Author: Li Kanglin (Partner at Tiantu Capital) Source: HUXIU APP (ID: huxiu_com) Introduction: Over the past 20 years, consumer brands have emerged one after another globally, but few have grown into giants. Where are the opportunities and methods for scaling up? Can old giants find new ways to continue their dominance? In the blink of an eye, I have been investing in the consumer goods industry for over ten years. After graduating from university, my first job was in investment banking. Later, I felt that primary private equity investment was more challenging, so I entered the investment industry in 2007 and joined Tiantu Capital in 2010—the Tiantu that invested in Zhou Hei Ya, Pagoda, Nayuki Tea, and Bao Master. In 2011, the Tiantu team conducted a deep review of the company's historical projects at the annual meeting. Based on historical data analysis and rational judgment, they believed they had insights into consumer goods investment and were willing to continue working in this direction, thus establishing the consumer goods investment focus. Since then, everyone in the company, including me, has been continuously engaged in deep thinking and theoretical framework building in this field. Tiantu defines a consumer company as: a company that has brand exposure at the C-end (end consumers) and is primarily driven by brand rather than technology. "Positioning" is the theoretical core of Tiantu. We believe that consumer goods can occupy consumers' minds through branding, and most purchase decisions are driven by the brand before the transaction occurs. The path from the emergence of a consumer product to becoming a true brand is generally consistent. An important value of a brand is to reduce consumers' decision-making costs and improve their decision-making efficiency. Can Consumer Goods Giants Still Compete? In the decade focused on consumer goods investment, I have witnessed giants like P&G, Unilever, and Mars go from invincible to struggling, even at a loss. So much so that recently, claims that consumer goods giants will be "wiped out" have been rampant. To this end, I have briefly sorted out some basic fundamentals of these consumer goods giants: However, in the past five years, the slogan "consumption upgrade" has been loud. We have seen wave after wave of new consumer brands emerge, shine like comets for a moment, and then fade into obscurity. Currently, the entire consumer goods industry, whether new or old players, has collectively entered deep waters. The reason is that in recent years, with the rapid development of China's internet, the channels for brand exposure and product distribution have undergone drastic changes, and the iteration of product brands has become faster and faster. In the past, brand distribution channels were very singular. Continuously increasing media channel advertising and offline distributor distribution could ensure good performance and block new entrants. The competitive landscape of the industry was established early and remained stable for a long time. P&G, Unilever, and other consumer goods giants all followed this pattern, thus being invincible for a long time. Now, consumers' information acquisition channels are very fragmented, and brands are more "birds of a feather flock together," so generalized market segmentation is no longer as effective. Correspondingly, we have also seen some niche brands that could not survive in the era when consumer goods giants dominated, now able to survive. Examples include yogurt brands like LePur (later acquired by Coca-Cola) and Jane's, Baijiu brand Jiangxiaobai, and soft drink brand Erchang Soda. At the same time, with the rise of large e-commerce platforms and vertical e-commerce platforms, and the differentiation of offline channels, product distribution channels have become more diverse—companies can freely combine brand exposure channels and product distribution channels, often leading to multiple brands rushing into a single category, such as e-cigarettes last year and small Baijiu in the first half of this year, so new brands emerge endlessly. Different teams have different resources and different abilities to use them. Competition is more diverse than before, and the requirements for brand capabilities are more complex. As a result, new-generation consumer brands face many challenges in scaling up, and they must always be on guard against being overtaken by younger, more aggressive brands. This reality raises two questions:

First, will the old giants really die? What will replace them? Or can the giants find new ways to continue their dominance?

