Source: Wave New Consumption (ID: lcxinxiaofei)
In the past six months, as capital has returned to rationality and traffic dividends have declined, voices predicting a downturn in consumption have grown louder. At the Second China New Brand Wave Conference, Zhou Weiping, founder of a1 Snack Research Institute, a veteran with over 20 years in the food industry, offered contrarian views on some mainstream consensus in today's consumer market, and shared deep insights on the underlying development of new brands from dimensions such as product innovation and supply chain. Zhou Weiping has witnessed over 20 years of changes in brands, channels, and traffic in the consumer industry. He believes that true transformation has just begun, and the spring of the consumer industry is not over yet. But this does not mean that building a brand will become easier. "After our research, we found that the industry's supply chain is not as good as everyone imagines. If we do not participate in supply chain optimization, it is basically impossible for a brand to go from 1 to 10." In his view, "the marketing front-end can be replicated, but the supply back-end cannot be rushed." After passing the basic survival stage, brands still need to spend enough time and patience to participate in the construction of the back-end supply chain. Zhou Weiping has over 20 years of hands-on experience in FMCG entrepreneurship, successfully creating hit cases such as "Yake V9" and "Aishang Fei Cake." (Founder of a1 Snack Research Institute, Zhou Weiping) Founded a1 Snack Research Institute in 2016, which has developed seven categories including bakery, nuts, meat products, marine products, fruits and vegetables, with over 400 SKUs, and successfully created hit products such as Egg Yolk Pastry, Cloud Cake, and Watermelon Toast. Currently, there are over 50 stores nationwide, and through distribution channels, it covers over 400,000 terminal outlets across the country. The mini-program has accumulated over 2 million users and over 300,000 members. It has received four consecutive rounds of financing totaling hundreds of millions of yuan from leading institutions such as Today Capital, with the latest valuation exceeding $1 billion. Here are some highlights shared with entrepreneurs and investors! Some people leaving does not mean winter; true transformation has just begun I have been in the food industry for 22 years, from the wholesale circulation era, to Daliyuan, Want Want, Master Kong, to e-commerce and today. I have basically personally experienced the changes in brands, channels, and traffic in the consumer industry. If we stretch the timeline, I think this year is not even winter; spring hasn't even ended. The entire track has only just begun to see a little innovation in branding and marketing, just a small difference. Has our supply chain changed? Are the infrastructure facilities really complete? How many products on the R&D side are developed by ourselves, or have we just come up with a formula? Where is the real moat? Is our channel distribution covering China's 3.6 million retail outlets, or is it just a few livestreamers selling goods? So I think everything is still early. As long as we believe China has a future, we should believe that Chinese consumption has a future. Even if there are difficulties in the next year or two for various reasons, in the long run, consumption power will definitely be released to a greater extent. In fact, consumption that matches social development is just starting. We can divide the industry into three stages: The first stage was from 2000 to 2010, when market demand for products was very basic. It didn't matter whether it was nutritious or healthy; as long as you had it, it tasted okay, had good value for money, and you could afford advertising, it could basically sell well nationwide. So at that time, making a brand with annual sales of 30 million was easy. CCTV plus the four major satellite TV stations could solve the brand battle. After 2010, we entered the second stage, where diversified demand began to appear, shifting from having to having more, with little else changing. In recent years, especially around 2015-2016, we started comparing with overseas products, feeling dissatisfied with our own, and demand began to shift to "whether it's good or not." Many innovation needs come from here. But to this day, these brands still occupy 75% of the market share. We talk about innovation every day, but the basic structure hasn't changed. These brands that young people are almost forgetting are still the main force of the industry. Look at this chart: the horizontal axis represents concentration, the vertical axis represents growth rate, and the circle size represents scale, showing the huge market of China's leisure food industry. Among the categories with high growth and low concentration, many have not changed much so far, so there is a great opportunity to start over. For example, a1 chose the pastry category in the first stage, and several products with 500 million in sales emerged. So in the macro environment, everything is just beginning. It hasn't reached true industry transformation. In reality, only the capital circle has changed, with a slight shift in the investment circle's enthusiasm. When we entered this industry in 2016, we didn't expect that investors would become so enthusiastic about this track one day. Today, some people have left, but it doesn't affect those who were originally deeply involved in the track continuing to work here. What is China's truly mainstream market really like? Today, when making consumer products, we need to re-understand Chinese consumers. Generation Z is just an entry point; in reality, China's population distribution is not as optimistic as imagined. According to the five-quintile income distribution, the reality is much harsher, and people's expectations for prices are lower rather than higher. So we have always had a simple understanding: consumption upgrading is a climbing upgrade, from 50 cents to 80 cents, 80 cents to 1 yuan, 1 yuan to 1.2 yuan. China has never seen an upgrade from 50 cents to 5 yuan. Consumer behavior affects product pricing and consumption upgrading. Our R&D department often develops many delicious products, but when we ask about the cost, they might only sell well after 20 years. So is it still meaningful to develop them? High quality without cost constraints is meaningless. If you don't limit costs, you can make anything delicious. At the same time, we also feel that e-commerce has been overly amplified. Everyone vigorously promotes online, and of course, online is important, but objectively speaking, in 2018, the penetration rate in the food and beverage sector was only 9 points, and this is because it was pulled up by large categories with high penetration and high average order value like nuts. The rest of the market is still offline. Now many entrepreneurs start their businesses based on their own preferences and social circles, but once they reach a certain scale, personal wishes change significantly. Our company has opened many stores. The earliest store image was black, white, and gray in a minimalist style because I don't like pink and soft colors, but the foot traffic was pitiful. Now our main image stores have become pink and girly, and foot traffic can reach 16%-20%. So many times, personal experience must yield to objective reality. Is the market we see