---
title: "Will There Be Another $10 Billion Consumer Company in the Next Five Years?"
description: "The author, a consumer industry researcher, questions whether China's consumer sector will produce new $10 billion companies in the next five years, arguing that traditional brand-building models are hitting ceilings. He proposes that future successful consumer companies will need to adopt new dimensions such as planning, optimized distribution, consulting, and user relationships to build sustainable moats."
author: "李靖"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-03-07"
language: "en"
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# Will There Be Another $10 Billion Consumer Company in the Next Five Years?

> The author, a consumer industry researcher, questions whether China's consumer sector will produce new $10 billion companies in the next five years, arguing that traditional brand-building models are hitting ceilings. He proposes that future successful consumer companies will need to adopt new dimensions such as planning, optimized distribution, consulting, and user relationships to build sustainable moats.

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I personally study China's consumer industry. Some time ago, I initiated a topic among a few investor friends: **Will China's consumer sector see new $10 billion companies in the next five years?** If so, what characteristics will they have?
In the consumer sector, an obvious phenomenon over the past few years is:
A large number of new brands and small and medium-sized brands have risen (which was almost unimaginable in the past). Today, someone might create an aromatherapy brand; tomorrow, someone might create a men's grooming brand.
What does the continuous rise of new brands mean for investment and entrepreneurship? Is it a strong positive signal?
I think it's actually the opposite; it's a bad thing—**this means that simply operating a brand is transforming from a good business into a bad one.**
The most important characteristic of a "good business" that can scale is its ability to continuously build barriers and resist competition. In theory, a "good business" wouldn't see so many new players continuously rising—for example, social networks are a good business. Once Tencent established itself at the right time, we haven't seen many social networks continuously rise afterward.
Conversely, a "bad business" is always prone to waves of new entrants. No matter how much innovation you do, others will follow suit. If you open a restaurant, I can open one with better taste to steal your customers.
I am very optimistic about China's consumer industry. We can see opportunities for innovation in new categories and new demographics across many fields. There is still huge room for upgrading in Chinese household consumption. But if we think about a model for a $10 billion consumer company, the biggest difficulty here is:
**After simply operating product brands, what "good businesses" in the consumer sector can help consumer companies build barriers?**
To be honest, I don't have a 100% certain answer to this question, but after a period of research and practice, I do have some thoughts to share with you.
**The sharing is divided into 2 parts:**
Part 1: The ceiling of consumer companies
Part 2: The future Alpha of consumer companies
**Part 1:**
**The ceiling of consumer companies**
For many years, the business model of the consumer industry (especially consumer goods) hasn't changed much: it's about concentrated brand building.
Specifically, it means finding an attractive product, defining a clear positioning, laying out channels, building awareness through mass advertising and communication, and ultimately forming a brand in the consumer's mind.
This created a very obvious scale effect in the past, helping companies exclude competitors—**only the largest companies could advertise nationally or globally to build a brand** (a regional brand would obviously waste a World Cup sponsorship). Then, leveraging brand momentum, they gained bargaining power over channels and expanded sales. Large sales volumes increased bargaining power over upstream suppliers, reducing production costs. This created a huge positive cycle, making it difficult for small companies to truly rise (small and medium companies that built brands often ended up being acquired by giants like Kraft Heinz or Coca-Cola).
But now everyone realizes that the ceiling of this model is becoming increasingly obvious. Traditional consumer industry giants familiar with this playbook are also facing increasingly severe challenges.
**The internet marketing that was later highly anticipated didn't truly change this problem**—whether I ask a Weibo influencer to repost my post, replace offline distributors with online WeChat sellers or Taobao stores, or use data-driven performance advertising (like feed ads), **these are all tactical enhancements of the original model, not the establishment of a new model.** Ultimately, it's still about creating a product and then finding ways to build channels and brands to sell it.
Why has this model, which originally had deep moats, hit such an obvious ceiling in recent years?
