Click to read the original article for details Source: Bullet Finance (ID:wwwhygc) In the past two years, the food and beverage track has ignited a "capital war"—not only are emerging consumer brands actively raising funds, but established consumer brands have also changed their previously conservative stance, opening their arms to external capital and accelerating their IPO processes. The ability to accumulate sufficient funds has become a key factor determining a brand's survival prospects. Amidst the fierce competition between new and old consumer brands, a major industry transformation is underway: entrepreneurs are flocking to niche tracks such as sparkling water, plant-based milk, low-alcohol beverages, and new-style tea drinks, gradually encroaching on the territory established by old consumer brands. In response, traditional consumer giants are launching counterattacks, strengthening sales channels, and innovating products and categories, engaging in direct competition with emerging brands. As a result, consumer brands, surrounded by the capital market and tested by diverse consumer groups, have entered an "awakening era." With many niche areas already developed, how many opportunities in the food and beverage track are still worth going all-in? Under the current competitive landscape, where there is no shortage of followers, what kind of projects are worth investing in? What factors determine whether a brand can survive intense competition? Can the consumer track still be invested in? Food is the paramount necessity of the people. China's new consumer market is undergoing dramatic changes, with numerous popular categories and brands emerging, especially in the food industry. Recently, CBNData released the "2021 China New Consumer Brand Growth Power White Paper." According to reports, CBNData screened over 1,600 of the most popular brands across the internet and selected 50 new consumer brands with the highest growth potential. Among them, food enterprises and the beauty track remain the broadest, with food channels accounting for nearly one-third of the Growth50 list. Brands with 5-10 years or more than 10 years of history still hold an advantage in overall strength. Although the consumer sector, especially food and beverages, is already dominated by giants, newcomers continue to flood in, attempting to replace them. To avoid the sharp edges of giants and engage in differentiated competition, emerging brands are carving out niche tracks, identifying unmet consumer needs, and exploring new opportunities. Sparkling water, plant-based milk, plant-based meat, protein bars, cereal, low-alcohol beverages, new-style tea drinks, and specialty coffee are experiencing explosive growth. New consumer brands are quickly rising to the forefront of niche areas. According to Tmall's 618 sales data from June 1-15, 2021, a total of 459 new brands secured the top spot in their respective subcategories. In the food and beverage niche tracks, Yuxintang, Meijian, missberry, Wangxiaolu, and AIRMETER Kongke, all established just two years ago, took first place in rose tea, plum wine, fruit wine, chicken snacks, and pasta categories, respectively. Behind this explosive growth, capital has played a significant role. According to IT Juzi statistics, in 2020, the number of investment events in domestic food and beverages (excluding dining formats such as regular meals and fast food) increased by 51% year-on-year, with total financing reaching 7.9 billion yuan, a 137% increase year-on-year. From January to May this year, financing in this field has exceeded 10 billion yuan. With a wide variety of categories and brands, selecting projects tests investors' vision. In the view of Yu Jianwei, President of the Capital Market Department at Chaoshang Holdings, companies with true advantages in consumer goods are those like Moutai, which have accumulated genuine core competitiveness over many years. "Only companies with geographical advantages, uniqueness, exclusivity, and distinctiveness can go the distance." Yu Jianwei's investments in the consumer sector follow this logic. In recent years, he has invested in upstream agricultural products and downstream consumer projects, such as Luosifen (river snail rice noodles) and Plateau Treasure yak milk. Additionally, Yu Jianwei is an investor in the restructuring of Kerchin Cattle Industry. "Domestic beef cattle are mainly Simmental, primarily raised in Tongliao, Inner Mongolia, and Kerchin Cattle is the largest enterprise in Tongliao for cattle breeding, slaughtering, processing, and sales," Yu Jianwei stated. He further pointed out that beef cattle farming has high costs and small scale, but because beef protein is the healthiest among animal proteins, market demand is growing rapidly. However, both domestic and imported beef are currently in short supply. So while pork prices have plummeted, beef prices are still rising, and many beef-related consumer brands are being launched. The influx of capital into the consumer track has also driven up project valuations. According to observations by Ai Xiao, Vice President of Qingshan Capital, around 2016, valuations for early-stage