The 2020 (3rd) China FMCG Conference, hosted by New Distribution, was held grandly at Shanghai Fuyue Hotel from August 24 to 26. The event attracted 3,000 industry professionals, including distributors, manufacturers, and internet companies from across the country, with a full house and unprecedented scale. The following is the speech delivered by Mr. Weng Yinuo, founding partner of Hongzhang Capital, at the parallel forum "Technology Empowerment: Food and Beverage Innovation Trends in the Post-Pandemic Era," organized and published for readers.

Today, my presentation topic is "The Future of New Brands and New Traffic."

Actually, this topic is not directly related to technology, but it reflects our phased thinking on food and beverage or brands.

Hongzhang focuses on the entire consumer sector. Our basic layout logic is: first, invest in platform companies, such as retail, chain stores, and niche e-commerce platforms. Second, we invest in brands and supply chains. Third, which is our current focus, is technology and services.

-01- Analyzing the Essence of Traffic and Its Evolution

Let me share our views on traffic. What is traffic? We say it is the time consumers spend with trust—traffic is time. For example, if I wander in a supermarket for half an hour, I am traffic for that supermarket.

From this perspective, big business is the business where consumers spend enough time; it is a business model with greater value. Everyone is trying to occupy consumers' time.

Changes and iterations in the retail sector are very fast. This chart basically summarizes the historical evolution in stages.

From early competition for offline scenarios to changes in large and small formats. For example, from department stores to shopping malls, and on the other end, many chain stores have spun off, segmenting into many single-category small store models. Consumer needs are constantly changing.

From a one-stop business model, we have gradually moved to more specialized and sharper scenario-based brand models—these are the changes we can observe.

As the cost of acquiring traffic increases, we have seen the emergence of B2C e-commerce and what is now called new retail. Offline scenarios are used to acquire customers and provide more home delivery services.

I recently saw news that Hema's first store in Shanghai Jinqiao has reached 75% online sales ratio, which is a staggering number.

There are many other evolutions, including the later emergence of social e-commerce and the construction of private domain traffic, all part of the overall traffic evolution, driven by technology.

What do brands and platforms earn from each other? We have been pondering this question.

Ten years ago, the relationship among channels, media, and supply chains was centralized media, centralized channels, and fragmented supply chains.

Now it has changed: supply chains are increasingly centralized, media is increasingly fragmented, and today many new channels have emerged, making channels also fragmented.

Brand owners are now in a painful position, having to manage operations across many channels, which greatly increases operational difficulty. Conversely, the trend for new brands is that the status of brand building is declining, and more new brands are leveraging category innovation to rise through e-commerce operations.

It can be seen that in the game between brands and platforms, platforms have the advantage. For example, opening flagship stores requires complying with platform rules and helping platforms do what they want. To some extent, brands are also acquiring customers for platforms, but platforms can redistribute traffic.

In the process of mutual support, platforms provide better traffic support to brands. Once hitting a ceiling, brands will seek new platforms, and platforms will also choose new brands to support.

It is a game between the two. When you gain traffic dividends, you do get some benefits, but conversely, when traffic no longer supports you, it is hard for the brand to do well.

-02- To Build a Brand, First Build Awareness

What is a simple understanding of a brand? A brand is essentially a pool of awareness—this is a saying I like.

Previously, many people thought that doing marketing activities was building a brand, and doing communication was building a brand. In fact, a brand is a pool of consumer awareness, a dynamic process with continuous pluses and minuses.

Building a brand is a dynamic process, constantly adding or subtracting points to the awareness pool. When the points in the pool reach a certain level, it can be monetized.

Currently, the efficiency of awareness is declining because consumers' attention is increasingly scattered, and media fragmentation leads to different touchpoints. If a brand wants to appear at these touchpoints, the cost is very high.

In the game between brands and media, including traffic, there are many ways for new brands to rise. For example, we place great importance on recommendation conversion rate. When the recommendation conversion rate is high and word-of-mouth forms, costs often decrease, and when expanding new customers, the effect of old customer fission and referral is also very good.

This includes creating scenarios, playing with super scenarios to gain topics, check-ins, and marketing. In Japan, many new brands succeed because they create super scenarios.

Another aspect is crowdfunding. Xiaomi has many crowdfunding plays, which actually allow consumers to better integrate into the process and have a better marketing experience. Including the now-popular co-branded IPs, which leverage each other's traffic for better results.

Retailer private brands are also a play, very similar to new brand building methods.

Overall, we find that building a brand has more and more new ways. Compared to classic methods like celebrity endorsements, we have more opportunities to build brands at low cost, including a large number of film and TV series placements, which are very interesting new plays.

