---
title: "Weng Yinuo of Hongzhang Capital: In the Era of Fragmented Traffic, Small Brands Are More Likely to Gain Momentum!"
description: "The following is the speech delivered by Mr. Weng Yinuo, founding partner of Hongzhang Capital, at the 5th FMCG + Internet Conference hosted by New Distribution, organized and released for readers. Hongzhang Capital is an investment institution focused on the consumer sector, and I was among the early proponents of interpreting the connotation of new retail. My book 'The Future of New Retail' sold quite well. But looking at this book written two years ago from today's perspective, I feel there have been some profound changes. So today I will share with you our thoughts on the future of new retail and new brands."
author: "翁怡诺"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-03-26"
language: "en"
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# Weng Yinuo of Hongzhang Capital: In the Era of Fragmented Traffic, Small Brands Are More Likely to Gain Momentum!

> The following is the speech delivered by Mr. Weng Yinuo, founding partner of Hongzhang Capital, at the 5th FMCG + Internet Conference hosted by New Distribution, organized and released for readers. Hongzhang Capital is an investment institution focused on the consumer sector, and I was among the early proponents of interpreting the connotation of new retail. My book 'The Future of New Retail' sold quite well. But looking at this book written two years ago from today's perspective, I feel there have been some profound changes. So today I will share with you our thoughts on the future of new retail and new brands.

The following is the speech delivered by Mr. Weng Yinuo, founding partner of Hongzhang Capital, at the 5th FMCG + Internet Conference hosted by New Distribution, organized and released for readers.
Hongzhang Capital is an investment institution focused on the consumer sector, and I was among the early proponents of interpreting the connotation of new retail. My book 'The Future of New Retail' sold quite well. But looking at this book written two years ago from today's perspective, I feel there have been some profound changes. So today I will share with you our thoughts on the future of new retail and new brands.
**1. The Downward Opportunity in China's Consumer Market**
Looking ahead, I still believe that the major opportunity in China's overall consumption, whether in terms of traffic or product, lies in the downward opportunity for brand owners. Traffic monopoly in county-level markets is not yet as fragmented; there is still opportunity for traffic monopoly, and traffic in lower-tier county markets still has good growth potential, including the rapid development of internet-based leisure and entertainment in county markets. We see a clear spillover effect in third- and fourth-tier cities around central cities, with population influx driven by industrial transfer. In the future, there is a huge opportunity for downward expansion in China's consumer market, with great potential in rural retail and rapid e-commerce growth in lower-tier markets.
**2. The Middle-Aged and Elderly Are Becoming a New Traffic Depression**
Many VC friends study the post-90s, post-95s, and post-00s generations. I spend time studying the consumption behavior of the middle-aged and elderly as they age, and I believe this may be a new traffic depression.
In the future, the consumption willingness and concepts of the population before the age of 55 are somewhat lagging, but as the post-60s generation ages, I believe they have already become new immigrants of the internet, and their consumption behavior can be internet-enabled. So we judge that when this group further enters the elderly stage, their consumption preferences and products will undergo major changes. For example, recently we looked at an interesting project specializing in elderly shoes, which achieved revenues of 2-3 billion yuan in just a few years. This is a surprisingly large market that has been overlooked and underdeveloped.
**In 2020, the post-60s enter 60-70 years old, and the post-70s enter 50-60 years old. This wave of middle-aged and elderly people already has a foundation of mobile internet usage and transaction habits, and online-related products and services are expected to usher in a wave of traffic dividends.**
**3. The Era of Borderless Consumption and Super Integration**
The evolution of traffic, simply put, has shifted from the logic of people finding goods in department stores and supermarkets to goods finding people, such as delivery-to-home services, and finally to borderless consumption. For example, the concept of new retail is a two-way integration. **But today's traffic environment is vastly different from the past: traffic is fragmented.** Unexpectedly, WeChat traffic overflow empowered Pinduoduo and a batch of new social e-commerce platforms.
Today, internet traffic is extremely fragmented, and the decentralization of information dissemination has caused major changes in the business models of brand owners. For example, take a major brand we invested in: **Blue Moon. I am deeply impressed. Six years ago at board meetings, we discussed how to deepen the hypermarket channel. But now, what do we discuss? How to meticulously cultivate more than 10 types of channel traffic. The fragmentation of traffic has brought about changes in overall sales behavior, which has occurred over the past five years.**
In simple terms, **new retail digitizes offline customer acquisition scenarios, increases user touchpoints to form user retention, and then uses tools to create new gameplay for fission, thereby reducing customer acquisition costs. Cost is always the core logic in traffic.**
**4. Industry Trends in Large Consumption**
Research on large consumption mainly focuses on people, especially population structure. In fact, China is gradually evolving from large families to small families. With aging and the emergence of new lifestyles such as unmarried and single, overall consumption behavior and category demand are changing. Consumption behavior evolves with population structure. For example, single consumption behavior brings changes in product structure.
