Click to read the original article for details ********In 2022, when it comes to new consumption, there seems to be no new story to tell. But the ebb of the tide does not mean the decline of the industry. In the first half of the year, in the capital winter after the cooling of new consumption, some trends have disappeared, but some industries have heated up. Combining the investment and financing heat of the track in the first half of the year and the views of multiple industry insiders, Kaiboluo Finance has summarized the following new trends. Tea drinks are indeed no longer competitive, and now it's coffee that's hot. New-style tea drink brands, with money in one hand, invest in coffee to secure a position. Cross-industry players are only limited by imagination: China Post, Li-Ning, and Huawei have all joined in. Whether in first-tier cities or small counties, coffee shops are everywhere, but becoming big and strong is a challenge. Plant-based products, telling health and environmental stories, have been hyped after crossing the ocean to China, but due to being "unpalatable" and "expensive," consumers don't buy them, and capital confidence wanes. Now the top trend in the food and beverage industry is pre-made dishes, although it's tacitly considered a tough business that will burn money for a long time to gain market share, but the trillion-yuan market cake is indeed tempting. When young people start to tighten their wallets, domestic color cosmetics have a hard time, but functional skincare supported by ingredient-focused consumers is still a good business. With Winona, Proya, and Bloomage Biotechnology leading, countless new brands are chasing after them, trying to find their loyal users in the cracks between the top players. Two other tracks are being closely watched. One is the "fur baby" business: the pet track has not produced a leading player for years, but "poop scoopers" are the most willing to spend money, and capital and entrepreneurs are watching, thinking "what if." The other is outdoor activities represented by camping: in the trend, capital is concentrated on two gold mines—equipment and apparel. "The wind is blowing; let's fly first." Li Chengdong, founder of Dolphin Society, told Kaiboluo Finance that this year, even valuations of good projects have been reduced by about 30%, and companies with unclear growth have had their valuations halved. But the market's pessimism is more of a "sequelae" of past overdrawing of growth; under the general trend of domestic substitution, many tracks still have opportunities. He believes that the core logic of consumer brand growth is actually simple: product, marketing/brand, or channel—you must have at least one, and excellent brands have all. "Either the product is better, or you can differentiate promotion, or expand channels faster to reach users." 01 Tea drinks can't roll anymore, coffee is addictive New-style tea drinks are the most involutionary track in new consumption in the past two years, possibly the most. According to the Analysys report, since 2014, the tea drink market has seen a surge in entrants for six consecutive years, peaking in 2019. Currently, the fresh tea market has basically formed three tiers: Nayuki and Heytea, with their direct-operated models, lead the high-end tea drinks; mid-range brands like Chabaidao, 1点点, Guming, and CoCo都可 are fiercely competing in the second tier; Mixue Bingcheng, with its franchise model, has achieved a scale of 10,000 stores, dominating the lower-tier market. Li Xinyi, a consultant at Analysys, once analyzed to Kaiboluo Finance that the biggest variable in new-style tea drinks is the mid-tier players in the second tier, because brands with a wide range of categories are only defensive rather than offensive in many sub-tracks, making it difficult to occupy user minds. However, since last year, competition in tea drink sub-categories has also been fierce. Taking lemon tea as an example, the new lemon tea brand "Ningji" received a Series A+ financing of hundreds of millions of yuan, and LINLEE, Qiushu Lemon Tea, and Wu'erlan Lemon Tea are also rapidly seizing the market with capital support. Perhaps driven by the pressure of involution, the leading players in the tea drink track have turned to the coffee track to find a second growth curve. Last year, Heytea invested in Seesaw, and Mixue Bingcheng accelerated the layout of Lucky Cup. This year, Shuyi Shaoxiancao and Ningji, which just received new financing, coincidentally created DOC Coffee and RUU Coffee in Changsha. In first- and second-tier cities, following Manner, boutique chain coffee brands %Arabica and Seesaw have also received new rounds of financing this year, accelerating expansion. In the lower-tier market, Lucky Cup has its first strong opponent—Wai Coffee from Ningbo, which recently announced the completion of a Pre-A round of financing. In regional markets, small chain brands like Xiaoyangqiao, SOBUFF Bafu Coffee, and FELICITY ORIGIN are beginning to carve up market share. What has pushed coffee to the forefront are also many cross-industry players that entered this year, such as China Post, PetroChina, Sinopec, Goubuli, Tongrentang, Li-Ning, Huawei... The reasons for the coffee track being hot are not complicated. First, the Chinese coffee market is in a period of rapid growth, with a large market size but low chain rate, and there is much room for improvement in the penetration of standardized coffee. According to the Analysys report, by 2025, the Chinese fresh-ground coffee market size can exceed 180 billion yuan, with a compound growth rate of over 25% in the next five years. Second, coffee has addictive and high-repurchase