Click 'Read Original' for details. Alongside the wave of consumption upgrades, on one side are internet tech companies striding forward, growing braver, more hopeful, and aspiring to become great enterprises; on the other side are traditional industries, already dizzy from the internet, losing direction and fighting spirit, as if their invincible capabilities vanished overnight, losing the control they crave most. In fact, a rational analysis of causes and trends reveals it's not that bad. Take the business dynamic of consumption upgrades: it's another great opportunity for traditional entrepreneurs. If they can change their mindsets and practices, it often becomes the moment for local companies to rise. We have been helping companies create products for consumption upgrades and are optimistic about its market opportunities. So today's article examines consumption trends in neighboring Japan 40 years ago—not to copy blindly, but to extract the underlying logic and find our own leverage points:
- Consumption upgrade does not equal expensive;
- The biggest opportunity in consumption upgrade is localization;
- 'Cost-performance' is a replicable model; I believe this will bring enlightening insights. You'll also see many hopes and opportunities, with huge potential! First, look at these findings: In 1972, Japan's 100-yen store chain Daiso was founded. The same year, Tokyo got its first FamilyMart convenience store. Two years later, Tokyo opened its first 7-Eleven. In 1980, Japanese coffee chain Doutor opened in Tokyo; now Doutor is Japan's second-largest coffee chain after Starbucks. In the 1980s, IKEA was conquering many countries, but in Japan it lost to local home furnishing brand Nitori. Additionally, super-species of consumption upgrade, Muji and Uniqlo, were born in 1980 and 1984 respectively. 1. Why Benchmark Against Japan? Compared to the US, China and Japan share more similarities in the causes and development of consumption upgrades. The urban structures of China and Japan are similar: many cars, narrow roads, dense commercial establishments like restaurants, providing opportunities for consumption-related business models. The US has a sparse population, driving is convenient, and commercial density is lower. Lifestyle and consumption habits also share similarities. Take matcha brand Guanzha: matcha originated in China, spread to Japan, and now is popular again in China. Also, traditional Chinese medicine (Kampo). Beyond cultural and geographical similarities, China and Japan also share economic development trends. Both experienced over a decade of rapid economic growth, with GDP compound growth rates around 10%. Japan entered its high-growth period in the 1950s, surpassing Germany in 1968 to become the world's second-largest GDP. Until 2010, when China overtook Japan to become the world's second-largest economy. With GDP growth, Japan and China successively hosted the Tokyo Olympics, Osaka Expo, Beijing Olympics, and Shanghai Expo, actively integrating into the global system. Another significance of opening up was the rapid influx of foreign brands into Japan and China, forcing local consumer brands to face global competition, and consumers bid farewell to material scarcity. In contrast, the US experienced little foreign brand 'invasion' during its consumption upgrade. After over a decade of economic development, both countries transitioned from high-speed to medium-speed growth. Japan's turning point from high to medium speed was in 1975. The 1974 oil crisis caused negative growth that year. From 1974 to 1990, Japan's annualized growth rate fell from around 10% to about 5%. China, after 2012, entered the 'new normal,' with GDP growth around 6-7%. China's current economic growth rate is similar to Japan's from 1975 to 1985. When the economy enters the medium-speed stage, consumption upgrades truly begin. From scarcity to possession cannot be called a consumption upgrade; it's just 'I've just eaten my fill' or 'I've just used something good.' After material abundance, consumers go from being dazzled to 'unflappable,' losing novelty for many things. Consumption aesthetics need upgrading, and expenditure structures need optimization. Most Japanese consumer goods companies we know today were founded between 1970 and 1980.
1972: FamilyMart, Daiso, and Nitori founded.
1974: First 7-Eleven opened in Tokyo.
1980: Muji founded.
1984: Uniqlo founded.
Per capita GDP is an economic indicator often discussed in consumption upgrades. After per capita GDP reaches $8,000, many magical changes occur in the business world. Japan reached $8,000 per capita GDP around 1978; China did in 2016. In the late 1970s, Japan's consumption accounted for about 55-60% of GDP; China's is currently around 35-40%, showing our consumption demand has not been fully released. In a rapidly developing, thriving society, consumer orientations are relatively uniform. After economic growth slows, class gaps widen, and demands diverge. Some buy low-priced products, others luxury goods. Consumer geographic distribution and needs become increasingly diverse. For example, Japan's best-selling instant noodles fall into two categories:
First, noodles priced above 700 yen (about 42 RMB), sold to 'health-conscious' users.
