Click the image for details. What exactly is consumption upgrade? There has been much discussion, and even some have proposed the idea of consumption downgrade. I want to state my view upfront: the essence of consumption upgrade is actually concept upgrade. Concept upgrade refers to changes in consumers' perceptions during their consumption process—upgrading in concepts, not in the amount they pay. Focusing solely on price levels completely misunderstands the essence of consumption upgrade. The so-called consumption downgrade concept is also unhelpful for understanding the essence of the trend. What changes in consumers' judgments about their consumption behavior are most important for us to grasp and focus on when investing? This presentation is about the issue of concept upgrade. Why Benchmark Against Japan? The research subjects I have chosen are the two countries we often benchmark against in investment: Japan and the United States. These are the only two representative major countries outside China. This applies at the consumption level, not necessarily in other industries. I have conducted relatively more research on these two countries and collected a lot of material. Today, I will focus on discussing the trends of consumption concept upgrades that have occurred in Japan, which can inspire investment and entrepreneurship in China today. Japan in the late 1970s and early 1980s was particularly similar to China today. This is the core reason I chose it for sharing. In terms of GDP per capita, Japan around 1978 and China today are basically identical—that's the first data point. In the late 1970s, after more than 15 years of ultra-high-speed economic growth (over 10% growth), Japan fell to a medium-speed GDP growth of 5% or 6%. This is also happening in China today, transitioning from high speed to medium speed. Additionally, in the 1970s and 1980s, Japan experienced a period of reflection and localization after embracing Western culture and consumption concepts in the 1960s and 1970s. We will find that in the past decade, China has also seen rapid development of foreign brands. Similar to Japan, we now know what the world's best brands and consumer goods are like. Will we be satisfied with just this? Will there be new changes in the next stage? I believe so. We see KFC in China is declining or growing very slowly, Pizza Hut has seen year-on-year sales declines for more than ten consecutive quarters (just recently recovering slightly), and Häagen-Dazs has been closing stores. These signs indicate that the glorious or fastest-growing period for famous foreign brands in China has passed. Look at the right side—a simple example: if you often go to Japan, you'll know MUJI is a core focus or well-known brand, established in 1980. NetEase Yanxuan is a brand founded last year. At the same stage of consumption upgrade, similar things happen. China has seen NetEase Yanxuan at this stage, not ten years ago. This is not accidental; there are reasons. Another fitting example: Daiso is not as famous as MUJI, but in Japan it is a well-known 100-yen shop brand, selling items like those in Miniso on the right. Daiso was established and developed in Japan in the 1970s, while Miniso appeared in China two or three years ago and has already achieved astonishing annual sales. Therefore, I believe Japan's consumption environment in the late 1970s has strong reference value for China today. Below are five key "concept upgrades" I summarized from my research on Japan at that time. Feature 1: Localization The first is localization, an important consumption concept. When you look at Japanese history, you'll see that in the 1960s and 1970s, including the Olympics and the Osaka World Expo, there was full acceptance of Western culture, with coffee becoming the number one invading beverage in Japanese society. This happened during the high-speed development period. Similarly, China's Olympics and World Expo opened our doors quickly to see all the good things abroad. But why, after buying foreign brands for so long, do people begin to reflect and identify with local culture? Like Japan, China has strong unique characteristics in consumption aesthetics. For example, coffee is the world's most popular beverage. Why has tea become so popular in the last two years? Tea is a uniquely Chinese concept, not brought by Americans; it's something Chinese people have. Why is Heytea so popular? Some articles say Heytea's sales per square meter have surpassed Starbucks. People have inherent characteristics and taste habits from tradition and consumption habits. These issues were masked in the years when Starbucks, KFC, or Häagen-Dazs were most popular, because these things hadn't taken root and were still under the influence of big foreign brands. But with the rise of completely local Chinese brands like Heytea, we believe there will be more such cases. Behind these cases, as an investor, the requirement is to look for opportunities in China's local culture and consumption characteristics. That's the first concept upgrade. Feature 2: Personalization The second concept upgrade is so-called personalization. What does personalization mean? Simply put, many consumption items used to be bigger-is-better, like home appliances and cars—typical big-ticket family consumption. Convenience stores and food delivery are largely personal consumption. What is Japan's largest restaurant chain? It's 7-Eleven. This shows why many people go to 7-Eleven and buy their not-so-delicious boxed meals: because when consuming alone, going to a restaurant wastes time. If I can solve a meal at a convenience store, it's most efficient. Also, why have vending machines been popular in Japan for so long? At the time I mentioned, they suddenly became hot in China. Investors in consumption discuss vending machines every day. Vending machines are also a great way to meet the needs of a single person, being convenient and time-saving. We wouldn't go to a vending machine when gathering with friends. Behind these are opportunities caused by changes in consumption habits and concepts—this