It's simple. Generally speaking, **when a model hits a lower ceiling, it's often because certain factors have made previously difficult things easier.** After all, companies can only create excess returns by doing difficult things. (This is like how upstream suppliers in the automotive industry provide increasingly systematic solutions, making car manufacturing easier, which naturally reduces the barriers for vehicle manufacturers.)
Similarly, the past practice of building a brand based on advertising and traffic to sell products has also been impacted by these factors:
**1. Building a brand has become easier:** In the past, single, powerful media created huge barriers for brands (for example, only national brands could appear on CCTV) and had a strong brainwashing effect. Now, media power is greatly weakened, and information is diverse; anyone can build a brand by running a WeChat public account. Barriers are lowered, and consumer forgetfulness accelerates.
**2. Consumer cognition is easier:** In the past, consumers faced significant information asymmetry; they could only judge product quality through brands. Now, through friend recommendations, search reviews, etc., it's easy to know product quality. The role of brands in reducing information asymmetry is diminishing.
**3. Consumer purchasing is easier:** In the past, media and stores were separated. Consumers watched TV ads and then went to the supermarket a few days later to buy. So all marketing tactics (like simple logos and vivid slogans) were designed to make people remember (to avoid forgetting the ad). Now, users can purchase instantly; they don't need to actually remember a brand to complete a purchase.
The past business models in the consumer sector, whether building consumer goods brands or opening branded chain stores, are still viable. Similarly, every year we see opportunities in new categories and new demographics (like pet needs, e-cigarette categories, or elderly travel). **But the biggest difficulty here is:**
Past models are hitting more obvious ceilings. There are many small and beautiful companies, but they struggle to scale (it's hard to imagine a current consumer goods brand becoming Coca-Cola just through branding; more often, they quickly grow to a few hundred million in sales and then hit a ceiling).
So, will there be $10 billion companies in the consumer sector in the next five years? I think yes, provided that beyond channels, brands, and production, new dimensions are added and new models are expanded.
**Part 2:**
**The future Alpha (excess returns) of consumer companies**
Currently, starting any $10 billion business is very difficult, as giants have already built a lot of infrastructure, making things both easier to do and lowering barriers. But I remain very optimistic about the consumer sector; there are many undervalued opportunities. The models I see now are still in the exploratory stage, so I won't share specifics yet. But here I'll share what new dimensions I think future consumer companies that can reach $10 billion might have.
In this regard, a question I often ask myself is: **What has been done to the extreme and is excessive, and what is insufficient?**
First, over the past 40 years, I believe China's rapid industrialization and internetization have taken "**the large-scale production and circulation of physical goods**" to the extreme. Whether it's large-scale industrial production reducing costs (we can make lighters for a few cents and power banks for tens of yuan), or rounds of innovation promoting product circulation (like e-commerce platforms greatly improving the efficiency of product distribution), or various logistics networks and efficient logistics companies.
As I just said, past consumer companies have already taken production, channels, and brand & traffic to the extreme. So what is the "insufficient part" that can truly create sustainable barriers?
To summarize in one sentence: **I believe that consumer companies that could scale in the past were essentially manufacturing companies, channel companies, and brand companies, earning money from manufacturing, channel management, and brand & traffic operations. Future consumer companies, in essence, will be planning companies and consulting companies, earning money from planning, optimized distribution, consulting, and user relationships.**
Of course, this doesn't mean these companies won't do manufacturing, channel management, or branding; it's just that these aspects will no longer create Alpha (excess returns) and will become standard, with everyone doing roughly the same. Alpha will come from new dimensions. Similar to Japan's Tsutaya Books, which has a brand, but it's essentially a data-driven planning and consulting company.
Below I'll detail the attributes I think future consumer companies should have to maintain competitiveness (I believe they should have at least one of these):
**1. The attribute of planning**
Consumer companies must first discover consumer needs. So, which of the following two categories do you think consumers find it hardest to find solutions for?
(1) Air conditioning cooling, faster sports cars, having dinner;
(2) Becoming healthy, becoming beautiful, raising children;
Clearly, for most people, the first category has very clear choices. For example, for air conditioning, you directly buy Gree. But the second category is not clear.
