Click the image for details Source: New Consumption Insider (ID: cychuangye) Author: Longmao Jun __ [Introduction] Someone asked Longmao Jun an interesting question. The question was: why did Zhou Hei Ya, Heytea, and Three Squirrels, currently the hottest consumer brands, all originate in non-first-tier cities like Beijing, Shanghai, and Guangzhou? Zhou Hei Ya was born in Wuhan, a new first-tier city; Three Squirrels was born in Wuhu, Anhui, a third-tier city; and Heytea started in Jiangmen. None of these are the mainstream metropolises of Beijing, Shanghai, or Guangzhou. So this user followed up with several interesting questions: Why didn't these best-performing new brands of recent years originate in the most fashionable and forward-thinking Beijing, Shanghai, and Guangzhou? Could cities like Wuhan, Chengdu, Hangzhou, and Changsha become the main battlegrounds for this wave of consumption upgrade entrepreneurship? Should we escape Beijing, Shanghai, and Guangzhou to start businesses in our hometowns? Below, Longmao Jun will address these three interesting questions. This article is approximately 6,030 words and takes 8 minutes to read. / 01**** /******** Why do those with fewer resources overtake from behind? Let's look at the first question. The first question is very complex. If we simply answer from any single angle or logic, there would be problems. We need to answer this from the perspective of the industry environment. First, let's talk about what types of companies are most likely to form in cities like Beijing, Shanghai, and Guangzhou. Let's first discuss an interesting social phenomenon: why were the Chaoyang大妈 (Chaoyang aunties) so formidable a few years ago? Celebrities who use drugs were caught in Chaoyang District, rarely in other districts. Some say it's because the Chaoyang aunties are too capable. Others say it's because the Haidian uncles haven't caught up in combat effectiveness. But these are just jokes; no one takes them as real reasons for discussion. The real root is that Chinese entertainment celebrities are among the people who attract the most fans among the general public. Everyone's eyes and attention tend to focus on celebrities. Chaoyang District has the most film and television companies, and celebrities usually live close to their companies, so you find that drug use is always exposed in Chaoyang because the density of celebrities in that area is the highest. So, industries have agglomeration effects. Compared to other areas in Beijing, Chaoyang District indeed has a more developed media industry, so it's normal to have more celebrities there. If you want to work in the film and television industry, you'd definitely choose Chaoyang District. Just like if you're in the internet industry, you'd mostly be in Zhongguancun, Houchangcun, Wangjing, and other large gatherings of coders. An industry can develop because of strong agglomeration effects. Back to the first question: why don't these new consumer brands at the forefront of trends originate in Beijing, Shanghai, or Guangzhou? Logically, these new consumer brands should have been born in Beijing, Shanghai, or Guangzhou! After all, there are people here who are most sensitive to fashion trends, talking every day about trends aligned with Silicon Valley. Coffee must be hand-poured; beer must be craft. Stir-fried tomatoes must have a sense of ritual; milk tea must be from internet-famous shops. Even buying a wok for stir-frying requires finding a product with thousands of likes on Zhihu. Even if you don't understand what middle class is, you must first bring a sense of middle-class luxury. Of course, besides these users with solid foundations, there are also investment institutions that want to invest in the rise of the middle class. They use overseas models as a benchmark, searching for Chinese counterparts to lifestyle. As long as you have a good idea and write "craftsmanship spirit" in your business plan, you have a high chance of getting substantial capital support, then start rounds A, B, C, F. With money and founders who claim to understand light luxury and have lived a high-end life overseas for years, these are the most likely to satisfy the possibility of building a big brand. Everything is ready; all that's needed is the east wind. With money and people, understanding fashion and life, friends around you are typical users, and a quick social media post brings seed users. There's no reason not to succeed. While first-tier city new consumer startup stars enjoy the spotlight, hold various strange product launches, and use free traffic to expose their brands, another group of people called businessmen are preparing to start businesses. Their conditions for starting are relatively simple compared to first-tier cities. These people's education might not be from Stanford or Duke; at most, they later got an MBA. Their city might be Jiangmen, a place you've never heard of. Their previous job might have been running a mobile phone store or killing ducks in a vegetable market. If they're ready to start a business, the first thing is unlikely to be seeking venture capital, but rather pooling money from a few friends in the industry, and they'll basically empty their own savings to build a factory. Whether in terms of capital strength or attention, they are far behind first-tier city entrepreneurs, with conditions too far apart. But years later, when some first-tier city entrepreneurs have already switched tracks, these people's shops are still steadily advancing, and suddenly they become new hot spots for capital attention. So, what