second point, we call personalization. Feature 3: Consumers Become Mature and Rational The third point is that consumers become mature and rational. Many people ask me: since we're discussing consumption upgrade, will people buy more expensive and better things? Will they afford light luxury? What about luxury goods? Designer brands? These certainly have market demand. But I think the core concept upgrade is that people will distinguish good from bad more clearly, and it will be harder to fool them. Look at brands like NetEase Yanxuan; they sell at not-expensive prices, actually reducing the premium of foreign big brands. Xiaomi and Miniso follow this logic. Many good things aren't that expensive. The brand premium that foreign big brands can earn will increasingly be eliminated by local startups because consumers are more mature and rational; they won't blindly believe that if it's German, they must buy it even if it's three times more expensive. More consumers will discern, which is an opportunity for startups. Consumers have matured, so startups have the chance to compete against established, especially foreign, brands. That's our third point. Feature 4: Small Happiness The fourth point is called small happiness. Looking at Japan's development history, the so-called concept upgrade often shifts from a grand and extravagant consumption view to a small happiness view. This sounds abstract. I emphasized that economic growth is slowing. In first-tier cities, especially in Beijing, housing pressure is high, so consumers don't have much spare money to squander. This is similar to Japan at that time. Young people lack security and need big assets like houses for security. When the economy develops to a certain level, fixed expenditures are also relatively high. Things that can improve your life satisfaction and happiness will increasingly lean toward small happiness—low-priced, small items. For example, why can MUJI and Miniso become popular? MUJI is something you can buy without making a big decision. To improve my life, buying a set of brand-name items costing thousands is a big decision. Buying a set of bowls and dishes for tens of yuan, or eating a delicious meal—such small happiness, low consumption, easily obtained things—can better enhance my life happiness without needing too much determination or money. For entrepreneurship in these directions, it's essentially food and household goods. From an investment perspective, we are willing to focus on these. Feature 5: Enhanced Spiritual Attributes The fifth point is the enhancement of spiritual attributes. People will increasingly value the emotional attributes behind a product beyond its use experience. MUJI's spiritual attribute is Japan's unique "wu wei" (inaction) culture. It's a brand with spiritual warmth, with appeal beyond product quality itself. How Does the Household Goods Industry Benefit from Consumption Concept Upgrade? Having discussed many abstract concepts, let me give an industry example: the household goods industry. Which companies are included? MUJI, Daiso, Miniso, NetEase Yanxuan, Taobao Xinxuan—all belong to the household goods industry. An industry's development is definitely related to the concept changes of the country at that stage. Why has this industry suddenly risen so much in China in the last two years? Big companies are entering one after another. Why did a large number of companies like MUJI appear in Japan in the 1970s and 1980s? There are reasons. These trends and the industry's characteristics can combine well, so in that environment and in China's current environment, industries that match these characteristics can develop better. I am very optimistic about the household industry. Below, using MUJI as an example, I'll explain why the household industry can greatly benefit from this wave of concept upgrade. Inspiration from MUJI: Nothing Can Stop the Rise of Excellent Brands For the last page, I want to end with the case of MUJI. In the 1980s, MUJI was a startup. During its entrepreneurial process, it was known in Japan as a brand with high cost performance, not like now in China, where it appears as a relatively expensive, high-end brand. It was a cost-effective brand, which confirms the points I made earlier. First, localization: it's a local brand. Second, it emerged at a stage when consumers were becoming mature and rational, characterized by cost performance. Third, MUJI is a representative of the small happiness lifestyle. Fourth, it proposed a brand aesthetic and spiritual attribute with strong local Japanese style, which has strong Japanese cultural characteristics. Now, when we start businesses, should we also think from the point of cultural and spiritual attributes that others cannot provide? Finally, let me add: MUJI is a company founded in the 1980s and developed rapidly in the 1990s. The 1980s and 1990s were a period when Japan's GDP growth kept declining, even falling into recession. But you'll find that economic recession and environmental pressure did not affect the rise of an excellent consumer brand. Because if you truly make good products with reasonable prices, consumers will favor you at any time. Zhihu Column: https://zhuanlan.zhihu.com/freesvchuanghai Click the image for details. The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to jointly explore the new chapter of cross-border integration! Core Topics of This Conference:
How the FMCG industry can achieve new growth opportunities through B2B
How to build the new supply chain behind new retail
How intra-city logistics can help B2B achieve leapfrog development
Highlights of This Conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent transformation and upgrading distributors
Conference + Exhibition upgrade, Hall 6 Internet Technology Exhibition strengthens networking
Alibaba Retail Link, GL Capital, Eternity Group, Best Store+, Yijiu Pai, Unilever, Hisense Information, Yunmei Shares—leaders from various fields will deliver speeches and share pioneering views.
November 8-9, 2017 Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-