Second, noodles priced below 300 yen (about 18 RMB), sold to people below the middle class. These two types target different needs and demographics, and both are profitable. It's hard to summarize Japanese consumers then and Chinese consumers now in a few words, but interestingly, Japanese youth in the 1970s-80s are very similar to China's post-90s generation. They were born during the middle of rapid economic growth, so their living environments were relatively comfortable from birth. Therefore, they have strong consumption desires, are bolder in spending, and pursue individuality. 2. Four Rules of Consumption Upgrade Based on observations of Japan's consumer goods industry and society, we summarize four rules regarding Japan's consumption upgrade: 1. Localization Japanese society is deeply influenced by the West, but from the 1970s, many local brands emerged, winning against international giants and becoming household names. 2. Personalization Japan's consumption unit shifted from family to individual, consumption style from conformity to self-expression, and convenience stores rose. 3. 'Better and Cheaper' Consumers' ability to judge value and price increased, supply chain efficiency shortened retail channels, and cost-performance of consumer goods improved. 4. Consumers' psychological and emotional appeals gradually become the dominant force in social consumption This is reflected in consumers' pursuit of 'small happiness': In the early 1970s, large items like home appliances were basically universal, products trended toward miniaturization, and consumers craved instant joy at small prices. Additionally, the spiritual attributes of products increased: consumers began to value the spiritual satisfaction brought by added value. Below, we analyze each in detail. 1. The Biggest Opportunity in Consumption Upgrade is Localization Accompanying the consumption upgrade wave is often the rise of local consumer goods companies. Both China and Japan experienced a phase of foreign brands flooding local markets. In the past decade, brands like Pizza Hut, KFC, McDonald's, and Unilever saw rapid growth in China. In recent years, foreign brands' growth has slowed, while local consumer goods companies have emerged. This is a process of one rising while the other falls. Japan witnessed a classic case of a local company defeating an international giant. IKEA entered Japan in 1974, but its products didn't fit Japanese market needs, gradually losing to local brand Nitori. In 1986, IKEA withdrew from Japan, only re-entering in 2006. The core reason for IKEA's failure in Japan is that the Japanese home furnishing industry has strong local attributes. In terms of sales channels, most Japanese furniture stores are small, due to compact urban layouts and limited land. Nitori's stores in Shanghai are in inconspicuous spots in shopping malls, about 4-5 floors, 500-1,000 square meters. In contrast, IKEA opens stores of tens of thousands of square meters in Europe and the US, which extend customer dwell time; food alone accounts for about 10% of IKEA's sales. IKEA's big-box retail format has a long history, and it's unlikely to completely overhaul this format for one overseas market, leaving a breakthrough for competitors. Furthermore, in supply chain management and production efficiency, Japanese furniture companies' production costs are far lower than overseas companies. Once, Japan's traditional handmade production lagged behind IKEA in supply chain management, but Japanese furniture companies learned from IKEA's supply chain methods, reduced costs, and gained price advantages. In product style, both IKEA and Nitori are minimalist, but Nordic minimalism often uses dark blue and dark gray, while Japan favors wood tones. Based on Nitori's defeat of IKEA, local companies can find opportunities in sales channels, supply chain management, and product style. Will IKEA face the same in China? Twenty years ago, IKEA entered China when local production capacity, entrepreneurial teams, and capital were insufficient to challenge IKEA. Now IKEA has been rooted in China for 20 years, making it less likely to be defeated. However, the domestic furniture market is at least a trillion yuan. IKEA's 2017 China sales were 13.2 billion yuan, only about 1% of the furniture market. Therefore, local companies still have a large remaining market to compete for. Beyond furniture, China has localized categories like dumplings, roujiamo, rice wine, red wine, and tea. Especially tea. Based on China's cultural and resource advantages, influential local tea brands may emerge. Excellent consumer brands have a longer window period, not as short as internet trends (usually 3-6 months). If you invest in live-streaming products or ride-hailing apps now, it's likely too late; the battle is over. But in the consumer sector, there may still be a 5-10 year window. Japan has passed its consumption upgrade window, but companies born during that period still have significant influence and maintain rapid growth, with very high ceilings. 2. Aim at Singles' Wallets The second lesson from Japan's consumption upgrade is personalization. Since the 1970s, the trend of personalization in Japanese society has become increasingly evident. In Japan, nearly 20 million of the 100 million population live alone. The accelerating pace of social development has spawned small-quantity, high-frequency personalized consumption behaviors. The personalization trend has driven the birth and growth of many new consumer companies. 01. Rise of Convenience Stores In the early 1970s, Japan introduced the convenience store model from the US, and convenience store formats, represented by local brand FamilyMart (1972) and American brand 7-Eleven (1974), rose rapidly. In Japan, it took only about 20 years for convenience stores to become a core retail format from their rise in the 1970s. Now, convenience store retail sales account for about 10% of Japan's retail market, close to the proportion of e-commerce in China's total retail. A key reason for convenience stores' status in Japan is that, compared to supermarkets that mainly serve families, convenience stores do business with individuals, who are accustomed to buying small quantities frequently. Beyond the personalization perspective, data shows that from 1973 to 1995, the rapid development of Japanese convenience stores was synchronized with per capita GDP growth. 1973: First 7-Eleven founded.
