies their profit models and business models, as well as the product positioning, price bands, and specifications of the store's private label products, and then provides products with high complementarity to the private label. For example, if a mother-and-baby store's private label focuses on cost-effective diapers, Babycare chooses to enter with mid-to-high-end diapers with higher average order value, complementing the private label products, enriching the product matrix, and improving the channel's profit model. Sometimes, channels even proactively extend an olive branch and co-build new categories that have not yet been touched. In 2022, coffee cookies began to be popular in the market, and Hema did not have such SKUs at the time, so it co-developed a "fragrant coffee thin biscuit" with Yongpu. Similar co-branded products have been frequently launched since Yongpu entered Hema in 2020, mostly customized based on popular online products at the time. For example, in 2021, based on Hema's best-selling fresh milk strawberry milk and rose lychee fruit tea, Yongpu launched two "little house coffee" special blends. At the end of 2022, the two co-launched coconut latte jelly freeze-dried oatmeal and coconut latte glutinous rice cake. Interestingly, these products do not belong to the coffee category. Hema leads product selection and production, while Yongpu only cooperates with coffee ingredients and R&D. The logic behind this is that Hema already has a complete supply chain in categories such as biscuits, milk, oatmeal, and glutinous rice balls, while Yongpu's advantage lies in coffee flavor R&D. Because of this, these co-branded products mainly rely on Hema's own supply chain, and all sales revenue belongs to Hema, with Yongpu not sharing in the proceeds. But this does not affect Yongpu's enthusiasm for entering channels like Hema. In the view of Yongpu Coffee founder Tie Pi, the core purpose of developing non-pure coffee products is not sales and revenue. "Getting brand exposure and making some interesting products has already achieved our current stage's demands," he said. In other words, for more channel exposure, Yongpu can give up some revenue, even if some products themselves do not make money. More often, new consumer brands need to accept more stringent requirements and terms from channels before entering. Taking CS stores as an example, they have been deeply rooted in channels for years and negotiate strongly with upstream brand partners, usually adopting a consignment model with low sell-through pressure. But unlike international brands and traditional brands that supply directly, CS stores often require new brands to provide market strategies and sign guaranteed minimum prices [7]. This effectively disperses risk; if early cooperation is good, they may later consider switching to a buyout model. But even in the buyout model, traditional CS stores will significantly lower the supply price for new consumer brands. According to relevant reports, international brands' supply discounts are above 40%, while new domestic brands are pressed to 30-40% [7]. In contrast, new beauty collection stores are much more open to new consumer brands, with higher supply prices and shorter payment cycles. This is why many online beauty brands generally choose new beauty collection stores like HARMAY, HAYDON, and WOW COLOUR when laying out offline, rather than traditional CS channels. To break such "prejudice" and "inequality," new consumer brands need to come up with more pragmatic tactics and tangible results. A typical case is Babycare. Previously, to win over a Hainan chain mother-and-baby collection store, Babycare customized a marketing plan for it. When Babycare's products entered the store, Babycare pushed this news to all members in the Hainan region online, including store address and product categories, attracting members to buy in-store. After that, Babycare also invited some local members to participate in interactive experience activities at the store, and invited some KOLs to visit the store, releasing buzz on social platforms, thereby driving the store's traffic and repurchase rate. "Not only selling products in, but also providing a complete set of marketing services and traffic operations." In the view of Babycare's offline channel head Nie Jing, when new consumer brands negotiate with offline retailers, many retailers come to the negotiation table with the expectation that "internet-famous brands" bring their own traffic, but how to implement traffic, rather than empty concepts, requires a comprehensive and detailed marketing service plan so that channels can feel the effect after the brand enters. In fact, this is also an area where new consumer brands have always been skilled. Through marketing tactics such as new product launches, online traffic diversion, and KOL store visits, they can better fill the gap in offline channels' traffic operations and revitalize channel traffic. The open attitude of new beauty collection stores toward new consumer brands largely stems from this—in 2022, multiple new consumer brands such as colorkey, Spes, and ZEESEA launched new products at The Colorist. Such tactics can even be refined to how to better coordinate with channels during offline promotional nodes such as Mid-Autumn Festival, National Day, and Spring Festival. For example, Yongpu launches holiday gift boxes at Hema X membership stores during Mid-Autumn Festival and Spring Festival to meet the channel's holiday promotion needs. New consumer brands coming offline meet the needs of offline channels in various ways, and their addition has also brought many new changes to channels. This trend is still fermenting. China's consumer market is connected by numerous national and regional retail channels, which are independent yet interconnected, providing great space for new consumer brands to lay out offline. And now, they have only taken the first step of a long march. References: [1] Quoted from FBIF's May 2021 article "Wang Xiaolu Founder Wang Xiong: Annual Revenue of 200 Million Yuan, Major Shift in Product Category" [2] Quoted from CBN Weekly's January 2022 article "The Battle of Instant Coffee" [3] Quoted from FBIF's July 2021 article "Mo Xiaoxian Wang Zhengqi: Only Doing Online Cannot Create a 'Real' Brand; Not Profitable Is Hooliganism" [4] Quoted from Babytree and NielsenIQ's August 2022 "2022 Mother and Baby Industry Insight Report" [5] Quoted from Daily People's July 2021 article "To Protect Freezers, Nongfu Spring and Genki Forest 'Fought'" [6] Quoted from Future Trace's May 2022 article "New Brands 'Bottom-Fishing' Offline, Why Can't They Play Well with CS Stores?" [7] Quoted from iResearch's September 2021 "2021 China Beauty Collection Store Industry Research Report"