"Drinking" is a huge business, and now entrepreneurs and capital are turning their attention to young people, with low-alcohol drink startups heating up. Data shows that among 195 new consumer investment and financing deals in 2020, the new alcoholic beverage track had 14 financings involving 12 projects. Star investment institutions such as Sequoia Capital, Matrix Partners China, Tiantu Capital, ZhenFund, and Bertelsmann have all laid out plans in this track. According to iiMedia Research's "2020 China Alcoholic Beverage New Retail Market Research Report," with the support of live-streaming e-commerce, the beverage market capacity will further increase, with the new retail market size expected to reach 136.3 billion yuan in 2021. As a rising entrepreneurial trend, low-alcohol drinks have attracted widespread attention for being close to young people, but compared to traditional products like baijiu, beer, and red wine, their recognition in the market is not high. For investors and entrepreneurs, is low-alcohol drinks a good business? For users, are low-alcohol drinks really healthier as advertised? With the support of live-streaming sales, is it possible for a company with a market value of 100 billion yuan to emerge in this track? To address these questions, on May 27, at an offline salon hosted by Shenran, alcoholic beverage startup projects, well-known investment institutions, leading e-commerce platforms, and live-streaming sales service providers had an in-depth discussion on the topic "Selling alcohol to young people: is it a good business?" The sharing guests at this event included Zhang Kexing, General Manager of Gray Asset; You Yu, Head of Fresh Food, Alcoholic Beverages, and Tea Industry Recruitment at Kuaishou E-commerce; Liu Jiawen, Investment Director of Inno Angel Fund; Zheng Bohan, Founder of Lanzhou; Liu Shuo, Founder of Zouqi Qingniang; Liu Falu, Co-founder of Pop Rice Wine; Tian Shengxi, General Manager of 1919 Guangdong Company; Wang Ran, CEO of Yuemeng Technology; and Shu Yanling, Head of Alcohol Business at Jiaogepengyou. Based on the guests' discussion, Shenran compiled the ten soul-searching questions about low-alcohol drinks, giving you a one-stop understanding of low-alcohol drink entrepreneurship. -01- Demand: Do young people actually drink? Many people have an intuitive feeling that fewer young people around them seem to drink baijiu. But at the same time, low-alcohol drink startup projects are emerging one after another. So, what do young people actually drink? Liu Shuo, founder of Zouqi Qingniang, found that by age, 25-35 is the "golden age for heavy drinking." Consumers in this age group mostly have stable jobs, a certain spending power, and no family constraints, so they drink frequently, mainly choosing beer/beer-like drinks for casual drinking, and also trying various cocktails. Younger consumers aged 18-22 are mostly still in school, drink less frequently, and choose more affordable premixed drinks. After 35, they shift to lower-frequency and higher-end baijiu, red wine, and spirits. Tian Shengxi, General Manager of 1919 Guangdong Company, used to think young people didn't drink much, but after looking at backend data, he found that young people have been buying alcohol all along, and their purchase frequency is higher than that of the main consumer group. Especially female consumers, who have grown at least 50% or even 100% annually over the past three years. Women are indeed becoming an important drinking group, which is very different from the consumer profile of baijiu. Liu Falu, co-founder of Pop Rice Wine, revealed that 80% of Pop Rice Wine buyers are women. Zhang Kexing, General Manager of Gray Asset, once conducted a survey and found that young people don't drink high-proof baijiu because they haven't reached that age yet. The physiological principle behind this is: "Older people like high-proof baijiu because the tongue and taste buds age over time; the older you get, the less developed your taste, and only things with a particularly strong taste form memories. Many people are used to drinking Moutai, not only because of the price but also because of the taste." Zhang Kexing, General Manager of Gray Asset. Photo / Shenran In other words, young people do drink, but at different ages, they make different choices in beverage categories. -02- Market: How big is the market space for low-alcohol drinks? As a new entrepreneurial track, low-alcohol drinks have attracted many cross-border entrepreneurs, many of whom value its broad development prospects. Statistics show that more than 40% of people in China have never drunk alcohol, with women accounting for 55.6% and men 29.1%. But in Japan, these proportions are very low, at only 9.1%, 13.7%, and 4.3% respectively. Compared