factors turned the tables for them? / 02**** /******** Price range and mass demand To explain this seemingly unreasonable reversal, we need to return to the core elements of consumer product entrepreneurship success. First, we must talk about the most important thing: demand and category. If we start a business and hope to make it big, or eventually build a national market, we must hope it's a category with broad appeal. What is a broad-appeal category? I think, relative to taste broadness, the first thing is price broadness. What is price range broadness? It means most people can accept your price. A broad-appeal mass consumer product must be acceptable to the vast majority of people. Under the so-called media bombardment, people really develop a halo effect. They mistakenly think that China is full of middle class, and everyone doesn't care about spending 50 or 60 yuan on a cup of coffee. But do you really know what price of tea sells best in second- and third-tier cities? Of course, cheap and high-quality tea still sells best; price is always an important factor. Cheap and good things are always popular. If you sell milk tea at 60-70 yuan, even with the best ingredients, the consumers who accept it will definitely be a niche. So, the lifestyle of Beijing, Shanghai, Guangzhou, and Shenzhen is accepted when transmitted to second- and third-tier cities. But if you tell me everyone can drink a 30-yuan Starbucks, I don't believe it. So, for years, Starbucks has stuck to first- and second-tier cities, rarely going to third-tier cities. For price broadness, never measure by the new middle class's price, because that dooms you to be a brand that can't leave Beijing, Shanghai, or Guangzhou. Many people will definitely refute me: the Beijing, Shanghai, Guangzhou market is big enough; if I thoroughly capture it, I'll be a big company. Does reality tell us we can really do that? No. What are Beijing, Shanghai, and Guangzhou? They are China's political, economic, and cultural centers. All the rich and famous brands you know are fighting for this place. Consumers here are definitely the pickiest in China. In second- and third-tier cities, if your cup and packaging are slightly nice, consumers think you're putting in effort and praise the boss. I'm not saying consumers in second- and third-tier cities have no taste, but they haven't been spoiled by subsidies and freebies to be so picky. And those literary and artistic consumers in first-tier cities, even if you give them free drinks, they'll complain that the free product isn't good enough. First-tier city users thus find it hard to have true brand loyalty because they're always trying new things. Their circle, their surrounding information is too developed; they have too many opportunities to try free things every day. For a startup entrepreneur, serving this group of users is quite difficult. Your resources are limited, your costs are limited; you must focus on users who can bring you effective value most quickly, and your user base needs to be large enough. So, when you make the product quality the best and the price the highest, you find it's hard to expand beyond Beijing, Shanghai, and Guangzhou. Because the regional user differences between first-tier and second- and third-tier cities are too great. What works in Beijing, Shanghai, and Guangzhou doesn't mean it will succeed in Hangzhou or Chengdu. So, because of this lack of price broadness, you fall into a prisoner's dilemma. Recently, two or three brands have come to ask me why their revenue just won't go up. Look, I've carefully crafted the product for two or three years, all raw materials are imported. Even the packaging is the best in the world. I treat consumers so well; why don't they buy it? I say, there's no other factor: your prices are too high. Really too high, even though you say even at this price, you still feel you're not making money. So, you'll find that when your price is set for a niche from the start, you're doomed to struggle with the problem of not leaving Beijing, Shanghai, or Guangzhou. And in Beijing, Shanghai, and Guangzhou, the level of competition, consumer pickiness, and tolerance for you are all very low. You simply can't sustain the war with war; because the main battlefield you chose from the start is a decisive battle market, the most bloody and red ocean market. You have to fall into a situation of fighting fiercely from the beginning. Now let's imagine the opposite: a milk tea shop starts in a second- or third-tier city. Honestly, competition in these places isn't that fierce; you don't have to use all your skills. In such places, with such rental costs, making money isn't particularly hard. In these places, labor costs, store opening costs, and traffic acquisition costs are all much lower than in first-tier cities. Maybe purchasing power isn't as high as Beijing, Shanghai, or Guangzhou, but there are fewer competitors, and the market with similar demand is more consistent. Generally, if a business model does well in Wuhan, it will also do well in Changsha, and also in Guiyang and Chengdu. Because consumer income and demand for brands are similar. And there are many such cities in China. China has more than 20 second-tier cities, while there are only four first-tier cities. And there are even more third-tier cities. So, you'll find that if you validate a model in a second-tier city, expanding to other second-tier cities is basically the same model. If you validate a model in a third-tier city, expanding to other third-tier cities is also consistent. But if you validate a