attributes, and for some consumers, it is a necessity, with less health burden than tea drinks. More critically, coffee is indeed a profitable business, with gross margins as high as 60-70%. Luckin's comeback and Manner's rise have given entrepreneurs and investors confidence to "take a gamble." "Many newly opened coffee stores are profitable with a fast payback period. Almost every second- and third-tier city has some small regional chain brands with about 10 stores." Over the past year or so, consumer investor Gao Yu has been paying attention to the offline coffee track, but so far, he has not found an ideal project. He said that the difficulty mainly lies in the expansion path. "If you adopt a direct-operated model, the asset burden is heavy, expansion is slow, and it's hard to quickly form a scale advantage in competition; if you adopt a franchise model, store gross margins are high, but due to the small advantage of centralized procurement of milk and coffee beans, franchisees contribute little to the headquarters, making it hard for the brand to make money." In addition, he found that many small entrepreneurial teams have substandard management capabilities, resulting in profitable stores but rough operations. "We need to see who can grab more market share and open more stores, which places higher demands on team management capabilities, such as where to open, site selection, building the operations team, supervision system, project management, etc., all requiring strategic coordination." In his view, in the next two years, more than half of the growth in the entire coffee track will come from local leading players like Luckin and Manner, and the rest will be divided among forty or fifty small regional chain brands. A coffee industry practitioner said that it is currently the stage of "enclosing land" for new and old players in offline coffee, "Whether high-end or down-market, in Beijing, Shanghai, Guangzhou, or county towns, fill the market first; who will emerge and who will be eliminated is a later matter." 02 Plant-based cools down, pre-made dishes heat up Plant-based, once hyped, is also rapidly cooling down. In the past two years, plant-based told a very sexy story to the capital market: replacing animal sources with plant sources, widely used in plant milk, plant meat, and other mass food consumption, is a new choice under the trend of consumption upgrade and health. In the European and American markets, plant-based foods have two major labels: first, health, providing a large amount of protein and a small amount of saturated fat, no cholesterol, and meeting different nutritional needs; second, environmental protection, making up for the meat gap caused by world population growth, reducing resource consumption and environmental pollution from animal husbandry. With the listing of Beyond Meat and the IPO of Impossible Foods, the two major American plant meat giants, Chinese investors' enthusiasm for plant-based has surged. According to the iyiou report, from July 2019 to October 2021, Chinese plant-based food start-up brands received a total of 46 financings, totaling over 1.2 billion yuan. However, many food technology companies have so far not made plant meat tasty and cheap enough, which is the main factor in increasing Chinese consumers' purchase interest. "If the price of plant meat can be one-third or one-half of animal meat, perhaps the market can rise," said an investor focusing on the consumer sector. An investor who has invested in plant-based food companies once told Kaiboluo Finance that this requires more mature processes, industrial-scale production, and cost reduction, with products reaching consumers in various forms adapted to Chinese eating habits, but before that, the industry will inevitably go through a long technological iteration cycle. Compared to plant meat, plant milk has higher market acceptance, but product homogeneity is serious, innovation space is small, and with traditional brands entering one after another, it has not been able to stand on the trend. In the first half of this year, there were occasional investments in the plant-based track, but except for old players like "Xingqiling" that can still receive capital support, local start-ups have not been favored by capital as in the previous two years. Plant-based, once on the trend, is now entering winter. In the capital's kitchen, the hottest thing now is undoubtedly the trillion-yuan pre-made dish market. According to Magic Mirror Market Intelligence, the Chinese pre-made dish market is growing steadily at a rate of over 20%, with an expected growth rate of 32.4% in 2022 and a market size of 415.2 billion yuan. In the first half of this year, multiple pre-made dish brands such as "Zhenwei Xiaomeiyuan," "Wumanxian," and "Lianshe Gongfang" received financing of tens of millions of yuan, and Lu Zhenyao's "Shejian Yingxiong" even received a Series B financing of up to 1.6 billion yuan, signing 6,000 stores in three months. Traditional food companies like Shuanghui Food, CP Food, and Sanquan Food, as well as fresh food e-commerce platforms like Hema, Meituan Maicai, and Qiandama, have also entered. However, at this stage, making pre-made dishes is still a tough job. First, the explosion of the pre-made dish market is related to staying at home during the epidemic; how large the truly sustainable market demand is has not been sufficiently verified. Second, product choices are limited, taste does not meet expectations, and cost performance is not high, with insufficient penetration among young people, the main target audience. Furthermore, whether it's channel-based brands with rich SKUs or traffic-based brands with hit products, they all face high costs, low gross margins, and difficulty in repurchase. "Traffic costs and channel costs are very high, and brands can only exchange for certain sales through price subsidies. For example, a product priced at 30-40 yuan is actually sold at 20 yuan, while the cost is over 10 yuan, leaving very little profit space," Li Chengdong said. Currently, pre-made dishes are still in the stage of burning money without making money. However, he also believes that we should not judge the outcome of pre-made dishes too early. "The market has just begun to explode, and there are many possibilities in the future." 