1987: Japan's per capita GDP around $20,000; 7-Eleven surpassed 3,000 stores.
1995: Japan's per capita GDP peaked at around $40,000; 7-Eleven surpassed 6,000 stores. 02. Vending Machines' Popularity Vending machines in Japan's 1970s consumption upgrade played a role similar to China's current food delivery, meeting consumers' quick dining needs. Japan's vending machine boom began with the 1970 Osaka Expo. That year, the expo attracted 64.22 million visitors, breaking historical records. Vending machines at the venue were crucial in meeting the food and drink needs of the massive crowds. At that time, Japan had only 1 million vending machines. By 1975, that number had reached 3 million. This growth continued until 1990, when the number hit 5 million and then stabilized. Japan has about 100 million people, meaning roughly one vending machine per 20 people. So, the question arises: If one vending machine per 20 people is a reasonable density, then China, with 1.3 billion people, should have over 50 million vending machines? Japan's convenience stores started in 1973. Our current economic development has similarities to Japan in the 1970s-80s. What is the ceiling for convenience stores in China? As a retail format that meets individual, small-quantity, high-frequency consumption, convenience stores certainly have space in China, but it's unlikely that convenience stores and vending machines will become as dense as in Japan. One reason is that China's internet has a strong impact on commerce. If you open a 5,000-square-meter O2O fresh food store with half-hour delivery within 3 kilometers, it can basically replace convenience stores and vending machines. 03. Deeply Affected Catering Industry Japan's largest catering company is 7-Eleven, which sells countless bento boxes in Japan, doing catering alongside convenience stores. In 1975, Japan's catering industry market value was less than 10 trillion yen; by around 1990, it approached 30 trillion yen, tripling. After Japan's economic bubble burst, the catering industry entered a plateau. In 2017, Japan's catering market size was around 25 trillion yen, close to 1.5 trillion RMB. China's population is 13-15 times Japan's, and its catering market is about 3 trillion RMB, only twice Japan's. Macro-wise, China is likely to see excellent catering companies in the next 10-15 years. However, macro beauty coexists with practical difficulties; catering entrepreneurship requires great patience. It's essentially a service industry, and growing from 0 to $10 billion is challenging. 3. How Is 'Better and Cheaper' Possible? The third important trend in Japan's consumption upgrade is 'better and cheaper.' Consumers' ability to judge value and price increased, supply chain efficiency shortened retail channels, and cost-performance improved. The essence of consumption upgrade is: selling better things cheaper, not more expensive. 'Cheaper' means lower or more affordable compared to our expected price. For example, consumers might have spent 20% of their budget on food, but now spend only 15%, yet with better quality. Domestically, there are also many 'better and cheaper' products: Miniso has a hit product: a 9.9 yuan coin purse. '90fen' uses materials of the same quality as US brand Samsonite but is much cheaper. Heytea offers drinks made with fresh fruit and tea, priced lower than beverages sold by foreign coffee chains. During Japan's consumption upgrade, low-price, high-quality brands like Daiso and Muji emerged in the 1980s and continued to rise against the trend after the economic bubble burst in the 1990s. Another typical brand that is better and more affordable is Uniqlo. 01. SPA Model Uniqlo's key to controlling quality and price lies in its SPA (Speciality Retailer of Private Label Apparel) model, which maximizes offline retail efficiency. SPA means the brand controls the entire production process from start to finish, from upstream raw material procurement and production quality control to downstream sales, inventory control, online sales, and customer service—all done in-house. The SPA model is efficient, but building it is complex. Uniqlo, IKEA, ZARA, NetEase Yanxuan, and Xiaomi all use the SPA model. Let's analyze the characteristics of the SPA model: 1) In SPA, the supply chain extends to material manufacturers Uniqlo's classic Heattech series is warm; such raw material innovation is only possible for end-to-end companies. Xiaomi also controls product components to support its entire product ecosystem. 2) SPA brands rarely advertise End-to-end retailers like IKEA, ZARA, and Uniqlo use their stores as advertisements. Low marketing costs allow brands to return more profits to consumers, creating a positive cycle. 