model in a first-tier city, you'll face many copied models, because before you consolidate your base, a bunch of competitors rush in, and you can't fight base by base. So, you can never escape the fierce price band battle. This is the importance of finding price broadness. Always remember that high-end people in Beijing, Shanghai, and Guangzhou are a niche. If you plan to serve them, be prepared to be a niche brand. Today's listed duck neck and the once-popular instant noodles are all mass markets. Never use your own circle's thinking to make products; otherwise, your product will be hard to break out of your small circle. So, if you can't achieve price broadness from the start, you lose the opportunity to compete in the national market from the beginning. Not to mention the international market. This might be why these big brands first emerged in second- or even third-tier cities, because at the start, the surrounding people are mass consumers, and price broadness is a crucial factor. / 03**** /******** How does spatial equalization level the information gap? A while ago, I came across an interesting concept called spatial equalization in business. The so-called spatial equalization in business means that with the development of mobile internet, the original location advantages in cities are gradually becoming less important. Saying this, you might still find it hard to understand. Longmao Jun will explain it in a simple way. Let's use an example. The closer a city is to core resources, the more expensive the land, and thus the higher the rent. Shanghai's Nanjing Road Pedestrian Street, Chengdu's Chunxi Road Square, Chongqing's Jiefangbei, and Guangzhou's Zhujiang New Town are all core business districts in cities. Such places are extremely expensive. Luxury five-star hotels stand in rows, and high-end brand stores move in. Such places are naturally bustling with people and traffic. Needless to say, such places are very expensive. Before mobile internet and the internet, where people went shopping was customary; without promotion, these were good locations. But with mobile internet, you can actually not open your store in such high-traffic places. Where can you open? In residential areas, in villas. Originally, opening on Nanjing Road could only be a 20-square-meter small shop, but in a villa area farther away, you can open a 50-square-meter one. So, people gradually find that many specialty shops start opening in better villa areas with nicer environments. Then everyone will definitely think of a question: how do users find them? This is where mobile internet's advantage comes in. In the mobile internet era, as long as you're good at content and communication. As long as you're confident in your product, users will cross mountains and rivers to find you. So, when Heytea became popular in Jiangmen, users in Shenzhen easily got the word. When it became popular in Shenzhen, users in Shanghai also learned about it. You'll find that with the maturity of basic tools like mobile internet, sometimes where you are doesn't matter. You might instead use your brand IP momentum to open stores in less expensive places. This is the spatial equalization brought by mobile internet. Similarly, if you build a brand in a second-tier city, do well enough, manage costs well, the information gap between you and first-tier cities is easily leveled. This is the value of spatial equalization, so it's not strange for an excellent brand to appear in second- or third-tier cities. Moreover, because you're scarce here, you'll be treated like a treasure, and everyone will keep adding more resources to you. This is the filling of the information gap brought by spatial equalization. So, once you do well enough in second- and third-tier cities, counterattacking Beijing, Shanghai, and Guangzhou isn't that hard. Even if the counterattack fails, you still have the third- and fourth-tier city market as a base, and you can still be a regional leader. But if you start fighting in Beijing, Shanghai, or Guangzhou and fail, where can you go? So, progress in second- and third-tier cities is actually a big market that can advance or retreat. Such a relaxed environment is more likely to produce a patient brand truly validated by demand and market, rather than a brand built by capital. / 04**** /******** The simple spirit of businessman thinking In our business society, there was a time when people disliked the term "businessman." If investors don't want to invest in you, they'll have a killer move at the end. That killer move is: you're just a business. It's really strange. China didn't have the group of "entrepreneurs" before; China only had businessmen. How did "businessman" become a word to say you're not good enough? And doing consumer products, whether it's catering or opening a factory, was called doing business in the past. In the past two years, the capital winter has burst, and everyone finally talks about returning to business. Actually, whether you're in catering or building a brand, in essence, you're a business. The essence of business is to serve customers well and make money. When Longmao Jun was a child, his family also did business. We didn't know what entrepreneurship was then. We only knew to be honest with customers, not sell fake goods, have fair prices, treat children and the elderly fairly, meet customer needs, and sell products they like. At that time, we weren't good at summarizing business wisdom; that was the simplest business truth we knew. You'll find that the more a brand can't make money, the more it likes to talk about