03 Color cosmetics don't sell, skincare is essential Online, beauty and personal care lead new consumption, producing two listed companies, Yixian E-commerce and Betaini, and a host of domestic "internet celebrities" like Huaxizi and Proya. However, after the era of burning money for traffic, domestic color cosmetics and skincare have taken two distinct paths. In this year's 618, Huaxizi won first place in Tmall's color cosmetics category with sales of 150 million yuan, colorkey ranked second with 140 million GMV, Perfect Diary ranked sixth with over 100 million GMV, and Caitang ranked tenth with nearly 90 million yuan in sales. It seems that after late efforts, domestic color cosmetics have not been left behind by international brands as at the beginning. However, compared with their past selves, this result is not ideal. Remember, last year's Double 11, the final GMV of Huaxizi, Perfect Diary, and colorkey were 307 million, 291 million, and 190 million yuan respectively; the year before, Perfect Diary and Huaxizi together created 1.1 billion GMV. Although the decline in GMV during the mid-year promotion has the special impact of the epidemic, it is undeniable that domestic color cosmetics, once glorious, are facing multiple difficulties. On the one hand, in the environment of consumption downgrade, income fluctuations, and reduced travel, color cosmetics, as typical optional consumer goods, are the easiest to be removed from consumers' shopping lists. On the other hand, these brands have overdrawn too much growth in the past, and now they are in a period of consolidation focusing on profitability, having to reduce advertising and subsidies, losing some consumers. The essence of the problem is that the past aggressive internet celebrity tactics have not built a strong enough brand value. Compared with domestic color cosmetics, domestic skincare brands that rose at the same time have shown stronger competitiveness. In Gao Yu's view, compared with color cosmetics, the skincare business is more sustainable, mainly because with the same customer acquisition cost, the LTV (lifetime value) of skincare products is higher. "For example, with the same cost of 10 yuan, a color cosmetics brand may only get the user to make one purchase, but a skincare brand can get the user to make six or seven purchases." In this year's Tmall 618, under the siege of international brands like L'Oréal, Estée Lauder, and Lancôme, Proya and Winona ranked fifth and seventh with GMV of 570 million and 430 million yuan respectively. Cosmetics are recognized as a highly profitable industry. In recent years, the sales gross margins of industry leaders have basically remained above 60%, and the gross margins of Betaini and Bloomage Biotechnology, which focus on functional skincare, are as high as nearly 80%. In 2021, Proya's revenue was 4.63 billion yuan, almost doubling compared to 2018. According to Frost & Sullivan data, the compound annual growth rate of China's functional skincare market from 2017 to 2021 was 23.4%, and it is expected to reach 211.8 billion yuan by 2027. With a large market size, fast growth, low concentration, high gross margins, and high repurchase rates, it is not surprising that functional skincare is continuously attracting more players. According to incomplete statistics from Kaiboluo Finance, among the 18 investment and financing events in the beauty and personal care field in the first half of this year, functional skincare brands accounted for half, such as C咖, PMPM, Qingyan Boshi, Yangmei, Kesilifu, and Haipunuo. Crush, founder of the new beauty brand Kertel, told Kaiboluo Finance that most functional skincare brands focus on ingredient skincare, using ingredients as the core selling point for differentiated promotion. But popular ingredients are similar, and information about good raw material suppliers in the industry is relatively transparent, so the product threshold between brands is not high. With the influx of many players, functional skincare is becoming more and more involutionary. "Take the marketing of ingredient selling points, for example, from what raw materials are used, the concentration, to the origin and supplier, the entire supply chain can be laid out in front of consumers, and KOLs even require brands to provide such information." The result is that it is increasingly difficult for users to obtain effective information, and brands' ROI on advertising is worsening. However, as a practitioner, Crush still has confidence in the functional skincare track. In his view, new brands should not focus on inventing profound and innovative technologies or formulas, but most new brands are criticized for overemphasizing these superficial selling points. "For example, targeting oily and acne-prone skin, many brands focus on how to quickly eliminate acne, but we focus more on how to do daily protection, improve the skin's microecology, and make the skin less prone to problems." Crush believes that such discoveries may come from the skincare needs of people that big brands have not reached and satisfied, or from seizing the loopholes of existing brands and products, such as insufficiently focused efficacy, excessive premiums, or failure to meet segmented groups. As long as targeted upgrades can be made on the premise of product effectiveness, there is an opportunity to overtake on the curve. 