to Japan, there is still much room for the proportion of Chinese people who drink to increase, and in many first- and second-tier cities, the consumption trend is gradually moving closer to Japan, meaning fewer people will never have drunk alcohol in the future. Liu Shuo pointed out that in the market segment of beer and beer-like drinks, which young consumers aged 25-35 prefer and which has a total consumption of over 600 billion yuan, there is a 250 billion yuan opportunity for structural adjustment. You Yu, Head of Fresh Food, Alcoholic Beverages, and Tea Industry Recruitment at Kuaishou E-commerce, said that from the perspective of the entire industry scale, the alcoholic beverage market is a trillion-yuan scale, with e-commerce retail channels at 130 billion yuan, only 13.6%, so there is still much room for improvement. In terms of industry growth, the traditional industry growth rate is currently 2.3%, but in 2020, Kuaishou's alcoholic beverage GMV exceeded 4 billion yuan, a year-on-year increase of 330%, far higher than the industry average. You Yu, Head of Fresh Food, Alcoholic Beverages, and Tea Industry Recruitment at Kuaishou E-commerce. Photo / Shenran Zheng Bohan, founder of Lanzhou, believes that new alcoholic drinks, compared to past alcoholic drinks, are the difference between the new world and the old world. In the past, alcoholic drinks emphasized purity and authenticity, not taste, and the drinking experience was often not very pleasant. New-world drinks aim to solve these traditional problems, retaining the pleasure of alcohol, just like retaining the addictive quality of nicotine, which is the same logic as e-cigarettes versus traditional tobacco. This means it is a completely new category that may have disruptive significance. "We believe that new-style alcoholic drinks can occupy a huge market and replace these traditional alcoholic drinks. That is our basic logic. From a human nature perspective, especially in the food and beverage industry, products must be easier to drink, easier to eat, and taste better. This is the core element for a product to truly endure." -03- Marketing: Is it necessary to spend big to win? To strengthen user awareness, many low-alcohol drink brands have adopted a high-profile strategy. Brands spend money on advertising, ranking, and seeding. Searching the keyword "women's alcohol" on Xiaohongshu yields over 100,000 posts, most of which are fruit wines. Zheng Bohan believes that if big capital on the internet burns money together, they can definitely burn out one or two brands, even if this approach is not the most economical. "Some pure online brands think clearly: at the beginning, it's all about brand exposure; without buying traffic, it's hard to push up the volume." Liu Shuo, founder of Zouqi Qingniang. Photo / Shenran Liu Jiawen, Investment Director of Inno Angel Fund, believes that attention should be paid to conversion rates, as online marketing effects are directly reflected in ROI (return on investment). "We look at whether the input-output ratio is effective enough and whether we accurately target the audience. If these data are not particularly good, it means the money spent on advertising is inefficient." Liu Shuo said, "Live-streaming e-commerce is a good marketing tool and a good mind-share tactic for many customers. Zouqi has formed a matrix approach with head, waist, and tail influencers to ensure a high ROI. For example, Zouqi internally regards short-video platforms as the contemporary CCTV, an efficient platform for brand seeding." Tian Shengxi, who has been in the alcohol industry for 20 years, has paid particular attention to the youth-oriented brand marketing of alcohol companies in recent years. He believes that the younger the group, the more market segmentation is needed, otherwise it is difficult for a company's products to establish penetration. "This includes population classification. In market analysis, we are used to dividing people into post-80s, post-90s, and post-00s, but it's not precise enough. For example, post-90s are divided into many circles: figurine circles, fan circles, gaming circles, anime circles, etc. The characteristics of people in each circle are very different." In short, young people are digital natives; companies need to find ways to resonate with what they care about to generate purchase behavior. -04- Channels: Which is more important, online or offline? Channels are very important for the alcoholic beverage industry. Most industry insiders believe that the main consumption channel for alcoholic beverages is offline. But online cannot be ignored, especially for these emerging low-alcohol drink brands. Therefore, how to balance online and offline resource investment, including how to view short-video