3) In SPA, data is integrated across the entire chain A ZARA store's product sales might be transmitted to Spanish headquarters the next day. When a retail brand can integrate the entire production and information chain, inventory management—a core retail challenge—becomes easier. The SPA model provides quality products at controlled prices, generating high consumer surplus (also known as net consumer benefit, which is willingness to pay minus actual payment). The SPA model is effective in home furnishing and apparel, but success is difficult; once achieved, it might make you the richest person in the country. Uniqlo founder Tadashi Yanai has repeatedly topped Japan's richest list, and Europe's richest person for a long time was ZARA's founder. SPA brands are vibrant. People joke about 'million-yuan salary Uniqlo'—even if consumer incomes rise, they still choose Uniqlo. 02. Basic Styles Besides the SPA model, the basic styles positioning also helps Uniqlo achieve 'better and cheaper' and improve business efficiency. Basic styles allow a single SKU to sell more, easily creating economies of scale, giving brands greater bargaining power with suppliers and easier inventory management. Additionally, basic styles are easy to buy online because they mean stable quality, less tied to fashion trends, versatile, and don't require trying on. This partly explains why Uniqlo's sales on Tmall are much higher than ZARA's. In China, few companies can achieve the SPA model. Many Chinese consumer brands are 'distributor brands'—they collect money from distributors rather than directly from consumers, so essentially their customers are distributors. Information feedback is not smooth, so brands cannot quickly respond to consumer needs when managing SKUs. In the SPA model, there is no distributor role. 03. Red Star Macalline Model There is another model called the 'Red Star Macalline model.' As a retail terminal, it charges brands rent for space but does not directly control products. Simply put, products go through multiple intermediaries from production to consumers, making it common to spend tens of thousands on a bed. Red Star Macalline is profitable and viable as a business model, but it doesn't maximize efficiency. 4. 'Cost-Performance' Is a Replicable Model The fourth important trend in Japan's consumption upgrade is focusing on satisfying consumers' psychological and emotional appeals. This is easy to understand. As many people perceive brands, it's about emotional added value. In the early 1970s, large home appliances like TVs, washing machines, refrigerators, and air conditioners were already widespread in Japan. When material abundance is excessive, the importance of purely material products declines; consumers tend to buy small products or those with strong spiritual attributes. China is currently in such a stage. Consumers crave buying products that delight them at small prices, pursuing 'small happiness,' and value the spiritual satisfaction from added value. If we analyze basic styles from psychological and emotional appeals, their strong vitality in consumption upgrades is because basic styles represent a lifestyle proposition, expressing a universal attitude or value pursuit—casual, understated, quiet, not 'self-righteous'—resonating with white-collar or highly educated people. In Japan's 1970s-80s, the fastest-growing category in consumption was household goods, growing about 10 times in a decade. Muji, Daiso, and Tokyu Hands belong to this category. Household goods are low-priced, don't take up space, and provide 'small happiness' psychological satisfaction. A small photo frame or a bunch of flowers can make a home warm and stylish. Besides 'small happiness,' consumers have other psychological appeals. A product's brand positioning is closely related to consumers' psychological appeals. For example, Three Squirrels is positioned as nuts, with an emotional positioning of cute and adorable. Jiang Xiaobai is positioned as baijiu, with an emotional positioning of 'life is simple.' Endless personalization and self-expression is an emotional positioning. For example, everyone wears Nike, but I wear PARTICLE FEVER to show my individuality and style. But what is my personality? What products highlight my self? These are essentially sociological or philosophical questions, not necessarily answered by buying consumer goods, but many try to find answers through consumption. Second, consumers pursue timeless brands. Many luxury brands have centuries of history, creating a sense of eternal nobility. Consumers are easily attracted to the timelessness of high-end brands, so there are often 'retro fever' and 'nostalgia fever.' Additionally, consumers have anxiety and a desire for self-improvement. Buying fitness classes and using knowledge payment brands are two typical consumption behaviors to alleviate anxiety. Consumers have many psychological appeals; a product doesn't