In the past two years, our new observation is that although the environment of fragmented traffic has formed, it is actually a very good era for creating new brands. For example, ten years ago, our investments were basically only in brand owners, not factories, because my logic at the time was that only brands could have premiums, and production capacity was huge because many factories were built everywhere. But in recent years, a very interesting phenomenon has emerged: traffic is fragmented, but high-quality supply chains are precisely centralized.
For example, among A-share listed companies, there is Kairun (Kairun Co., Ltd.), a luggage factory that started as an OEM. They are the highest-quality supply chain in the luggage category. At this time, Xiaomi's traffic connects to them, NetEase Yanxuan's traffic connects to them, and eventually, various fragmented traffic connects to them, and the highest-quality supply chain companies grow bigger. **From a competitive landscape perspective, there will always be newer traffic platforms trying to become new hegemons, and traffic is constantly fragmenting. But when manufacturing reaches its extreme, it creates extremely high barriers.**
**The fragmented traffic situation has created the first year of new brand manufacturing.**
In a decentralized media environment, it is not easy for large brands to cover so many new traffic sources. It is not easy to master 10 types of traffic channels. How many departments must a company set up? The gameplay and cost structure of each channel are not the same. At this time, for a new brand, it may be an opportunity for traffic dividends. For example, we invested in five Xiaomi ecosystem chain companies. In the past three years, these companies have achieved net profits of over 50 million yuan, and with only one channel: Xiaomi's traffic dividend.
Today is the era of new domestic brands. I once heard a teacher say something very interesting: the post-00s generation has the strongest national brand sentiment. Currently, domestic brands are moving from simple manufacturing to a super cost-performance, ultimate manufacturing Chinese 'quality manufacturing'. In addition, the traffic war in cross-border e-commerce is about looking at the whole planet; there are still many markets and traffic waiting for us to seize, connecting with China's super supply chain, actually connecting to the acquisition of new traffic.
For example, in the pet industry, there has also been a stage where OEM factories are very popular. We invested in a factory company making pet products, which has seen very high growth in the past year. New brands connecting with new traffic gameplay have seen high-quality companies exceeding 1 billion in scale, linking high-quality supply chains to go overseas.
In simple terms, the growth path of new brands: **channel changes trigger category structure upgrades. First, content must be differentiated, such as laundry detergent replacing washing powder. Brand growth must rely on the traffic dividends of the time. Today's dilemma for large brands is the decline in operational efficiency caused by fragmented traffic.**
The opportunity for new consumer brands is to build brands by operating users and building their own private domain traffic. **So the three core elements of consumer goods are: product strength, channel network, and brand reputation.**
I believe **the growth path of brand owners is step-like, not a 45-degree upward line.** We must continuously seek traffic dividends, so today in our investment layout, we focus on some small and medium-sized brand companies.
**Hongzhang Capital** is a Chinese private equity investment fund focused on the large consumer sector, mainly investing in growth-stage and small-to-medium-sized consumer enterprises through mid-cap buyouts. The fund team has strong operational experience and industry research expertise in the large consumer sector. Hongzhang Capital treats the management of invested companies as close partners, using capital connections to cultivate and incentivize those entrepreneurial changemakers.
**Weng Yinuo, founding partner of Hongzhang Capital,** focuses on investments in the large consumer sector. He has nearly 20 years of experience in venture capital and private equity, with rich practical experience, and is a visionary yet action-oriented investor.
He has led or participated in investment projects including Far East Horizon, Tenfu Tea, Blue Moon, Jiajiayue, and Yanzhifang. He currently manages a fund scale of 2 billion yuan and has achieved outstanding investment performance. He currently serves as Deputy Secretary-General of the Shanghai International Equity Investment Association, director of A-share main board listed company Jiajiayue, independent director of Bailian Group's subsidiary commercial investment company, and independent director of FAW Financial Holding Company.
He is the author of 'The Future of New Retail', which deeply analyzes the business models of multiple international retail giants, has significant influence in the new retail industry, ranked in the top 10 on various sales charts, and is widely respected by people from all walks of life.
Click **Read Original** to see more highlights of the 2019 5th FMCG + Internet Conference...
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