Second, over the past 20 years, globally, consumer brands have emerged one after another, but few have grown into giants. Where are the opportunities and methods for scaling up? What Will Giants Ultimately Die From? I won't give my answer first, but rather pose a question: How old are Walmart and Coca-Cola respectively? Answer: Walmart was founded in 1962, now 57 years old, with a current market value of $300 billion; Coca-Cola was born in 1886, now 133 years old, with a current market value of $200 billion. Today, Walmart, in its prime, is facing significant challenges from e-commerce in its living space, while Coca-Cola, at a centenarian age, despite constant pessimistic talk, its fundamentals remain stable. China's retail channel changes are even more intense, yet Moutai's market value has been rising. It can be said that in the consumer goods field, if you can find a good product, manage it well, and grow over a century, it is not only entirely possible but also has not yet seen its ceiling. A brief review of P&G's history will give you a more intuitive feeling. This is a fairly typical case—global consumer goods giants have all found a unique product to enter the market, gradually expanded, and then used mergers and acquisitions to grow, operating multiple brands with the same playbook. Speaking of which, both P&G and Unilever were built on soap. The Economist magazine even wrote: "If the powerful force driving business development at the end of the twentieth century was computers and communications, then at the end of the nineteenth century it was cleanliness and carbolic soap. Over this century, people witnessed the development from a large market for keeping clean to a large market for staying connected." P&G was born in 1837 in Cincinnati, USA, founded by two brothers-in-law who married a pair of sisters, starting with soap and candles. Unilever's two predecessors were born in the Netherlands in 1872 and England in 1884, respectively; the former produced margarine, the latter produced soap, and they merged in 1929. In 1879, P&G developed a white soap with controllable costs, named Ivory, and later developed more than 30 different types of soap, putting them into mass production. In the 1920s, Edison's light bulb became very common, so P&G stopped producing candles. In 1924, P&G established a market research department to study consumer preferences and buying habits, which is considered one of the earliest market research departments in industrial history. Seven years later, P&G created a marketing organization with dedicated personnel responsible for managing a specific brand, giving each brand an independent marketing strategy. Thus, P&G's brand management system was officially born. In the 1930s, listening to radio programs was very popular. To sell more soap, P&G sponsored the radio drama "Ma Perkins" in 1933, inserting its soap advertisements during the program breaks, which was a first. To accommodate advertisers' needs, such radio dramas were often deliberately lengthened, so the term "soap opera" owes much to P&G. In 1930, P&G acquired the British company Thomas Hedley, which also started by selling candles and soap, and began expanding overseas. In 1937, on its centennial, annual sales reached $230 million. Since then, P&G has continued to grow through acquisitions, sweeping up brands across different categories globally. In 2005, P&G acquired Gillette for $57 billion, and together they owned 21 brands with annual sales exceeding $1 billion, becoming the world's largest daily consumer goods company. P&G primarily focused on women's personal care products, with female consumers accounting for 80%, while Gillette mainly operated men's razors, making the two companies complementary. After the merger, Warren Buffett and Charlie Munger's Berkshire Hathaway became one of P&G's largest shareholders, holding stock valued at over $5.1 billion at one point. Thus, over the past century, the playbook for consumer goods giants to scale up has basically remained unchanged, and these giants have almost all survived for over a hundred years. Why is that? Because the ultimate battlefield in the consumer goods industry is the brand, and brand growth has commonalities. For giants, as long as they discover an effective combat unit of a new brand, they can buy it and make it their own. In fact, looking at the growth history of consumer brands, you begin to respect the power of time. For these old giants, surviving a century means that the brands they operate have served four or five generations of consumers, and they have observed the entire process of countless consumers from birth to death. In other words, these giants have completed a full life cycle, accumulating rich experience and knowledge about consumers, and this experience was bought with real money (remember the market research department P&G established in 1924 for consumer insights, as mentioned in the history above). It is undeniable that the entire world is in an unprecedented period of drastic change—technology has disrupted logistics, information flow, and payment flow; more people choose to be single (maintaining individuality is also the same), which is reshaping our social structure, while the era dominated by traditional consumer goods giants was more about developing products with the family as the unit. However, whether from the perspective of channels, resources, or stage-based understanding of products, for a long time, giants have had overwhelming momentum over new consumer brands. If they are smart, flexible, and respectful enough, they can continuously acquire new teams. After all, human history repeating the same mistakes proves that the "repeater" is aptly named. So what will super consumer goods giants die from? In my view, they will most likely die from arrogance, from personal interests, and from path dependence oriented toward short-term interests. Or, when the smallest unit of human society shifts from family to individual, and everyone has to label themselves, advertising that speaks to a broad audience alone can no longer move any individual. Consumers only care whether a brand can help them complete their labeling in a way they identify with. Clearly, if giants do not have sufficient preparation and response, they will be dismembered by various small and medium-sized brands that are more flexible, have more precise insights into individuals, and have stronger dialogue capabilities with users. The Power of Know-how At this point, you might ask, what does the life and death of consumer goods giants have to do with me? Actually, the story of super giants I just told is to show you how valuable know-how is. A hundred years from now, many of today's large internet platforms will likely no longer