Click to read the original text for details The Zhong Xue Gao that doesn't melt is not just a PR crisis, but also a phenomenal business issue. From 2016 when Jack Ma advocated using new retail for "online + offline + logistics" to sell goods, and Liu Qiangdong proposed the concept of "borderless retail," to Jiang Fan, the former head of Taobao, mentioning "new consumption" nine times at the Double 11 carnival, new consumption has become a PR tactic. With the enthusiasm to redo all products, new consumption brands that entered mature industries are not only new in concept but also expensive: Heytea and Naixue at over 30 yuan per cup; high-priced instant noodles like Laximianshuo at over 20 yuan per box; Florasis and Colorkey, which went viral on Douyin, have per-gram prices higher than overseas first-tier brands like YSL; in addition, Zhong Xue Gao once reached 60-90 yuan, Lanzhou beef noodles at 40-50 yuan per bowl, and national trend snacks with queues of 7 hours. These new consumption brands always try to support high-end positioning with high prices, but they often remain a one-time gimmick. As the heat fades, people have to think calmly. According to CVSource data, in the first half of 2021, the entire new consumption track saw 595 financings with a transaction amount of nearly 127 billion yuan. After that, the situation took a sharp turn for the worse, with 483 financings in the second half and an amount of 76.67 billion yuan, almost halved. By the first half of this year, according to media statistics, 20 new consumption tracks saw 241 financings with a cumulative amount of just over 10 billion yuan. Chart of new consumption track investment and financing in 2022, drawn by Xinmou Four years ago, Zhong Xue Gao hit the preheating node early. After receiving a 200 million yuan A-round financing led by Yuan Sheng Capital last year, it became a capital darling. However, after the A round, no new hot money flowed into Zhong Xue Gao. The founder Lin Sheng's earlier statement, "We don't lack money; financing is just to supplement ammunition for expansion," seems weak after multiple trust crises. Meanwhile, Heytea, valued at 60 billion yuan, is laying off staff and cutting prices, while Naixue's stock keeps falling. When consumers figure out the tricks of new consumption, their focus gradually shifts from "new" to "consumption," and the question arises: What exactly are consumers paying for? From budding to decline, most new consumption brands have taken only three to five years to complete the journey that traditional brands took decades. Mo Xiaoxian founder Wang Zhengqi believes, "The life cycle of brands is constantly shortening, and very few new brands can survive three years." Compared to traditional brands that invest heavily in production, channels, and supply chain to acquire customers, new consumption brands prefer short, fast, and direct methods. As Wu Xiaobo said, "In the past, the first thing for enterprises entering an industry was not to find consumers, but to find a production line, design the brand first, and then sell it. But now, they first obtain a batch of users through traffic-based methods." However, the strong marketing approach shortens the life cycle. Whether it's brand, product, marketing, or channels, homogenization is intensifying. As user freshness fades, the decline in customer acquisition efficiency and rising traffic costs form an inescapable death spiral. Some brands' investment conversion rates are as low as 1:0.8, so the primary market no longer uses marketing ROI as the standard for selecting targets, but instead focuses on the proportion of expenses. In the past, Naixue CEO Peng Xin mentioned, "Consumers think it's expensive but still choose it because the perceived value is sufficient." But in fact, looking at the endless stream of new consumption brands over the years, rising and falling, they have neither become China's L'Oréal, nor China's Kraft or P&G, nor international first-tier luxury brands. In such an ancient track, with a huge scale that doesn't need education and slow growth, it's destined to be a zero-sum game. We can heat up anything in a short time, but at the same time, it also accelerates their decline. 