Another friend's company went bankrupt. When I heard the news, I dug out the bags of chicken soup rice noodles I had hoarded at home—spoils from a flash sale in their livestream watched by tens of thousands. Unfortunately, the rice noodles had expired, just like the glory of their company. Two years ago, their company was also a new consumer brand riding the wave, dominating instant food sales charts on multiple e-commerce platforms with its "half a chicken in a bowl of rice noodles" feature. Their livestream ROI easily hit 3, and Douyin even used them as a B2B PR case— Although the logic of spending 1 yuan to earn 3 yuan was ultimately proven to be a loss, this superficial achievement was enough to become the "other brand" that Douyin touted when attracting other brands to spend money. At that time, the prince and princess might have thought they would live happily ever after. Over the next two years, their company entered a thrilling fantasy from which they couldn't escape— Financing—burning money on promotion—more financing—more burning money on promotion. After an increasingly intense cycle, the once-ambitious young founder ended up a disillusioned bankrupt boss. Sharing his disillusionment were brands like Wang Baobao, whose marketing was once everywhere but whose revenue has now dropped by 70%; Lamian Shuo, once selling 1 billion yuan but now rumored to have a broken capital chain; Pop Mart, once red-hot but now with a market value down 80%; Wenheyou and Sexy Tea, once with long queues but now closing stores and laying off staff; Perfect Diary and Judydoll, once popular across the internet but now widely disliked... In the past two years, those new consumer brands that made a splash have walked similar paths, seen similar scenery, and had similar moments of glory. Now, they are either dead or struggling to survive. On the new consumer track, no matter how exciting the story or how beautiful the promotional data, without the fuel of financing, it all turns to ashes. A few days ago, a well-known investor publicly called out on Weibo, saying, "I don't understand why so many investment institutions suddenly lost confidence in the new consumer sector and stopped investing." Hmph, why did they lose confidence? Don't you, as an investor, understand? 01 Behind the Bluff: A Game of Hot Potato Last summer, a story that sounded like a joke circulated in the venture capital circle: A donkey meat火烧 shop in Hebei that had been open for over 20 years caught the attention of capital. Four or five capital firms approached the owner simultaneously, eager to give him money to help him "grow bigger and stronger." This frightened the owner, who couldn't understand what these swarming capital firms wanted to do. Of course, they wanted to take you to become CEO and reach the peak of life, to help your small shop follow the "new consumerism" trend, sell the 10-yuan donkey meat火烧 for 30 yuan, and expand it nationwide, even across Asia and the world. A common consensus is that 2020 was the first year of the rise of new consumption. According to data from the National Bureau of Statistics, total retail sales of consumer goods in 2020 reached 39.1981 trillion yuan, a year-on-year decrease of 3.9%. Meanwhile, per capita consumer spending on food, tobacco, and alcohol increased by 5.1% to 6,397 yuan. After all, during the pandemic lockdowns, ordinary people had no desire to spend money on anything other than food and drink. This is easy to understand, so at that time, capital had no better place to go than new consumption. From 2020 to 2021, from milk tea, sparkling water, and coffee to ramen, bakery, and plant-based products, even malatang, fried skewers, seasonings, and underwear... both known and unknown consumer companies started receiving money hand over fist. According to CBN Data, in the first half of 2021 alone, 333 new consumer projects were born, with 50 billion yuan of hot money flowing in, exceeding the total for 2020. According to incomplete statistics, from January to December 2021, there were 826 financing transactions (excluding IPOs and private placements) in the domestic new consumer industry, with a total transaction amount of up to 83.1 billion yuan, far exceeding the 286 transactions in 2020, and the transaction amount nearly doubled year-on-year. At that time, the investment circle's verdict on new consumption was: "All consumer goods are worth doing again." "Doing it again" can have many different meanings, but one common meaning is—selling something that originally cost 5 yuan for 20 yuan. Of the extra 15 yuan, a few yuan must have gone to "product development," but more went to fancy packaging, influencer commissions, and the growth data used to paint a rosy picture for the next round of investors. This money was not wasted, of course. Many new consumer brands that had only been established for a few months had their valuations inflated to hundreds of millions before even turning a profit. Investors fought to grab projects, even breaking the valuation system that had been stable for decades, frantically raising PS ratios from 1-3 times to 7-10 times. Change the brand, change the packaging, and consumption "upgraded" to "new consumption." The story of new bottles with old wine began to play out endlessly, and new consumer brands began to emerge in droves. 