live-streaming sales, is particularly important. Zheng Bohan believes that alcohol is actually a booster for social scenarios and a service based on scenarios. He previously conducted research and found that only about 15% of people have the habit of actively buying alcohol. The vast majority are social and passive drinkers, so he focuses on offline, laying out catering channels, and using scenarios to drive alcohol consumption. "For us, online is a repurchase channel. Once the entire plate is built up, online will naturally have volume." Live-streaming sales are increasingly becoming a channel that cannot be ignored for alcoholic beverages. Tian Shengxi frankly said that he initially had a misunderstanding about live-streaming, thinking it would not become a main channel for alcoholic beverages because "the average order value is relatively low," while currently 1919's average order value offline and online is at least 300 yuan, and in Guangdong it can reach 600 yuan. According to him, since the second half of last year, 1919 has established a professional company to operate live-streaming channels. The current approach is to cooperate with top influencers like Luo Yonghao while also cultivating their own influencers, though the latter is slower and has not yet shown results in the short term. Tian Shengxi, General Manager of 1919 Guangdong Company. Photo / Shenran In fact, Luo Yonghao's Jiaogepengyou live-streaming room joined Douyin last year to start live-streaming sales, and in the second live-stream, they sold alcohol. Gu Xiaojiu's sales exceeded 10 million yuan within 90 minutes of being on the shelf. Li Jiaqi sold Meijian plum wine in his live-streaming room, and fans rushed to buy 200,000 bottles. Shu Yanling, Head of Alcohol Business at Jiaogepengyou, said at the salon that alcoholic beverages are very strong in the categories sold in Luo Yonghao's Jiaogepengyou live-streaming room. Luo Yonghao has a majority of male fans, and besides his most personal label of 3C digital products, alcohol is a very important category. -05- Traffic: How do new brands get traffic? Wang Ran, CEO of Yuemeng Technology, believes that the cost of marketing and channels for the alcoholic beverage category is relatively high, especially the high fees for top influencers, who also demand low prices. One or two collaborations with influencers might act as a shot of adrenaline, but in the long run, new alcoholic drink brands need to consider how to convert the fans brought by top influencers into their own private domain traffic. Live-streaming has brought about a huge consumption revolution, allowing users to directly observe products before buying, and later there are people doing complete services. Such opportunities are unprecedented. Live-streaming is already a new channel for many merchants, but they cannot over-rely on top influencers and lose their own position. Wang Ran believes that brands should operate their live-streaming rooms with fine management and convert users who make purchases in the live-streaming room into their own members. Studying influencer repurchase rates and coordinating and allocating resources behind the scenes will give rise to a wave of new marketing companies. "Handing goods to a certain influencer is just the beginning. You need to make many changes and attempts from an operational perspective, and many technology companies, operations companies, and service companies will definitely emerge to meet these needs," Wang Ran said. Wang Ran, CEO of Yuemeng Technology. Photo / Shenran From the perspective of the live-streaming platform, Kuaishou's traffic logic is centered on private domain, driven by public domain traffic. By using quality content to bring in a large number of public domain users, the repurchase rate will be high, making it more suitable for new alcoholic drink brands. According to You Yu, Kuaishou e-commerce's current repurchase rate is 65%, far higher than traditional e-commerce data. This is the charm of Kuaishou's private domain traffic trust economy, meaning that once you attract a user, the possibility of a second purchase is very high. This is equivalent to reducing customer acquisition costs by serving customers multiple times, thereby increasing profit margins. -06- Live-streaming: How should new brands choose top influencers? Any alcoholic drink brand that wants to do live-streaming e-commerce will "check in" at top influencers' live-streaming rooms. If well-established alcohol brands with a good reputation can treat live-streaming as a new sales channel, then for new alcoholic drink brands still in the early stage of building user mind-share, the effect of going to a top influencer's live-streaming room is "similar to appearing in a CCTV ad," Wang Ran believes. This