01 New Consumption: What Are We Consuming? "It's hard to imagine a company having so many partners when it goes public." Zhen Fund founder Wang Qiang once said this. At the 2020 IPO of Yixian E-commerce, 23 partners came on stage to give thanks. From brand creation, to entering Tmall, to listing on the US stock market, this beauty company founded only four years ago was at its peak. Yixian E-commerce, with annual sales once exceeding 5 billion yuan and a stock price of up to $25 per share, claimed to be China's L'Oréal. But in fact, except for a net profit of 75 million yuan in 2019, Yixian has been in a loss. Recently, Yixian announced it received a letter from the NYSE, as its stock price had been below the compliance standard of $1 for 30 consecutive trading days, facing delisting risk. As of now, after measures like buybacks, the stock price has recovered to around $1.5. Fengrui Capital founding partner Li Feng publicly stated: The listing of Perfect Diary brought a certain model effect for consumer investment, and Yixian's performance in the capital market in 2021 will continue to play a role in the consumer field. Perfect Diary, which focuses on affordable alternatives to big brands, seized the rise of Xiaohongshu from the beginning, then used indiscriminate influencer placements, and leveraged other channels like Douyin for round-the-clock marketing. Its methods are no different from Florasis and Banmu Huatian. Most of the early popular new consumption brands rode the dividends of new channels and social e-commerce, driving growth with DTC marketing. The hit product logic is an industry consensus. Chart of some beauty brands' KOL spending, source: Anxin Securities But success and failure both come from hit products. Behind every hit product, money must be burned to maintain heat. Take Perfect Diary as an example: marketing expenses have long accounted for about 70% of revenue. Marketing-driven revenue grew from 640 million yuan in 2018 to 5.23 billion yuan in 2020, but at the same time, operating losses reached 2.68 billion yuan. Previously disclosed in the prospectus, Perfect Diary's average order value in 2019 was 114.1 yuan, and after burning 2 billion yuan in marketing the next year, it only rose to 120.7 yuan. Perfect Diary has always benchmarked against L'Oréal. Compared to the latter's nearly 1 billion euros in annual R&D expenses, Perfect Diary's R&D investment ratio from 2018 to 2020 was only 0.4%, 0.8%, and 1.3%. Last year, R&D expenditure of 35.2 million yuan accounted for only 2.3%, less than 4% of the 973 million yuan in sales expenses. Not to mention L'Oréal has nearly 4,000 R&D personnel and 20 specialized R&D centers worldwide. In an industry where R&D is light and marketing is heavy, with the same channels, similar marketing behaviors, and similar pricing and product quality, consumers have almost no user loyalty. Perfect Diary, which focuses on affordability, wants to break through perceptions. If the substance isn't enough, the surface must compensate. From a group strategy perspective, multi-matrix, group-based, and high-end development have become the second growth curve the company hopes for. But even with brands like Little Ondine, Wanzi Xinxuan, and Pink Bear under its umbrella, it still falls far short of high-end first-tier brands. Interestingly, Little Ondine's eyebrow pencil with 0.12g of core costs 59 yuan, and its small thin lipstick with 0.8g of product costs about 90 yuan. But if measured by uniform gram weight, the price is even higher than first-tier brands like Shu Uemura and Armani. This is the common "affordable trick" used by new consumption brands. Also new consumption, unlike Perfect Diary's covert price increases, Zhong Xue Gao has always taken a high-profile route. Previously, media reported: Ice cream is a seasonal low-frequency consumer product, and costs including production, channel fees, labor, logistics, and marketing are rising. So for merchants, only by raising unit prices can they increase profits. Take cold storage and cold chain logistics costs as an example: the former costs about 2,000 yuan per square meter, and cold chain transportation costs are 50% higher than ordinary logistics. When upstream costs flow downstream, consumers ultimately pay. Data shows that from 2015 to 2020, the average unit price of ice cream products in China rose by 30%. From a production cost perspective, according to iiMedia Research, from 2008 to 2020, the cost of raw materials like milk and whipping cream rose by about 80%. But the question is: these are almost industry-wide phenomena for all ice cream products. Why can the price of Xiaobuding still be controlled at 0.5 or 1 yuan? Previously, Lin Sheng exaggerated in an interview that the Japanese yuzu in the cost was 1.2 million yuan per ton, then changed to say that yuzu and yogurt together cost over 1.2 million yuan per ton. Recently, on Douyin, legal expert Wang Hai tested that Zhong Xue Gao's cost is only 1.32 yuan, igniting public anger again. Zhong Xue Gao and others entered through new consumption, but market tolerance for them is decreasing. Some believe it's due to consumption downgrading from the economic downturn affecting people's affordability. However, most successful brands at home and abroad, even those leaning toward luxury, haven't reduced consumption choices to the point of public outrage. Instead, because they