in our own bubble the real market? We need to go down to the terminals to see what China's truly mainstream market looks like, to see the real sales environment. It may not be so highbrow. Without participating in supply chain optimization, it is impossible for a brand to go from 1 to 10 Based on users' objective cognition, looking at the consumer track again, we think there are several unchanging logics: First, productism is the source of innovation. If the product doesn't change, then all channel and marketing innovations can only be a flash in the pan. At a1, there are mainly three types of innovation: The first is simple: upgrading traditional products. For example, we have a hit product called a1 Cloud Cake, which sells about 500 million a year, but it's actually simple: it's the basic version of sponge cake. The sponge cake category is large and has no life cycle. I ate it as a child, and now I'm 40, and my children still eat sponge cake. We increased the egg content to over 40%, upgraded the whipping technology, and made the pores five to six times more numerous than before, solving the problems of traditional cakes sticking to the throat and teeth. And the price is basically the same as traditional cakes. We also made some changes to the packaging, shortened the shelf life, and used nitrogen flushing for preservation. The second type is product form innovation. We have a hit product called Watermelon Toast. When we were researching the bread and toast category, we found that toast is the second-largest category, but user satisfaction is only 12%. This means the category is a necessity, but the demand is not met, so we can make some changes. The idea for this product came from the founder's daughter drawing a small watermelon and asking if he could make bread into a watermelon. The lab actually made it, and the texture was very similar to a watermelon. We spent a year investing in automated R&D, took detours, almost gave up on the product, and finally got this hit. The third type is technology empowerment. R&D cannot just do basic work on taste and shape. The entire food industry now has many technological upgrades that can be done, bringing product innovation or cost reduction. For example, we worked with some domestic laboratories to develop deep ultraviolet sterilization technology. A specific ultraviolet light can kill all surface bacteria on food in one second. This technology is now applied to our baked goods and pastries before they leave the factory, greatly improving food safety and production efficiency. In the past, ultraviolet sterilization took a long time and produced ozone, affecting people's entry and exit for a period. Now it can be solved in one second. Overall, we believe that front-end marketing is still replicable. In the past few years, many new brands have innovated on the marketing end, but if we remove the marketing end, what do we have left? From another perspective, if the other 3 Ps in the 4Ps are done well, and you invest enough money in marketing and hire a strong team to fill the gap, it's possible. But the back-end supply chain indeed requires enough time and patience to build. After passing the basic survival stage, new consumer brands must participate in supply chain construction. Everyone says that the development of new consumption in recent years is based on China's complete industrial facilities. But because we needed to do a big survey of the industry supply chain for some new products, we visited all factories with sales over 200 million, and found that it was not as good as imagined. The only safety check relies on final high-temperature sterilization. There are indeed some good ones, but the proportion of partners we can choose is too small; there are hardly any. So if we don't participate in supply chain optimization, I think it is basically impossible for a brand to go from 1 to 10. Last year, a1 started building centralized shared parks. The first park is in Dezhou, Shandong, with nearly 500 mu of land. We centralized procurement, logistics and warehousing, R&D and monitoring, and administrative office as a third party for the park, like a property management company. You can think of it as shared office space. All factories are simplified into workshops. They can bring in management and equipment to produce, provided we give them enough orders. So it is very suitable for production-oriented talent to start businesses. The significance of this is to connect the upstream and downstream of the supply chain, making the park safe and controllable, products matchable, and categories centralized, thereby reducing warehousing costs. In the past, factories were small but complete. Whether making 1 billion or 10 million a year, none of the production, R&D, supply, sales, warehousing, or logistics could be saved. A large amount of infrastructure consumes a lot of cost. For us, the core of a super factory is the integration of public functions, operated by a very professional team, with production functions independently separated. Each factory is actually just an independent workshop. In the future, we will build 5-6 large industrial bases nationwide to support a supply chain of 5 billion, 10 billion, or even larger scale. Going back to the brand side, many contradictions last year were actually contradictions between brand and traffic. Many times, we hope to use rational methods to persuade consumers to choose us, making consumers subconsciously choose you. We believe that brand is the only way to achieve long-term traffic freedom; there is no other way. Last year, the painful problem for everyone was traffic decline, but in our eyes, traffic is often used for single-product breakout, or to establish basic user awareness for a single product, so that we have fewer obstacles when transitioning offline. a1's logic is simple: when a product comes out, we also heavily plant grass and create buzz, but all conversions are placed in a broader channel. So in a1's cognition, channels are diverse. From the first day of our entrepreneurship, we insisted on doing all channels simultaneously. Today, in our revenue structure, 70% is offline distribution, 5% is self-operated stores, and 25% comes from online. Online can be further broken down into various parts, never concentrated on a single platform. Closed-loop transactions and super links on any single platform are meaningless to us. We believe in Yanai Tadashi's words: To have large scale, face the large market. We have never seen a large consumer goods company that is at the top of the pyramid or makes niche brands. Basically, they still face a more inclusive and mass market, which has a greater chance of success, because serving the common people may be the ultimate social value of a brand. This of course affects the pricing of many of our products. Dancing with shackles is difficult, but sometimes idealism can be done infinitely well. Beverage packaging is exquisite, but gradually you find the cost is too high. Sometimes it's painful in the process. For example, some investors say we are not stylish enough, and the packaging is too simple. But we can never satisfy everyone. We can only target the greatest common denominator and try to satisfy that part as much as possible. In short, it is still early to talk about winter. China's consumption transformation has only been two or three years. The road is long, and we need to walk slowly in the future. -END-