approach is no different in essence from the launch of new brands in the past. Shu Yanling shares the same view. She believes that in the Jiaogepengyou live-streaming room, three to five minutes may cover hundreds of thousands of views. For new brands, this is not simply selling goods, but more like a heavyweight exposure. Of course, top influencers are expensive, and as entrepreneurs or companies, they may hesitate about live-streaming sales and worry about conversion and retention rates. "New brands may feel it's a bit expensive, but if you view it as a combination of brand and performance, it's still worth it," Shu Yanling said. Shu Yanling, Head of Alcohol Business at Jiaogepengyou. Photo / Shenran She said that in terms of pricing in the live-streaming room, top influencers do not necessarily force brands to sell at a loss, but they certainly hope to fight for more benefits for fans on the premise that the brand can accept it. At the same time, in terms of product selection, top influencers also have their own concerns. For them, the biggest fear is a mishap, so influencers care most about product quality. Shu Yanling introduced that the Jiaogepengyou live-streaming room has a relatively complete set of product selection standards, including product reviews on Tmall and JD.com, monthly sales, product qualifications, and also traces back to the production end, checking the qualifications of OEM factories and whether there are administrative penalties. Products brought by the Jiaogepengyou live-streaming room often become a reference for many Douyin influencers. -07- Business: Are low-alcohol drinks hugely profitable? Tobacco and alcohol can both be addictive, and they are rare entrepreneurial fields with strong repurchase and legality, aside from "gambling, prostitution, and drugs." Between tobacco and alcohol, alcohol is relatively safer and does not face too strong policy regulation. These factors attract more entrepreneurs and investors to enter. It is said that tobacco and alcohol are hugely profitable industries, but most low-alcohol drink players in the track generally adopt OEM/ODM models or cooperate with distilleries for new production lines, with few building their own supply chains. Most of the profits are divided among the lengthy sales channels, and by the time products reach users, they are basically marked up three times, and product homogeneity is criticized by users. Liu Jiawen said that alcohol is not as profitable as tobacco, and the lower the alcohol content, the lower the gross margin. The low-alcohol drink industry makes money through economies of scale. In the long run, many consumer products face losses after spending on marketing. An important barrier to economies of scale lies in supply chain capability. Liu Jiawen, Investment Director of Inno Angel Fund (third from left). Photo / Shenran For addictive substances like tobacco and alcohol, countries have historically used taxation to regulate them. But in China, the tax rate difference between low-alcohol and high-alcohol drinks is not significant, and there is no major policy arbitrage space, unlike e-cigarettes and cigarettes, where one is taxed as tobacco and the other as electronic products. According to FreeS Fund analysis, calculated from the proportion of alcohol tax in price, most alcoholic beverages in China have a tax of about 10%. The actual tax rate for baijiu ranges from 8% to 16%, beer is 4% to 9%, and many low-alcohol drinks, including premixed and prepared wines, are taxed as "other alcoholic beverages" at a rate of about 10%. Therefore, low-alcohol drinks as new market players have no tax advantage, and the possibility of developing low-alcohol drink products motivated by tax avoidance is relatively lower. -08- Health: Is "0 sugar, 0 calories" a tax on intelligence? Health is a major selling point that low-alcohol drinks try to highlight. Many low-alcohol drink brands use the concept of "tipsy." The American internet-famous low-alcohol drink brand White Claw has positioned itself with low alcohol content, low calories, and health, gaining a large number of fans. Many domestic low-alcohol drink brands also promote the concept of 0 sugar and 0 fat. Not long ago, Genki Forest even apologized for promoting 0 sucrose. Liu Shuo explained that young consumers want high style and tone without being effeminate, good taste and easy drinking, and also health and harm reduction, low calories and zero fat, no bloating and no headache. The "0 sugar" in many low-alcohol drink products may be "0 sucrose," and "0 fat" is achievable and not a pseudo-concept. Zheng Bohan said that for the direction of 0 sucrose and fructose syrup, he tries to achieve sugar reduction, harm reduction, and relative health, but the core of alcohol is to