spend time on materials, design, and brand heritage, they build emotional connections with consumers and win favor. As Lin Sheng once lamented in an interview: "If I had known it could grow this fast in three years, I would have prepared more." 02 Capital: From Impulse to Cooling Down "China's hamburger is definitely Lanzhou beef noodles." Last July, GSR Ventures founder Zhu Xiaohu revealed in a program that he invested in Lanzhou beef noodles, believing they have universality, standardization, and easy expansion. "There are 400,000 noodle shops offline in China, of which 200,000 are Lanzhou beef noodles." Before that, Challenger Capital, ZhenFund, Cathay Capital, Hillhouse Capital, and others rushed into the noodle track. At that time, Ma Jiyong, with only 30 stores, received a TS from Sequoia with a valuation of 1 billion yuan after two years. Other Lanzhou beef noodle shops with valuations over 100 million yuan include Chen Xianggui and Zhang Lala. In addition, Hefu Noodles with a valuation of over 4 billion yuan, Yujian Xiaomian with 3 billion yuan, and Wuye Banmian favored by Hillhouse Capital all became hot targets for primary market VCs. "They seized the opportunity window to open Lanzhou beef noodles in business districts and shopping malls," Zhu Xiaohu said. Opening in malls, Lanzhou beef noodles tell the same story as Heytea and Naixue entering the high-end market. "And at least 10,000 stores in the future." Store expansion is to repay capital and race on the same track. Once growth can't keep up with expansion, they can only be eliminated. But simply multiplying current store value by 10,000 won't secure financing, especially since more stores don't necessarily mean more profit. Table turnover rate is also crucial, as seen with Haidilao. In earlier years, traditional catering was not favored by the capital market. From supply chain and cash flow management to catering to diverse consumer tastes, plus food safety and hygiene inspections by regulators, and unstable staff especially chefs, the rough-and-tumble restaurant industry didn't seem like a formal army that could go public. Those internet-famous brands that marketing lecturers overused, like Diaoye Niunan and Paomian Xiaoshitang, burned money on marketing and chain expansion, quickly rising and falling, and are now unheard of. The turning point came in 2020. The bull market attracted a large amount of dollar hot money, TMT investment hit a ceiling, and new opportunities and models were scarce. The black swan of the pandemic cast uncertainty over almost all industries. As a result, food, drink, and entertainment became relatively certain capital outlets in the market. Statistics Bureau data shows that in 2020, total retail sales of consumer goods fell nearly 4% year-on-year, while necessities like food and beverages grew 5.1%. As mentioned earlier, in the first half of 2021, new consumption investment and financing were undoubtedly the hottest track. Even if the market was full of homogenization and price wars, capital was happy to see it, as the latter prefers proven business models and products with clear benchmarks rather than high-risk innovative investments. But the good times didn't last. After the land-grab phase, traffic dividends disappeared, and new consumption cooled rapidly in the second half. Hitting peak upon explosion, ending at IPO, the bubbles raised by the capital game of new consumption gradually eroded trust. In tracks like beauty and tea drinks, Perfect Diary, Heytea, and Naixue occupy the top positions. New entrants in mature industries find it hard to break through. For example, when SanDunBan occupied most of the market, Shi Cui and Yong Pu could only compete with new forms like hanging coffee and coffee liquid. In the restaurant industry like noodles, concentrated outbreaks in a short time, with top institutions like Hillhouse, Sequoia, and IDG pushing up valuations, made other institutions more cautious. With Yixian E-commerce falling 98% and Naixue losing 60% of its market value, Pop Mart shrinking by 100 billion, the inversion of primary and secondary markets made capital adjust its valuation models for new consumption. More and more investors and FAs are rejecting new consumption projects, even leaving the track. Although the entire consumer track hasn't completely died, traditional VCs have significantly tightened their investments in the consumer sector. Taihe Capital director Jiang Kaiyang believes, Capital now focuses more on efficiency indicators such as average order value, conversion rate, net retention rate, fulfillment cost, and customer acquisition cost. Yingce Capital founding partner Zhou Lingfei also pointed out, Now capital rarely talks about ROI, but more about marketing ratios. Enterprises that rely solely on marketing are hard to