02 Starbucks Lost at the Starting Line of Imagination In just a few months, the valuation of a trendy new consumer brand's offline store could inflate from "20 million yuan per store" to "100 million yuan per store." This is a number that, as a passerby, you couldn't calculate with a simple multiplication problem based on average transaction value and foot traffic. What does "100 million yuan per store" mean? Starbucks, established over 50 years ago, has 35,000 stores globally, with a total market value of $97.3 billion, implying a per-store valuation of $2.78 million. While we don't know if their products are "ceiling-level," their capital sophistication is definitely "ceiling-level." What kind of product can support such store and brand valuations? Adjectives like "Hermès of [category]," "ceiling of [category]," "pride of domestic products," and "new [category]" have been circulating among different categories, brands, and products, each taking turns in the spotlight. After the same adjectives, the same expansion models, and the same "marketing with heart, products with feet," comes the same collapse. In August 2021, starting with the collective plunge of Chinese concept stocks and new consumer companies breaking their IPO prices, new consumption began to cool down. According to CVSource data, in the first half of 2021, there were 595 financing deals in the consumer sector, with a transaction amount of 126.905 billion yuan. In the second half of 2021, the number of financing deals dropped to 483, and the transaction amount fell to 76.67 billion yuan, nearly halving. All the models that were touted in the first half of the year no longer held up in the second half. All the stories that were praised in the first half were no longer believed in the second half. At the end of 2021, the investment circle made a 180-degree turn, declaring that "99% of new consumer brands will die within three years, and half will die next year." New consumer companies went from being hotcakes to being avoided like the plague. New consumer investors fell from the top of the pyramid to the bottom of the鄙视链 (disdain chain). Even the consumers targeted by new consumption developed a self-disciplined awareness of "seeing through the hype and looking without buying." According to IT Juzi data, in the first quarter of 2022, the total financing amount in the catering industry was less than 10% of the previous year's total; the number of financing projects and amounts in the food and beverage sector were both less than 10% of the previous year's total. By July 2022, some investors said that consumer investment in the first half of the year had dropped by about 70% year-on-year. Some said that anyone still looking at consumption was at the bottom of the disdain chain. Some said, "I invest in consumption, but I haven't made a deal in the past six months." Watch them rise, watch them fall. In To C promotion, new consumer products particularly like to use the adjective "XX is a worthwhile investment." I don't know if you felt it was a loss after buying these products, but the last batch of investors who took over definitely cried over their losses. 03 Young People Are Done with Consumption, Brands Still Want to Upgrade? Consumption upgrading was a wave of the era originally tailored for young people. And young people once rode that wave. If you're a young person (or consider yourself one), you've probably had these life experiences in recent years: Going out shopping, first buy a cup of milk tea, sip it while strolling, see a line for trendy mochi, pastries, or crispy pork belly, and join the queue to try some. Browsing at home, you see posts and videos from trendy beauty brands that plant a seed, and with the price of "a cup of milk tea," you order two to try. Waking up hungry at midnight, you scroll through short videos and are tempted by close-ups of greasy food, and seeing a "limited-time discount," you don't hesitate to buy a dozen. After trying a round of trendy new consumption, you suddenly realize that trendy milk tea and snacks all taste the same, trendy beauty products are cheap but really hard to use, and trendy snack packaging is flashy but the value for money is too low... So, you start to disenchant with "trendy XX," and even feel a bit of aversion. After abstaining from trendy consumption for a while, you suddenly realize that spending 20+ yuan on instant ramen is not as good as going downstairs for a freshly made bowl, buying 20 dupes is not as good as one big-name product, the same thing with fancier packaging costs several times more, those non-essential purchases don't need to happen, spending money doesn't feel as secure as saving it, and making your wallet fatter is much harder than making it thinner... Later, when the sales pitches of "just a cup of milk tea" or "second item 5 yuan" sound again, the response becomes: "Sorry, I don't even buy 5-yuan things anymore; I only want to buy 5-cent ones." For example, the lowly and cheap: snack offcuts. From bread crusts and cake scraps to pork jerky fragments and sausage ends, piled messily in transparent plastic bags, with no aesthetic appeal, selling at 10% of the regular price. Look at this sloppy packaging compared to the exquisite national trend style that capital promotes. They are not the same; they are completely unrelated. But it's precisely these honestly shabby products that are selling like hotcakes. According to the "2022 Q1 Magic Mirror Consumer New Potential White Paper," snack offcuts are the potential market with the highest growth in 2022. In the first quarter of 2022 alone, sales of offcut snacks on Taobao exceeded 20 million yuan. On Pinduoduo, the main platform for