exist, but Moutai and Laoganma should still be around. After more than a decade of observation and thinking, I have found that as long as human physiological structure does not change, consumer demand is continuous and stable. What consumer brands need to do is to find ways to capture these demands. At first glance, consumer goods entrepreneurship and investment seem a bit like metaphysics, seemingly elusive. For example, last time I was having hotpot with a few good friends at a street stall, a friend shouted, "Wanglaoji, iced." The waiter brought a carton-packaged Wanglaoji. My friend was stunned, "I didn't want this; I wanted the red can one," "We only have this, Wanglaoji, and it's cheaper"... After three seconds of silence, "Then let's have a beer, iced." As a self-proclaimed rational consumer, I didn't find my friend's choice problematic at all. The moment he shouted Wanglaoji, the scene in my mind was already fixed as a can of red-can herbal tea. So when the carton packaging with "Wanglaoji" appeared, I felt "shocked"—clearly, it wasn't the "can" I was drinking, and the content inside was the same. Why such a big reaction, to the point of giving up herbal tea for beer? Another scenario: dining with a friend at a small eatery, there was 100ml Jiangxiaobai at 20 yuan per bottle, small Erguotou at 10 yuan per bottle, and also 500ml Niulanshan Erguotou at 25 yuan on the counter. After sitting down, the two of us first ordered two bottles of Jiangxiaobai, spending 40 yuan. By the end of the meal, each had drunk three and a half bottles of Jiangxiaobai, totaling 700ml, spending 140 yuan (the scenario of switching Jiangxiaobai to small Erguotou is also common). So the question is: if choosing Jiangxiaobai is brand-driven, why would consumers choose a small bottle of Erguotou with exactly the same brand, degree, and taste, rather than the clearly more economical large bottle of Erguotou? What is the reason? Sitting at a street stall drinking Baijiu is clearly not a business banquet state. They know each other well, there is no vanity-driven behavior, no half-hearted coyness, and no obsession with separate dining. So when initiating such consumption behavior, why choose the higher-cost solution without hesitation rather than the more affordable one? What is the logic behind it? From these two stories, I want to raise another question: Can the consumer goods industry be explained by economics? The answer is no. Economics studies prices and supply-demand relationships, which are strong logic, but consumer goods purchases involve individuals and human nature, behind which is a complex psychological decision-making process with many uncontrollable points. The so-called "impulse buying" and "I'll stop buying after this" reveal the randomness of human consumption behavior. But are consumers' behavioral motivations and decision-making mechanisms traceable? The answer is yes. After all, human needs are nothing more than within the scope of Maslow's hierarchy of needs, so consumer purchasing behavior actually has patterns at the bottom, but few people delve into them. Brand Hierarchy of Contempt Since the underlying playbook of the consumer goods industry is learnable, standing at the current turbulent moment in the consumer goods field, I attempt to write this column—"Consumer Goods Giants: Demise and Replacement." From an investment and entrepreneurial perspective, I will dissect in detail 20 of the most representative global brand cases that are relatively unfamiliar to Chinese people but have strong reference significance, such as women's sportswear brand Lululemon, eco-friendly sneaker brand Allbirds, fitness brand Planet Fitness, and so on. Of course, there may also be some well-known domestic brands that still have mysteries to explore. Through these cases, I will gradually reveal to you the patterns and paths for consumer brands to grow and scale up. Through a decade of real-money investment and in-depth research in the consumer goods industry, I have drawn several conclusions that will run through this column:

  1. From the industrial age to the information age to the mobile age, the social structure has shifted from family as the main unit, to biological individual as the main unit, to labeled individual as the main unit, causing a fundamental change in the decision-making subject of consumption;
  2. From product channel sales, to brand mind sales, to emotional identity sales, to label selection sales, the driving reasons for consumer transactions are changing;
  3. Product evolution is constantly ongoing, almost never executed by the original leader, basically completed by new entrants, directly leading to brand replacement;
  4. The evolution of people as the smallest social unit includes: bottom-level class stratification (self-cognition of the price range they belong to); next-level labeling and grouping (self-cognition of personalized labels); top-level values (identification with and investment in universal values). On the other hand, by observing important consumer brands that have survived a century, I also propose a brand strategy hierarchy of contempt hypothesis for discussion. The success factors of consumer goods companies are numerous, but the success factors themselves have a hierarchy of contempt. The so-called hierarchy of contempt refers to the level of company strategy. The higher the strategic dimension, the higher the position in the hierarchy of contempt, and the stronger its competitive advantage (i.e., the deeper the moat by nature). Therefore, the order of the projects listed in the column is basically arranged according to the general direction of the hierarchy of contempt, analyzing from high-dimensional advantage consumer brands to low-dimensional advantage consumer brands. The elements included in this hierarchy of contempt are: social responsibility, reasonable scenarios, reducing decision costs (decision convenience), dialogue with consumers, consumption trend changes, new consumer groups, functional enhancement, product upgrades, technological progress... According to the strength of their strategic advantages, they are simply divided into four levels: top dimension, high dimension, medium dimension, and low dimension. See the figure below: If this hierarchy of contempt hypothesis holds, then perhaps we can more effectively evaluate the moat and value of a consumer brand. I will list some representative consumer brands to illustrate these competitive dimensions. These brands have all entered the case library of this column. Of course, we will continue to update with required cases in other dimensions. Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Dedicated to FMCG manufacturers' transformation and upgrading and channel digital solutions