What's the key difference?
The most important difference is: cooling can be satisfied with hardware products alone, but becoming beautiful cannot be satisfied with products alone. You also need services, advice, and customized solutions.
As mentioned earlier, I believe the past 40 years of industrialization have taken the production and circulation of physical goods to the extreme, leaving little room for huge gains. If a need can be satisfied simply through physical goods, I think many have already been satisfied.
But this doesn't mean there are no opportunities on the demand side. From the consumer perspective, there are many needs that cannot be simply satisfied by purchasing physical goods, and that's where the value of "planning" lies.
For example, for weight loss, following the past brand marketing model, it would be like Baishengyuan weight-loss tea: develop a product, then sell it through advertising and channels. But this is hard to truly satisfy user needs—weight loss is a systematic project; simply eating a product won't work. Ultimately, due to lifestyle habits and persistence issues, users may still fail to lose weight.
To solve such needs, a company must transform from a product company into a "planning company," providing consumers with complete proposals to solve their problems. Generally, I think a company planning consumer value has these three aspects:
**Hardware:** That is, the product—the product produced by the factory that helps consumers solve problems;
**Software:** That is, services—the timely support the company provides to users;
**Wetware:** As Kevin Kelly mentioned, this refers to user relationships, forming relationships among users to solve user problems.
For example, for weight loss, there's a foreign company called Weight Watchers that comprehensively uses hardware, software, and wetware to plan consumer value.
**Hardware:** Healthy food that helps consumers lose weight;
**Software:** Helping consumers create personalized weight-loss recipes and meal plans; providing online calorie tracking tools, etc.;
**Wetware:** Organizing weekly member offline experience sharing, weight-loss classes, etc., where members build relationships, encourage each other, and jointly achieve weight-loss goals;
**Sometimes companies fail to truly satisfy consumer needs, not because the product (hardware) isn't good enough, but because they don't provide enough software and wetware to help consumers solve problems.**
For example, an online education company that only provides the best courses often can't truly help users learn; users may not complete learning because of a lack of software and wetware;
For example, a beauty company that only provides products can't truly help consumers become beautiful; they may not know what suits them.
Another example: a gym company that only provides hardware facilities can't truly help people get fit. Sometimes people don't work out because they lack plans and motivation. So companies like Super Monkey, which offer group classes and plans, create additional value through software and wetware.
Even Tsutaya Books' founder, Muneaki Masuda, has said that what he does is essentially a planning company.
So what's the difference between companies that plan for consumers and companies that make products?
It's simple: **Past companies were companies that satisfied consumer demands, while planning companies are companies that satisfy consumer needs.**
Needs are a kind of lack that people generate (like needing recognition, needing to become beautiful), while demands are based on needs but with specific target objects and a sense of ability to obtain them (like the demand for a specific mineral water because of thirst).
Cosmetics companies satisfy demands, while companies that help people become beautiful satisfy needs. Many people complain about changing demands, but basic human needs are constant.
So the extra value consumer companies can create in the future is to earn money from planning, by integrating hardware, software, and wetware to satisfy people's needs. (Due to space limitations, I won't detail the composition and coordination of hardware, software, and wetware here.)
**2. The attribute of optimized distribution**
More and more companies are using data-driven approaches to optimize recommendations and services to users.
For example, the clothing company Stitch Fix defines itself as a data-driven fashion company, building long-term relationships with users and continuously iterating its clothing recommendations based on user styles.
Another example is Tsutaya Books, which uses data from users' library cards (t-cards) to optimize book, film, and CD recommendations at each store.
These are all about earning money from optimizing product distribution.
**Why should future consumer companies have this attribute? What exactly is optimized distribution?**
It's simple: how to use data to let the most suitable products flow to the most suitable consumers and scenarios—**I think this is an inevitable trend after resources and traffic can no longer create extra value.**
Initially, most industries were resource-oriented; whoever controlled resources was king, like getting copyrights in the music industry or the best origin supply in fresh food.