need to satisfy all, but it must hit one to develop long-term. Note that 'cost-performance' is not a psychological appeal but a model that every brand can replicate. But if a consumer brand suddenly shifts from 'cost-performance' to satisfying a certain psychological appeal, it might alienate consumers without that appeal. However, every positioning choice can't affect everyone. So, when a brand's user base grows, it may become weaker in branding, hesitant to define its emotional appeal or specify which psychological appeal it satisfies. But new brands like 'Nagu' can boldly choose to maintain loyal users and maximize word-of-mouth. Muji is a great example of satisfying consumers' psychological and emotional needs. What is its emotional appeal? 1. Concern for environmental issues. Consumers who like Muji appreciate the beauty of returning to simplicity and dislike overly industrialized products. 2. Extraction and identification with Japanese culture. Muji successfully extracted core concepts of Japanese Zen culture, such as 'nothing is something' and 'ma' (negative space), into its brand DNA. It resonates with Japanese consumers' localization psychological appeal, which is hard for other countries to replicate. An industry that can grow rapidly for over 10 years during a consumption upgrade must resonate with some social trend to develop in sync with society. I hope this analysis of Japan's consumption upgrade process can serve as a reference. 3. Consumption Upgrade Case: Hema Fresh In the past two years, Hema Fresh has been a pioneer in new retail and a lucky child of the consumption upgrade wave. This 'four-not-like' species—claiming not to be a supermarket, e-commerce, food delivery, or catering—was quietly prepared for two years within Alibaba as a new retail benchmark. With its April 28 entry into 10 cities including Wuhan, Hangzhou, and Chengdu, it's sweeping the nation. Redefining the store was Hema Fresh's initial core positioning. And Hema Fresh has indeed achieved it. 'Buying abalone is like buying cabbage; you have to fight for it.'
'To buy a Boston lobster, queue for half an hour.'
...... Such scenes are becoming daily at Hema Fresh stores. Behind this is rising resident income. In 2017, urban per capita disposable income reached 36,000 yuan, six times that of 2000. Income growth has brought a huge middle-class dividend. According to McKinsey, with an annual income of 75,000-280,000 yuan as the standard, China's middle class has grown from 5 million in 2000 to nearly 300 million today, and is expected to exceed Europe's total population by 2020. Middle-class consumption concepts are changing; food, clothing, housing, and transportation are just basic expenses, while tourism, entertainment, and healthcare consumption proportions are rising yearly. Thus, outbound and cruise travel businesses are booming; physical examination centers are crowded daily; China's box office sets new records every year...... Consumer attitudes are also changing. The main consumer force, post-80s and post-90s, increasingly value branding, pursue personalized and niche products, and focus on experience. Both usage experience and shopping process experience can determine final purchase decisions. For example, the recently popular 'Heytea' and 'Sang Tea'—niche brands relying on unique social marketing and product creativity—swept first- and second-tier cities. To get a cup of Heytea, people commonly queue for over 2 hours, and even scalpers queue to buy, which was unimaginable before. Consumption upgrades are everywhere; this has become the starting point for any business change. Consumption Battle in Second-Tier Cities Among the 10 cities where Hema Fresh opened on April 28, strong second-tier cities like Wuhan, Xi'an, and Chengdu encountered this new thing for the first time. Choosing mature, resource-complete first-tier cities, stabilizing operations, then expanding to second- and third-tier markets is a common practice for promoting new things. But Hema chose to launch simultaneously in first- and second-tier cities, driven by second-tier cities' thirst for innovation. Take Wuhan: from establishing a branch to opening the first store took only 65 days, the fastest nationwide. Licenses needed for opening were obtained in two hours. After Hema opened in 10 cities, Tianjin and Henan governments proactively approached Alibaba to introduce Hema. More and more big brands are fully attacking second- and third-tier consumer markets. In May, Hong Kong's Wharf Group's IFS International Finance Center opened its fifth mainland project in Changsha, with Hermès, Prada, and Dior entering Hunan for the first time;
Trend culture company YOHO! opened its first offline store in Nanjing at the end of last year;
Xi'an welcomed SKP's first flagship store outside Beijing this month.
