Source: Sales and Market (ID: cnmarket)

In recent years, new consumer brands have emerged one after another, making various consumer tracks increasingly crowded. With intensifying industry competition, emerging brands generally face this problem: how to open up a blue ocean from the red ocean? How to bypass existing brands and seize consumer mindshare?

On December 17, 2021, at the "19th China Marketing Ceremony and First China Commercial Circulation Conference" hosted by Sales and Market with the theme "Future Business, Born Anew," we invited Hu Qiaosong, co-founder of Hubang Meat Chili Sauce, to share his insights.

When a company reaches a certain stage, it will inevitably face an organizational transformation. Why do organizational transformations?

Because organizational transformation is a process of entropy reduction. During a company's operations, entropy increases both internally and externally. So after a period of time, there needs to be an entropy reduction process, which is corporate transformation.

Today I will share Hubang's corporate transformation.

Industry Analysis: Why has the chili sauce industry only produced one Laoganma?

First, let me introduce the industry Hubang is in.

When mentioning the chili sauce industry, the first brand everyone thinks of is Laoganma. So, who is the second brand? I think many friends would hesitate on this question.

The chili sauce market is about 40 billion yuan, ranking second in the condiment category, second only to soy sauce, which has a market size of about 70 billion yuan. Although the hot pot base material industry has been popular in recent years and has produced two listed companies, its market size is only about 20 billion yuan. So the overall size of the chili sauce industry is still quite good.

Under the huge market size of chili sauce, the number of people who eat spicy food in China is still growing. Previously, spicy food eaters were mainly concentrated in Yunnan, Guizhou, Sichuan, and other regions. But now, the spicy food regions are expanding, and the age of spicy food eaters is also expanding to younger groups. So spicy products and dishes are constantly developing.

Looking back at the chili sauce industry ecosystem, we say it is "a towering tree plus many low shrubs." The "towering tree" is Laoganma. The top three head brands in the soy sauce industry occupy 43% of the overall market size, but the top three head brands in the chili sauce industry only occupy 18% of the overall market size, with Laoganma alone accounting for 15%.

There is a number one in the chili sauce industry, indicating that this industry can produce a large enterprise with a market value of 5 billion yuan. But the concentration of the chili sauce industry is relatively low, containing opportunities to nurture a second major brand.

1. Different types of players in the track

We have taken stock of competitors in the industry, and there are three types:

First, extension type. Well-known brands that originally made soy sauce, vinegar, or other condiments extend their brand advantages and product advantages into the chili sauce industry to increase sales.

These brands are unlikely to create independent chili sauce brands in the future. This is like Moutai making beer; the more successful the original category and the bigger the brand, the smaller the chance of extending to a new category.

Second, imitation type. Many brands imitate Laoganma's products, channels, and appearance. Based on decades of accumulation, they may form certain advantages in certain regions and achieve a market size of tens of millions to 100 million yuan, but it is difficult to grow because Laoganma is always the first choice for consumers. If Laoganma sells 8 portions, they might sell 2 portions.

Third, internet celebrity type. These are brands that have risen through the internet in recent years, generally with capital support and mostly marketing-driven. Internet celebrity brands have several characteristics: first, they start quickly, completing from 0 to 1 rapidly; second, they often have good brand promotion traits, being very good at spreading or building their visibility in the early stage.

But internet celebrity brands have encountered new bottlenecks in the past two years, namely the decline of traffic dividends. We see public data that in 2020, consumers spent up to 6 hours online, and the internet user population reached 900 million. That means, except for the elderly and school-age children, everyone who can use the internet has already used it.

What does this mean? It means the internet traffic dividend has ended. Making internet celebrity brands now means continuously cutting into existing stock in the current environment. Traffic is getting more expensive. Enterprises that rely on traffic, including those dominated by traffic operations, will face the pressure of high traffic costs.

2. Laoganma's way of survival

Why can Laoganma emerge in the chili sauce track?

People say Laoganma is a product of the times. I don't agree. An era shaped Laoganma, but many brands in various categories have also been impacted by the internet era. Why hasn't Laoganma been impacted? We need to ask this question.

Looking back, many of the criticisms people have about Laoganma are, in our view, exactly where Laoganma has been very successful. We deeply respect Laoganma as the leader. Its brand has two cores:

First, Laoganma insists on a big single product strategy.

What is Laoganma's representative product? Fermented bean curd with chili, a big single product with a market size of several billion yuan. Laoganma has truly registered a brand in consumer minds. If a brand is not registered in consumer minds, it is just a product name, a fake brand.

A brand must occupy a place in consumer minds. When consumers make choices, it should help reduce their decision-making costs. Only then is it an effective brand with value. Laoganma has truly achieved this.

When it comes to Laoganma, consumers have cognition in their minds about what environment it is eaten in, what it tastes like, and what it looks like. But for other brands, it is hard to think clearly. No matter how the internet impacts, people's minds have not changed.

Second, Laoganma has persisted for decades without wavering.

Others suggested that Laoganma should use innovative marketing methods, launch more fashionable flavors, etc., but Laoganma did not change. This is what shaped the big single product. Brand strategy is a company's strategy and direction, not a communication tool. Laoganma's strategic accumulation may seem unflashy, but it is very powerful.

This is our judgment of the entire industry.

****Company Founding: Hubang from 0 to 1

Next, I will briefly introduce how Hubang achieved from 0 to 1. Hubang Chili Sauce was established in 2015, specializing in the production and sales of chili sauce. Its own factory is located in Dezhou, Shandong, with modern factory buildings of 12,000 square meters, an annual production capacity of over 7,000 tons, and annual sales of 400 million yuan.