Later, when resources and products became excessive, scarcity shifted from the supply side to the demand side. Whoever got traffic held power—like the traffic economy on the internet, channel dominance offline, and brand building in media.
But as choices occupying cognition increase, we'll soon enter a situation of "cognitive overload." Consumers won't want to make choices or won't be able to. Eventually, we'll enter an era where "optimized distribution" is king. (Cognitive overload is why we see more companies starting membership systems, building long-term trust relationships, and offering limited choices within closed groups.)
I believe future consumer companies that can scale should also have the ability to optimize distribution: not just like in the past, controlling scarce supply (like making a good product) or getting traffic (like brand awareness), but also forming a mechanism that naturally flows good products to consumers based on their needs—Toutiao's rise wasn't because it controlled news content resources or had the most traffic and brand, but because it formed a mechanism that naturally flows suitable content to users.
For example, the beauty company Ulta Beauty accumulates a large amount of member data and long-term user relationships through loyalty programs, and then uses smart sampling to continuously recommend more suitable beauty and skincare products to users.
But current consumer companies are still doing far from enough; I think there's huge room for upgrade.
**3. The attribute of consulting and empowerment**
When I previously discussed the Tsutaya Books case, I mentioned that Tsutaya Books' parent company is essentially a consulting company; it earns consulting fees by empowering others. It absorbs large amounts of user data, forms a strong middle platform, continuously strengthens its planning capabilities, and charges fees through external empowerment.
On one hand, it empowers many franchise stores, using data accumulated on the middle platform to help each store plan product selection; on the other hand, using accumulated data and points systems, it connects with 1 million other local Japanese stores (for example, consumers can also use Tsutaya's T-points at FamilyMart convenience stores), helping these stores optimize their efficiency and charging fees.
Another example: many consumer companies have started recruiting user advisors to help answer user questions. The company then collects data and improves its ability to empower these advisors, helping them better serve users.
I believe that consumer companies that can truly scale in the future will definitely have consulting attributes. They can use the knowledge generated by the entire system to help others succeed and gain sustained value (for example, accumulating product planning capabilities for different scenarios, allowing them to plan new brands and products for specific scenarios; or using accumulated user data to help others improve their ability to serve users).
**4. The attribute of user relationships**
**In the past, when we talked about moats, we often mentioned "entry cost," which is the cost for competitors to enter your industry**—for example, Coca-Cola established a brand and scale in the cola field, making it difficult for competitors to enter.
**But now, since it's the era of user operation, we talk more about "exit cost,"** which is the cost for a single user to leave your system (for example, your exit cost from WeChat is very high).
The most important way to increase user exit costs is to form long-term user relationships—one is the relationship between users and the company (like becoming a member makes it harder to leave the system); the other is the relationship among users (users building relationships creates network effects).
Once such relationships are established, leaving a brand is like leaving a community. For example, the resort real estate project Aranya forms a community based on users' shared values (people care about who they live with), thus building a user network that can create value far beyond real estate.
After all, we all know network effects are powerful. Earlier I said traditional brand strategies are greatly impacted, but some brands that inherently have network effects can still be very strong. For example, shampoo brands don't have network effects; if I don't use one, it doesn't affect others. But Moutai inherently has network effects; if I don't drink Moutai, it affects not only myself but also means I'm leaving a circle.
**Conclusion:**
I've spent a long time thinking about what to bet on in the next 10 years. I think the most important thing for me is to bet on Chinese consumption. On one hand, China's consumption base still has huge room for upgrading; on the other hand, the consumer sector is bound to give birth to new business models.
If the most successful consumer companies in the past were companies that resisted change, like Coca-Cola, **then I believe future successful consumer companies will definitely be infrastructure companies capable of leveraging change.** They will still produce products and build brands, but ultimately they will earn money from planning, distribution, consulting, and user networks.
Of course, this is still in the early stages. Many companies only have a bit of a prototype. I myself am still on the path of exploration and research.
Source: Chaos University (ID: hundun-university)
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