offcut snacks, products with sales over 100,000 are everywhere. Moreover, young people who have seen through consumerism traps and tightened their belts have not only turned snack offcuts into a market but also made a market for food that expires in a few days. According to the "2020 China Near-Expiry Food Industry Market Analysis and Consumer Research Report," consumers aged 26-35 account for 47.8% of near-expiry food consumers, with over 70% being young people and over 60% being middle-income groups. This is not consumption downgrading; this is truly giving up on consumption. The reason for giving up is simple: the young people that new consumption had the highest hopes for not only can't save money but can't even find jobs. According to the National Bureau of Statistics, the surveyed urban unemployment rate in June 2022 was 5.5%, with the rate for those aged 16-24 at 19.3%. This is the highest since the indicator was published in January 2018, far exceeding the international warning line of 7%. Not to mention that after July, 10.76 million college students graduated, compounding the 19.3% youth unemployment, making the youth employment situation even more severe. Young people in such a situation really can't afford to pay the high premiums for new consumption. According to the National Bureau of Statistics, from January to May 2022, total retail sales of consumer goods were 17.1689 trillion yuan, a year-on-year decrease of 1.5%. Looking at May alone, total retail sales were 3.3547 trillion yuan, down 6.7% year-on-year. Excluding three years of inflation, current total retail sales are worse than in 2019. Thus, the new consumption that once resonated with young people has been abandoned by them after being tempered by society. After all, the thickness of your wallet determines the height of your consumption outlook. My own life's outer packaging has been stripped away; how can I pay for others' packaging? 04 Ironclad Supply Chains, Fleeting Trendy Brands After this wave has passed, young people have awakened, brands have fallen, and capital has been hurt. Did no one benefit from such a massive investment? In 2007, a juice company was founded, before the era of new tea drinks. In 2015, this company was listed on the New Third Board, raising nearly 300 million yuan. At that time, its major clients were Huiyuan Juice, Nongfu Spring, and Coca-Cola. Then, Nayuki was established, and its order volume surged, quickly becoming the company's largest client. By 2022, this company, called Tianye Co., was still little-known but profitable every year, and it went public with impressive performance. Meanwhile, Nayuki, widely known, has been losing money for four years. As the "first stock of new tea drinks," its market value evaporated by 20 billion yuan in one year. While new consumer brands collectively struggled with losses, suppliers collectively made money hand over fist. When Heytea laid off staff, Nayuki lost money, and Lelecha closed stores, the suppliers "selling water" to these milk tea shops were all preparing to go public with impressive results. Hengxin Life (paper cups), Nanwang Technology (paper bags), Jiahe Food (creamers), Tianye Co. (juice), Sunwin Bio (sweeteners), Baoli Food (seasonings)... In their prospectuses, big clients like Coca-Cola, Wahaha, Genki Forest, Heytea, Nayuki, Lelecha, Luckin Coffee, Starbucks, and Mixue Bingcheng sit in a row, endorsing the suppliers' impressive performance with orders worth tens of millions of yuan a year. Who would have thought that these tea drink brands with annual revenues of billions would end up with lower profits than some paper cup and bag sellers? Despite the booming milk tea industry in the past five years, opening a milk tea shop is still a business where "nine out of ten shops lose money." According to iiMedia Research, only 18.8% of milk tea shops nationwide survive for more than a year. The suppliers behind these milk tea shops, the earliest founded in 1997 and the latest in 2007, have stood firm through wave after wave of brand wars and quietly made money. Fleeting trendy brands, ironclad suppliers. The same principle is confirmed across new consumer categories like milk tea, food, and beauty. Not all milk tea brands survive a year, but those selling milk tea cups always last a few more years. Not all trendy snacks have repeat customers, but those selling snack seasonings always have repeat customers. Not all trendy cosmetics have technical barriers, but all cosmetic brands rely on factories selling hyaluronic acid. It's like, even if you don't drink Heytea or Nayuki anymore, you still drink CoCo or Mixue Bingcheng, and they also need to buy cups. From consumption upgrading to downgrading, and from downgrading to giving up, flashy consumer brands die one after another, but only the humble supply chain behind them survives the trends. Just like after the new tea drink craze, only those selling "cups" have long-term success. A basin of cold water from the times has extinguished the wildfire of burning money on marketing, extinguished the frenzy of capital speculation, and nourished the soil of real consumption. According to the National Bureau of Statistics, China's GDP grew by 8.1% year-on-year in 2021, with consumption expenditure contributing 5.3 percentage points, a contribution rate of 65.4%. The trick of new bottles with old wine no longer works. After the bubble clears, only those who seriously sell wine will always attract drinkers. Source: 爅爅有闻 (chattycats) Author: 赵小爅