Starbucks, considered a middle-class standard, has opened in third- and fourth-tier cities like Zibo and Luoyang. The pace of consumption upgrades in second- and third-tier cities is accelerating, even trending to surpass first-tier cities, which is related to the rise of consumption power in these cities. Image source: Mikuan Consumer Investment Report In total consumption, Shanghai, Beijing, and Guangzhou top the list, followed by Chongqing, Chengdu, and Wuhan—also famous commercial hubs. In terms of consumption as a share of GDP, Shenyang ranks first at 68%, followed by Fuzhou, Xi'an, Wuhan, Chengdu, Hangzhou, and Zhengzhou—all second-tier cities. First-tier cities' consumption growth is slowing, with only Beijing above 10%. Chongqing, Chengdu, Wuhan, Hangzhou, and Nanjing all have growth rates above 10%, showing 'potential' not to be underestimated. As young people increasingly return to second- and third-tier cities, they bring back more urbanized consumption habits and concepts, pushing these cities' consumption upgrades closer to first-tier levels. Consumption upgrade does not equal expensive; cheap goods also have opportunities. During the 2015 'Double 11,' Tmall achieved 91.2 billion yuan in sales, and JD.com's total orders exceeded 100 million. At that time, Jack Ma, Liu Qiangdong, and even Pony Ma watching from the sidelines would never have imagined that a new e-commerce player born just two months earlier—Pinduoduo—would challenge their status two years later. With 8.8 yuan jeans, 9.9 yuan sneakers, and various low-priced fruits, Pinduoduo matched Vipshop's user numbers and orders within a year of launch. In 2017, Pinduoduo delivered over 100 billion yuan in GMV and catchy tunes from various variety shows. To reach such performance, Taobao took 5 years, and JD.com took 10. 'Rural areas surround cities,' promoting in vast third- and fourth-tier markets, Pinduoduo captured the data vacuum of Taobao and JD.com. For this reason, Pinduoduo is considered to lead another trend of 'consumption upgrade.' Even earlier, the market had noticed the appeal of low-priced, quality products. Miniso, which imitates Muji and copies Uniqlo's logo, achieved 12 billion yuan in revenue and over 2,600 stores in just 4 years;
Xiabuxiabu, which keeps hot pot industry average ticket below 50 yuan, went public in 2014 with a net profit margin as high as 13.3%;
NetEase Yanxuan, founded only two years ago, relying on selected quality products and ODM model, shed its copycat label to become a 'cost-effective' choice for new middle class;
...... Perhaps we can see clues from income. Although China's per capita income has been rising, it's not as wealthy as imagined. So, in the consumption upgrade trend, low prices are not without opportunity. Instead, consumers are becoming smarter and more rational, buying quality goods in some places and cheap goods in others. That is, in the consumption upgrade era, selling cheap goods also has opportunities. We'll analyze specific strategies and methods in our next article. Systematic Approaches in a Complex Business World The essence of consumption upgrade is change. It's not simply about good or bad, high or low, but new changes and strategies compared to the past. But one thing: in the past 100 years, we've evolved from horse carriages to jets, from letters to today's smartphones. Every successful business model contains a set of constant rules: Low price, good quality;
Faster solutions;
Better time efficiency;
More choices;
Increased comfort;
Entertainment/curiosity;
Deep human connection;
Greater transparency;
Less collateral damage;
Higher social status;
Enhanced confidence/trust. You can make long-term, large bets on these options because even in the future, people's needs and focus will remain on them. We are willing to work with like-minded entrepreneurs to seize the opportunity of consumption upgrades and create a new world! Source: FreeS Fund (ID: freesvc) -END-