the latest trendy concepts, but never mentions how to serve customers. You'll find that the more profitable a business is, the more it likes to talk about how to serve customers. You'll find that the boss of a non-profitable company's social media always talks about pattern, strategy, and layout. The more profitable company's boss always talks about customer issues, how to satisfy customers, and what customers think. Non-profitable company bosses always believe in chicken blood + chicken soup, reading new success studies every day. Profitable company bosses are always visiting customers and have no time for chicken blood. So, while windfall entrepreneurs talk about concepts, a small boss in a second-tier city opens the first store, polishes the product, and sells to the first customer. While windfall entrepreneurs raise funds with PPTs, the second-tier city boss opens the 10th store, and every store makes money, because the money is savings from themselves and relatives, so they can't casually subsidize and waste money. We don't need to say who is good or bad, but the essence of consumer product entrepreneurship is business: making products and selling them. It needs to be closer to the essence of business. Three years ago, I met a guy selling chives. His ornamental chives were already very profitable. We asked when he would go public. He said he goes public every day because chives are listed every day. Later, many projects died, but the guy was still seriously growing chives. So, doing consumer products doesn't require the ability to hype up trends; sometimes it requires the simplicity of a businessman. In second-tier cities, far from the overhyped capital and with fewer resources, they have to accept seriously validating the market and slowly opening one store at a time. Instead, they return to the most essential things in the industry and lay a solid foundation from the start. This way, when capital comes in later, they can sprint quickly. So, in such an environment, it's easier to use the real market environment to test brands that truly meet customer needs, rather than using capital means to overdraw and stimulate demand in advance. There are many such brands in China; I call them wild-grown brands. In the early stage, they're not in the spotlight, without many halos, so they're more likely to grow in the wild. And children who are overly pampered are prone to illness and can't truly face storms. This might be why second- and third-tier cities are more likely to produce high-quality brands. / 05** /********** If we continue to think along this question, there are many other answers. For example, the consumer industry is one that requires a high-quality industrial environment; there must be better industrial supporting environments. For example, second- and third-tier cities have lower labor costs. For example, second- and third-tier cities have more room for trial and error, and strategically it's easier to implement the national "rural surrounding cities" strategy. And many other factors, including local government industrial environment support. What I want to say is: don't just focus on investing in brands from Beijing, Shanghai, and Guangzhou. Many regional brands in regional central cities like Wuhan, Chengdu, Hangzhou, Nanjing, and Xi'an are already doing excellently. Cities like Wuhan, Chengdu, and Hangzhou are making great progress in industrial environment, talent factors, and business environment. The market environment is more relaxed, and local users' disposable income is not low. Since they don't have to spend a lot on housing like in Beijing, Shanghai, and Guangzhou, they have more spending space. This lays a very good foundation for brands like Zhou Hei Ya and Heytea to emerge. In Changsha, there are several tea brands doing very well, able to form monopolistic brands in the regional market. Brands like Xiaohu Duck in Jingzhou and Yanjin Shop in Hunan are all excellent brands. In these regional cities, there are still many potential brands with large revenue scales growing rapidly, which also means these places may become main driving cities in new consumption and new retail entrepreneurship in the future. Whichever city seizes this opportunity may see more Zhou Hei Yas born. How do you view this issue? Do you stay in Beijing, Shanghai, and Guangzhou, or return to these new first-tier cities for new consumption entrepreneurship? Please leave me a message. Click the image for details The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. At this conference, New Distribution has invited 1,000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to participate. The theme of this conference: New Forces, New Ecology. At that time, we will invite well-known domestic B2B industry experts, mentors, and B2B platform founders to discuss the following topics:
********How can the FMCG industry leverage B2B to achieve new growth opportunities
********How to build the new supply chain behind new retail
********How can intra-city logistics help B2B achieve leapfrog development Highlights of this conference: The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
B2B and investor project closed-door matchmaking meeting
********Conference site + exhibition center, dual internet technology exhibitions
********Leaders from Alibaba, Etern, Best Store+, Global Logistics, Unilever, Hd, Yunmei, and other well-known enterprises in various fields will give speeches and share pioneering views. October 17-18, 2017 Chongqing Convention and Exhibition Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" -END-