consumer projects were roughly between 10-30 million yuan, but by 2020, similar team projects could start at 100 million yuan. With entrepreneurs and capital flooding in, how many tracks remain to be explored in the food and beverage sector? How many projects are worth investing in? Under high valuations, is investing now "chasing highs"? "Without bubbles, there is no economy; without economy, there are no bubbles," Yang Ge, founding partner of Xinghan Capital, told Bullet Finance. "The overall consumer market, consumption-side reform, and consumer demand are trending toward healthy growth. China's purchasing power is still rising, many new brands are riding the wave of national products, and many excellent enterprises will emerge." However, Yang Ge also noted, "The economy is cyclical, with a cycle of growth, overheating, recession, and stagflation. We are clearly between growth and overheating, so there are both opportunities and risks. We must view issues dialectically." In the view of Wang Sheng, consumer partner at Inno Angel Fund, the consumer sector, which has a large product volume, still offers many investment opportunities over a relatively long period. "Total retail sales of consumer goods have a base of 39.2 trillion yuan. The underlying driver is the increase in consumers' disposable income, their need for brands, and their willingness to pay a premium for them. In the past, only first-tier and new first-tier cities had strong demand for brands. Now, demand for brands is increasing in second-, third-, and fourth-tier cities as well. That is, in many areas that previously had categories but no brands, there is potential for brand creation." Wang Sheng further pointed out that some areas already had brands, such as Arawana, Dongpeng Special Drink, Nongfu Spring, and some foreign brands. But as consumer demographics shift, young people are willing to try new things and need new brands, which is the opportunity for new brands. Moreover, with the growth of China's GDP and disposable income, national and cultural confidence naturally arises, and consumers also need domestic products to replace foreign brands. "But the bubble is indeed very serious now. This is no longer an era of 'gold everywhere' for investment. Most projects still must conform to the laws of entrepreneurship and investment," Wang Sheng told Bullet Finance. It is clear that the current market heat has also awakened investors' attention to the consumer track, and the constantly changing industry competition has refreshed investors' views and judgments on the consumer track. Industry Transformation Accelerates Behind the booming consumer investment, the food and beverage industry is undergoing a fierce transformation. With capital support, a new consumption era is accelerating. As the argument that "all consumer goods are worth redoing in China" is increasingly mentioned and repeatedly validated, the battle between new and old consumer brands has begun. On one hand, consumer discourse power is gradually shifting to young people, and after demand changes, old brands are no longer the first choice. Old brands, being cumbersome and slow to adapt, find it difficult to keep up with changes in consumption cycles, causing them to gradually fall behind. It can be seen that not all old brands can survive in the market for a long time like Nongfu Spring and Arawana. In recent years, many old consumer brands such as Quanjude, Goubuli, Chengde Lulu, and Six Walnut have gradually declined. Although plant-based beverages are now a hot concept, Six Walnut, Lulu Almond Milk, and Weiwei Soy Milk were once shining stars in this field. But now, the spotlight has shifted to categories like oat products and coconut products, with new players such as Xiaomai Oye and Keke Manfen emerging and attracting capital attention. On the other hand, new brands like Genki Forest, Sandunban, and Naixue Tea, along with niche categories like sparkling water and protein bars, continue to emerge. With capital support, they are rapidly expanding and gradually eroding the market share of old brands. Even industry giants like Nongfu Spring and Uni-President must be wary of threats from newcomers. "Although Nongfu Spring is drinking water, beverages like Genki Forest and Alien's electrolyte water are also encroaching on its market share," Yu Jianwei pointed out. While new brands are conquering territory, old consumer brands have also launched counterattacks, innovating existing products, introducing new flavors, and entering niche tracks where emerging brands gather. Take sparkling water as an example. After Genki Forest broke through with sugar-free sparkling water, Coca-Cola launched its "AHHA" sparkling water series in March 2020, with eight flavors. In August 2020, KellyOne, a beverage brand created by Zong Fuli, daughter of Wahaha founder Zong Qinghou, launched "Shengqi Bobo" soda sparkling water. In terms of naming and packaging design, Shengqi Bobo was seen by the outside world as directly targeting Genki Forest and was considered Wahaha's "experimental field." In 2021, old players are still entering the sparkling water track. After launching TOT