04 Pet is chicken ribs, outdoor is rising In the first half of this year, companies that received financing in new consumption were also concentrated in two tracks: one is pets, and the other is outdoor. In the pet-related track, the most financed are pet food brands and producers, with Meat Pad, Born Free, Dou Chai, Shuai Ke Pet, and VETRESK being invested in succession. In addition, companies in pet smart hardware, pet grooming products, and pet medical care also received investment. In Gao Yu's view, in the pet-related track, the biggest opportunity is indeed pet food. "Cats and dogs get used to a certain product and basically don't eat others, so the switching cost of pet food is high, and the repurchase rate is also high." According to Euromonitor International data, the Chinese pet food market size was nearly 48.2 billion yuan in 2021, with a compound growth rate of 24.80% from 2017 to 2021, and the industry is indeed in a period of rapid growth. According to a report by Guoyuan Securities, in recent years, among the top ten cat food brands in the domestic market, the market share of imported brands reached 15.5% in 2021, with ultra-premium brands being highly favored. This means that local pet food brands still have the opportunity to achieve domestic substitution. However, the inertia of pet diets also means that new brands find it difficult to cut into the existing market cake, and to open up new markets, they have to spend high channel costs for subsidies, and the cost performance is hard to judge. Guoyuan Securities analysis believes that local brands mostly start with OEM models, and without quality and stable supply chain support, it is difficult to form brand power, and they may eventually fall into a primitive price competition quagmire. An investor told Kaiboluo Finance that from an investment perspective, the pet-related track is relatively chicken ribs. "The market size is not large, but there is still a chance for one or two local leaders to emerge. It's indeed 'tasteless to eat, but a pity to discard.'" Outdoor sports are one of the few tracks considered capable of telling new stories after the cooling of new consumption. Under the influence of the epidemic, outdoor activities represented by camping have risen to the trend, and trendy sports such as skiing, hiking, frisbee, cycling, and skateboarding have also become popular one after another. Market demand has exploded accordingly. Data shows that from 2022 to June this year, the GMV of camping categories on Taobao Live increased by 70% overall compared to last year; the growth rate of camping products on Ctrip platform reached 800%. According to the Analysys report, the Chinese camping market size is expected to reach 52.8 billion yuan in 2022. In the first half of this year, the outdoor tracks that received financing mainly include two categories: one is outdoor equipment, such as the snowboard brand Snow Owl Technology THE WHIP, camping equipment brand Naturehike, and outdoor lifestyle brand ABC Camping Country; the other is trendy sportswear, such as the streetwear brand Beaster, sportswear brand Moodlab, and sports shoes and apparel and equipment brand EQLZ. A consumer investor once analyzed to Kaiboluo Finance that new sports scenarios will inevitably bring new product demands, and trendy apparel is one of the innovative categories. "Outdoor sports that are more lifestyle-oriented and less confrontational may not require high professionalism, but they need to be trendier and better-looking." Li Fei, an investor at a certain institution, told Kaiboluo Finance that the only consumer project invested in the first half of this year came from the outdoor track. "It's a camping equipment OEM factory transforming into a brand. We mainly value their R&D and design capabilities, which can create new products that combine multiple functions and address consumer pain points but are not yet on the market, such as a camping sofa bed that can be quickly inflated and deflated." Li Fei admitted that currently, domestic outdoor equipment and apparel companies are mostly in the process of climbing from low-end OEM to high-end design, and with many traditional sports equipment and apparel brands entering to cut the cake, competition is rapidly becoming fierce. But he still favors domestic brands with R&D and design capabilities, "Consumers mainly look at product quality and practicality, and with the rise of domestic substitution, such companies have greater opportunities." Brands that entered early seem to have not disappointed capital. In this year's 618, Naturehike, with nearly 60 million GMV, surpassed multiple traditional outdoor brands such as Yuanshiren, Arc'teryx, Explorer, and Decathlon, ranking fourth on Tmall's outdoor products list. However, in Gao Yu's view, in emerging trends, creating a 'small and beautiful' brand requires a long period of accumulation, and moreover, whether camping as a normal demand will exist long-term remains to be verified over time. "At least for now, many companies are needed to educate the market together, and from an investment perspective, there is some risk." *The cover and in-text images are from unsplash. At the request of the interviewees, Gao Yu and Li Fei in the article are pseudonyms. Source: Kaiboluo Finance (ID: kaiboluocaijing) Author: Wu Jiaoying -END-