make people happy. "We don't do things that go against human nature; that is my basic logic in business." However, Liu Falu, who is also starting a low-alcohol drink business, holds a different view. He clearly stated at the salon that alcohol is the essence of grain and cannot be without energy; "0 sugar, 0 calories" is false advertising. Pop Rice Wine promotes the concept of "0 additive" brewed wine, with no other chemical elements or food additives besides glutinous rice, fruit juice, and koji. Because it has bubbles, it tastes more like "Chinese champagne." But the low-alcohol drink entrepreneurs at the salon reached a consensus that low-alcohol drinks are all about preventing young people from damaging their bodies excessively when drinking, reducing the harm of alcohol to the body, allowing them to enjoy the pleasure of alcohol while also reducing harm. -09- Business: Where are the difficulties in breakthroughs? Generally speaking, the first year of entrepreneurship is for R&D, the second year for sales. If products don't sell well, there's no sales volume; if they sell too well, there will be out-of-stock problems. Many brands have encountered out-of-stock issues, needing to pay attention to their own cash flow while also considering the balance between supply chain, brand voice, and distribution costs. Zheng Bohan, who focuses on offline channels, is more concerned about talent reserves. Most of his core team comes from former executives of Jiangxiaobai. He firmly believes that in the future, the people who can double brand value are people. "The core of our brand is still the team; the stronger the team, the higher the future development." The new brand "A TIME Pop Rice Wine" is still in its early stages. Since the product has not yet been mass-produced, Liu Falu is still worried about costs. Especially for fast-moving consumer goods, it is difficult to level out costs without achieving scale effects. To this end, the team needs to find suitable funds in the capital market as soon as possible. Liu Falu, co-founder of Pop Rice Wine. Photo / Shenran But obtaining financing is by no means entering a safe zone. Liu Jiawen believes that the raw material gross margin of low-alcohol drinks (referring to new sweet wine brands) is not low, but there is also a considerable fulfillment cost. If you want to build a good brand, channel construction costs and marketing expenses are a very large amount of money, and money can easily be burned through. She said that to reduce costs, the test is the team's comprehensive ability: whether it can accurately find the target audience, whether it can find the most accurate and sufficiently differentiated channels offline, whether online ROI is effective enough and can achieve both brand and performance, leaving consumers with a differentiated mind-share of the brand in the category, and efficiently converting the cost of advertising. -10- Endgame: How long can low-alcohol drinks stay hot? From an investor's perspective, the way out for new alcoholic drink brands may be to learn from Genki Forest—creating differentiation. Liu Jiawen said that Genki Forest was able to carve out a path in the red ocean of beverages because it accurately targeted young people and used the channel scenario dividend of convenience stores to connect quickly, better capturing the needs of young people emotionally and in products. In her view, the advantage of new brands is that they can more quickly capture and respond to the differentiated needs of young people, find emotional resonance, and build brand trust, which is an opportunity for new brands. From the perspective of the primary market, Zhang Kexing, General Manager of Gray Asset, believes that low-alcohol drinks are self-use goods. Self-use items must consider cost-effectiveness, and there are many competitors, even watermelon juice and corn juice in the beverage category can become competitors. Self-use products must have good quality, low cost, and cheap prices. If products are not differentiated, brands can only fight price wars, and he believes this business model is not viable. He believes that low-alcohol drinks are suitable for some scenarios, such as small gatherings. If quality is made better and taste is acceptable, they can survive, but the longer they survive, the more dangerous it becomes, because young customers of low-alcohol drinks will age in ten years, and after aging, they will naturally drink high-proof baijiu. Low-alcohol drinks have short-term opportunities, but they are not friends of time because people always age. But most entrepreneurs believe that selling alcohol to young people is a good business. Young people will age, but before they age, many may choose low-alcohol drinks. Source: Shenran (ID: shenrancaijing)