sparkling water in 2020, Nongfu Spring introduced a sugar-free soda sparkling water in April this year, with flavors including white peach, mojito, and Hinata summer orange. On June 6, PepsiCo's sparkling water brand "bubly" entered the Chinese market with three flavors, marking its first launch of sparkling water in China... In the view of Zhu Danpeng, a Chinese food industry analyst, after consumption upgrades, China's FMCG industry has entered a reshuffling period. At this node where the consumer end is forcing the industry end to innovate and upgrade, old brands should further upgrade their entire system from products to channels and brands. "If they do not understand, research, plan, and get close to the new generation to meet their needs, they will inevitably be eliminated by the new generation," Zhu Danpeng further stated. In addition to intense competition in new product development, channel competition between new and old consumer brands is also becoming increasingly fierce. The rise of emerging brands like Genki Forest has been aided by online and offline convenience store channels. Now, emerging brands have gradually entered the advantageous channels of traditional brands—traditional supermarkets. In some traditional supermarkets in Chaoyang District, Beijing, emerging brands like Genki Forest and Xixiaocha occupy many display positions on shelves, competing with traditional brands like Nongfu Spring and Coca-Cola in sparkling water. At the same time, old brands are accelerating their entry into the advantageous channels of emerging brands. According to a previous report by "Kuaixiao," under the leadership of founder Zhong Shanshan, Nongfu Spring launched a sniper war against Genki Forest, including measures such as: in all stores with Genki Forest freezers, for every bottle of Nongfu Spring sparkling water placed in a Genki Forest freezer, a bottle of Changbaixue (retail price 3 yuan) would be given, up to 48 bottles, etc. In addition, traditional brands are also strengthening their online channels by establishing professional online teams and opening official flagship stores on e-commerce platforms like Tmall and JD.com, although this is not easy. "As an investment bank, when working on many traditional enterprise projects, we found that traditional enterprises have problems such as brand aging and channel aging, and they have paid a lot of tuition in innovative channels. For example, in recent years, many traditional big brands wanted to undergo internet transformation, create their own mini-programs, bring in teams, and build private domain traffic, but in the end, they all failed. Their advantage is still offline," Yu Jianwei said. But from the current perspective, traditional food giants, with their years of deep cultivation in the industry, possess advantages in production, channels, capital, and consumer trust that many emerging brands cannot match. As competition intensifies, will traditional food giants, by investing more money and energy and turning to the niche markets where emerging foods are located, "crush" emerging brands? Wang Sheng said directly that this is completely impossible. "Old brands succeeded in a state of strong demand but insufficient supply. But today, this has completely reversed. In the past, people looked for goods; now, goods look for people, because supply is excessive. This means consumers have decision-making power and pricing power; consumers decide everything. Why would consumers choose a product? Essentially, the product must be good. Whether the brand has invested enough money in product innovation, has enough technical and R&D personnel, and enough barriers." In Wang Sheng's view, the absolute amount of investment in product and technology R&D by leading new consumer brands may not be as much as old brands, but their relative investment ratio far exceeds that of old brands. The genes of the new generation of consumer brand entrepreneurs are technology, internet, and higher aesthetics, directly reflected in innovation and differentiation in products, brands, and sales. "So, I don't think old brands will crush emerging brands, because they don't have product or technical advantages. At best, they have residual brand value and traditional channel advantages, warehouse logistics advantages, etc., but these are not core," Wang Sheng said. Yang Ge holds the same view. "Emerging brands are a new production organization with new-generation business management capabilities, brand management methods, and sales channels." Yang Ge gave an example: "For sales channels, traditional brands mainly rely on offline channels, including direct sales, distribution, and agency marketing. The new generation of sales channels is divided into several generations, with a wide range of choices: first, web-based e-commerce traffic, such as Taobao, Tmall, JD.com, Toutiao, and new-style e-commerce; second, traffic video e-commerce, such as Douyin, Kuaishou, and Xiaohongshu; and also private domain traffic e-commerce." Yang Ge said that in the past two years, emerging consumer brands have mainly relied on online sales channels in new channels. Their methods of traffic