favor. Replacing traditional VCs are listed companies or excellent enterprises in the consumer track that have turned into CVCs after financing, such as Perfect Diary, Pop Mart, Heytea, and Genki Forest. Their purpose, like internet giants absorbing startups, is to find a second growth curve or achieve strategic synergy, seek new business models, and improve industry chain layout. Chart of some new consumption CVCs and invested brands, source: Analysys Compared to traditional VCs, many new consumption brands are closer to CVCs in the same industry. After all, by 2022, for the consumer industry, CVCs understand the industry better, and resources, channels, and experience are more important than money. For example, Heytea's investments aim to fill business gaps and tell new stories; Genki Forest uses marketing and channel resources as business leverage to expand its brand matrix. After taking on multiple roles, CVCs face bigger problems in balancing strategic layout and investment returns. 03 Reverse Engineering from Users Recently, Kering, Hermès, and Richemont released their 2021 financial data, with fiscal year results significantly exceeding pre-pandemic records. At the same time, news came that top luxury brands were raising prices. In fact, luxury price increases have become normalized. But due to the special nature of the industry, luxury goods often have higher pricing power and flexible pricing. In early February this year, UBS stated, "Price flexibility" is one of the main characteristics of the luxury industry, and pointed out that "over the past 20 years, average price increases for leading brands like LV have been 2.5 times the inflation rate." Pricing power also drives revenue growth, meaning the more they raise prices, the more people buy. When we review the new consumption brands that were unstoppable in previous years, whether they are new brands overtaking through innovation or old brands transforming to survive, they either focus on niche circles or take the mass route. But new consumption brands rooted in mature tracks are mostly trapped in the dilemma of imitative innovation. Wanting to go high-end, but the product architecture is fixed and substitutability is too strong. The hit products created by short-term marketing are easily copied, and brands eventually die from price wars and low repurchase rates. According to BCG's China New Consumption Market Insight Report, the six-month repurchase rate of new consumption brands is mostly below 20%, and more than 75% of consumers recognize single products rather than brands. Marketing placement rules on platforms like Xiaohongshu and Douyin are no longer trade secrets, and the once traffic depressions have become crowded. After the market cools, the marginal cost of marketing-driven revenue increases, and the capital investment return cycle lengthens, sometimes with no hope of returns. At this point, new consumption gradually turns its attention to user groups. Comparing with brands that can become luxury goods, we find that new consumption's sub-tracks always focus on food, drink, and entertainment. As a result, consumption activities often occur at the front end, while back-end chains like quality assurance, after-sales, and value-added services are often rough or even nonexistent. This is one of the differences between general consumer goods and luxury goods. For example, Prada's VIC customers can get fixed discounts and early access to seasonal sales; Dior provides concierge services, and even allows customers to purchase co-branded art pieces through the brand. They also provide dedicated repair departments and artisan teams, with most repair services free. For general consumer goods, thoughtful after-sales service can bring positive brand sentiment, and there are precedents. Previously, Sexy Tea and Heytea gained goodwill by offering "remake a cup if unsatisfied" services. There's a story that when Bezos holds meetings, he places an empty chair in the room to represent the "customer." In meetings, people often question each other: Is this in the customer's interest? Bezos once said: "I don't know what changes will happen in the future, but I know one thing that will never change: We want to be the most customer-centric company on earth." Similarly, Akio Morita advocated "carefully observe people's lives, use intuition to judge what consumers might need, and use that as guidance." This is a mindset of reverse-engineering needs from the user's perspective, returning business actions to a deep understanding of users. It's the same principle. The former's persistence in constancy made Amazon the world's number one shopping website, while the latter's user mindset allowed Sony to create a global cultural trend for personal music players. Source: Xinmou (ID: xinmouls) -END-