Hubang is also a drafting unit for the national standard "Stir-fried Chili Sauce." A total of 10 enterprises in the country participated in drafting this national standard. Fortunately, Hubang is one of them. After the implementation of the stir-fried chili sauce standard, 20% to 30% of workshop-type enterprises in China will not have production qualifications.

In 2015, at the beginning of Hubang's entrepreneurship, it encountered the impact of the internet on the entire marketing system. The old methods of online advertising and offline channel distribution no longer worked. How did Hubang break the deadlock?

In this process, Hubang mainly carried out innovations in two aspects.

First, product innovation, creating small packaging

Small packaging is the common logic of all product iterations. Changing any product to small packaging is an upgrade, and chili sauce is no exception.

After making chili sauce into small packages, its consumption scenario changed from the traditional scenario (storing in the refrigerator after eating at home) to a new scenario of ready-to-eat and disposable, which is convenient and hygienic. This is Hubang's first innovation.

In this process, Hubang actually overcame many difficulties. Although coffee adopted small packaging early on, coffee is a powdered product, while chili sauce is a semi-solid, semi-liquid oily product. How to ensure uniform measurement was a very difficult problem. Hubang overcame the difficulties and made small packaging, achieving product innovation.

Second, scenario innovation, creating the delivery scenario

In the simple meal scenario, spiciness is king. In the table meal scenario, when friends and family gather, ordering seven dishes and one soup, whether there is chili sauce or not doesn't matter. If you really want to eat spicy, you can order a spicy dish or simply eat hot pot. But the simple meal scenario is different. Limited by the limitations of ordering dishes, adding chili sauce can solve the problem very well because spiciness is the king of going with rice.

Many brands say they plant seeds on Xiaohongshu or Douyin. In fact, Hubang plants seeds in delivery, acquiring the first batch of origin consumers. Currently, Hubang has cooperated with 70 of the top 200 delivery restaurant brands nationwide.

Excluding brands like Zhengxin Chicken, McDonald's, KFC, etc., which do not match the chili sauce consumption scenario, Hubang has cooperated with more than half of the top 200 delivery restaurant brands.

These consumers will also consciously and spontaneously repurchase through other retail channels.

In Hubang's Tmall traffic structure chart, 54% of traffic comes from consumer searches. Consumers actively go to the platform to buy. This is a brand-based approach, not a traffic-based approach.

In five years, Hubang completed "from 0 to 1," accumulating unique products and unique sales methods. After prompting, consumer awareness reached 41%, forming a basic cognitive foundation. The supply chain was opened up, and factory automation was upgraded, forming a basic production foundation.

Company Development: From Solving "Survival Problems" to Solving "Development Problems"

In the from 0 to 1 stage, Hubang found the delivery scenario and rode the delivery dividend, solving the survival problem. At this stage, how does Hubang develop further? How to adjust from survival logic to development logic?

After exploration, Hubang figured out that for Hubang, simply relying on so-called channel innovation or additional investment cannot solve the problem.

So Hubang wants to create a new category and make a big single product, rather than being limited to the original small framework. So after segmentation, Hubang finally made a choice: to do the "meat chili sauce" category.

1. Why make meat chili sauce?

First, it exists in the market but not in the mind. Consumers don't think this way, but they choose this way.

For example, if you take out two bottles of chili sauce, one is a 15-yuan meat chili sauce, and the other is a 10-yuan garlic chili sauce, 85% of people will choose the meat chili sauce. This is "exists in the market but not in the mind." In this scenario, it is easiest to differentiate product categories.

Second, meat chili sauce itself has a factual basis for upgrading. Meat chili sauce contains animal protein and animal fat. Its fat saturation is better, the aroma is stronger, and the consumer experience is better.

Third, to differentiate from competitors. Laoganma is a typical vegetarian chili sauce. Its taste is relatively single. A single-flavor chili sauce is more suitable for cooking. We found that half of Laoganma's sales are used in restaurants to make Lu-Xi'nan style dishes.

Hubang's positioning is as a side dish. When consumers are eating and the taste is insufficient, a jar of meat chili sauce is more suitable to help with the meal.

Based on these points, Hubang chose "meat chili sauce" as its development strategy. In the future, when everyone mentions meat chili sauce and thinks of Hubang, this strategy will basically be successful.

2. How does Hubang occupy the meat chili sauce category?

First, product innovation. To establish a meat chili sauce positioning, it must match consumer perception. If consumers eat it and don't think it is meat chili sauce, the positioning is undoubtedly a failure.

So in the selection of meat, including the graininess of the meat, Hubang made a lot of attempts, such as making small meat particle technology, finding the golden ratio, and establishing the core underlying logic of meat chili sauce as "fragrant." What is the final evaluation of meat chili sauce? Not very spicy, but very "fragrant." That's right.

Second, continue to deepen the simple meal scenario. Hubang will further invest in the simple meal scenario, including channels other than delivery, and will reach them in a stepwise manner.

Third, use brand-based approach for communication. Hubang will definitely use the internet as a communication channel, but it must adhere to the brand-based approach, not the traffic-based approach.

The traffic-based approach's underlying logic is to acquire traffic at the lowest cost, which is the source of all competitiveness. Under this approach, brands need to continuously launch new products, break circles, and create topics.

But the brand-based approach is different. It requires product focus. The forms of communication may be diverse, but the content must be focused, always focusing on the brand appeal and continuously exerting effort.

Every enterprise, especially consumer goods enterprises, must ultimately create customers. What attempt is Hubang making? Originally, in the side dish scenario, chili sauce was not necessarily needed. We hope to create a category in this scenario called meat chili sauce.

Recently, a word has become very popular: "involution." If others do something, I do the same, rushing in all at once. At this time, everyone will be very tired. Hubang hopes to avoid this involution by creating customers.

Through Hubang's new strategic transformation case, I share some insights with you. Thank you!

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