-03- Building IP Means Personifying the Brand

There is a logic in branding: how to build personification. For example, in the pet industry, it is very obvious. Many consumers pay more attention to spiritual connotation when consuming, and this spiritual connotation is essentially emotional connection.

That is, emotions are built between people. But now people are increasingly difficult to communicate with and lonelier, so more emotions shift to pets because it is a very stable, one-way, and rewarding connection.

The pet category has anthropomorphic characteristics; it is personified and a family member. From this perspective, categories with personification traits have very strong and sustained stickiness in consumption.

Now many trendy toys, like blind boxes, are somewhat similar to stamp collecting in our childhood. In the process of collecting, people place more emotions on virtual IP images.

We also find that the new generation of young people actually has more concrete needs for emotional sustenance in life. The rapid rise of these trendy toys is due to the personification traits of brands.

Regarding national trends, originally the post-70s were the group most admiring domestic brands, but now it is the young people, the post-00s, who admire domestic products. Their perception of foreign brands is very different; they prefer distinctive and fun new domestic brands.

This phenomenon has similar traits in the global consumer industry. In Japan and South Korea, a large number of localized brands have become the mainstream path of consumption.

-04- Standard DTC Playbook and Advanced Extensions

DTC is actually a concept often mentioned when playing with new brands now. It is a brand play that is very popular abroad, directly connecting with consumers.

This model, from R&D, design, production, sales, to logistics, has no middlemen and directly reaches consumers. It no longer relies on traditional channels like supermarkets for consumer conversion. The emergence of many social platforms makes direct consumer contact increasingly possible.

We use these new traffic sources to directly reach these brands. And in this process, especially in the early stages, the cost of investing in these new media platforms is relatively low, and ROI is high.

Last year, Douyin and Kuaishou showed similar traits, with relatively high ROI. Overall, the core of building such new brands, the most fundamental logic, is category innovation.

Because to create a new category now, you need to quickly connect with new traffic dividends. So in the whole process, everyone focuses on a single point. When resources are limited, brands will focus on hitting a certain marketing point.

User experience is also enhanced, including low-cost communication on social media. This is a particularly important stage opportunity for DTC. The further it goes, the more it is copied, and this low-cost traffic will also fail.

Historically, the rise of brand owners has been related to traffic dividends. For example, many early brands relied on hypermarket channels, but today it is more difficult.

Later, Xiaomi's rise drove the rapid rise of Xiaomi's ecosystem brands, and some brands also rose quickly with the dividends of social e-commerce. Looking at today's live streaming, some brands have emerged, all connecting new traffic with new brand innovation.

Cold start strategies, to summarize simply, are basically standard DTC plays, and the methods are becoming increasingly similar.

The first is branding: choose a good name, with aesthetics and good associations, to establish the brand tone. For example, Blue Moon is a very soft and feminine name, with a clear tone.

Second, in FMCG innovation, besides product content innovation, a very important point is how to innovate in packaging.

Good design brings new scenario changes. Particularly obvious is in the entire self-cooking category. In the past, self-cooking applications were ingredients; initially, people bought raw materials to process, and later packaged and branded products appeared, where you just cook them, no need for excessive processing.

Today, even more extreme, the nourishing category has entered an era of fast-moving, snack-like, and portable products. Packaging plays a very important role. The content is similar, but it breaks the original scenario and sales form. Packaging is very effective, and this is a very important method in brand building.

Today, when we build brands, another difference is the availability of big data, including global category selection and big data category selection. Unlike the past, where we guessed a category, now we have more data to prove it. Through content dissemination, we reverse-engineer transactions, and overall, we focus on traffic to break through.

What is the difficulty of building a brand today? You need to be proficient in various traffic channels, and often in the first stage, you need to achieve your bottom-line traffic play within a specified time, such as being particularly familiar with JD or Tmall, and then extend.

The proposal of private domain, relative to public domain, every brand wants to build private domain. After the proposal, the effect is still good. But the core is still the cost issue, and then how to build a set of rules and plays to continuously maintain the users brought in, which is very difficult.

We have summarized some simple views on new brands: today, the barrier to building a brand is declining. OEM has factories, and on the marketing side, you can find your own methodology and innovation points.

Media fragmentation leads to a decline in the cognitive efficiency of positioning theory. Conversely, we can see the value of the supply chain side; super supply chains are very valuable. The long-term game relationship between platforms is also something we need to consider.

A brand's profitability does not rise at a 45-degree angle; it often has a release stage. So when the battle is over, it is time for release.

Tips will be paid 400-2000 yuan once adopted.