promotion, sales promotion, advertising experience, and the process of capital driving traffic development are very different from traditional market operations. "So, I don't think traditional industries will have overwhelming or crushing advantages in competition. On the contrary, new industries are gaining the upper hand, and the new generation of consumer brands still has advantages," Yang Ge said. The Winning Strategy for New Entrants Facing a hot industry, entrepreneurs often swarm in to grab market share. For example, the current hot low-alcohol beverage track has attracted many entrepreneurs from the e-cigarette industry. Looking at the longer timeline, old brands like Weilong and Dongpeng Special Drink also emerged from the hot industries of their time. But success is destined for the few, and the enterprises that ultimately survive and develop are bound to be few. In fierce competition, what is the winning strategy for entrepreneurs? Yang Ge told Bullet Finance that emerging brands that can achieve a certain level in "product quality, operational capability, and brand operation" simultaneously can succeed. He believes that in modern consumer entrepreneurship, one must first overcome "four mountains":
The first mountain is whether the industry has policy and license advantages, and whether the brand has full licenses and complete IP ownership;
The second mountain is real estate, whether there are offline channels, and whether rent and operations can be accounted for in offline operations and ground promotion;
The third mountain is traffic, whether traffic operations are effective enough and cost reduction and efficiency improvement are done well;
The fourth mountain is the supply chain, whether there is a relatively favorable supply chain system. "You must have enough ability to cover these to build the brand," Yang Ge pointed out. After that, whether brand operation can take shape also depends on three factors: First, quality is the brand. The ultimate determinant of a company's position in the industry is product quality. The product quality must be hard enough, the user experience good enough, and there must be a certain rigid demand to solve pain points. Second, operational management capability is the brand. Whether the company has effectively organized production, and whether it has the ability to use the internet and big data to effectively improve cost reduction and efficiency. "China's catering industry is a high-end equipment manufacturing and high-precision, refined industrial management industry. It is absolutely not something that can succeed by patting your head and relying on sentiment. You must use industrial production methods to think about catering management, because from supply chain to personnel management to store operations, everything is very detailed. If you don't pay attention to cost reduction and efficiency, you can't do it. The consumer industry is the same," Yang Ge said. Third, the brand is the brand. That is, whether the company can operate the brand, and whether it can use capital, media, and market operations to help build the brand, so that everyone quickly recognizes the brand, quickly occupies user minds, and quickly likes the brand. "This requires the brand to have storytelling, content, positive significance, relevance to national trends, relevance to the return of national brands and old brands, relevance to certain events, and a certain energy," Yang Ge said. When entrepreneurs swarm in and capital spends lavishly, the consumer track has undoubtedly ushered in its best time. Now, in some niche tracks, competition between new and old brands is in a stalemate. Old brands entering tracks crowded with new brands cannot easily eliminate new brands; new brands must achieve results and survive under the pressure of old brands, which is equally difficult. In the end, in this society with surging consumption waves, both new and old brands must "truly awaken" in consciousness, recognize consumer needs and industry transformation directions, and also quickly occupy market high ground and consumer minds in action, so as not to be eliminated in wave after wave of competition. ****PS: From August 24-26, 2021, the 2021 (4th) China FMCG Conference hosted by New Distribution will be held in Shanghai. Centered on "Industry Frontier Hub" + "Practical Exploration New Cases" + "Industry Connection New Growth" as the core, 100+ guest speakers, 10 thematic forums, will bring FMCG practitioners a feast of ideas on industry trends! Some of the confirmed heavyweight guests include: 1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; 3. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; 4. Yang Hongbin, vice president of Junlebao Dairy Group; 5. Jin Yanze, chief data officer of Uni-President Group; 6. Guo Xulin, assistant to the president of Hema Fresh; 7. Li Zhihong, senior vice president and director of Xibei Catering; .... 3000+ industry audience, 1500+ first-line brand executives, 1000+ new e-commerce platforms & regional head distributors, 3 full days. The latest industry trends, changes, models, and business you want to know are all here! Are you "watching" me?