In DepthFocus On

Can China’s Consumer Brands Achieve Tens of Billions or Hundreds of Billions?

Just after Double Eleven, China’s consumer brands can’t wait to show their brilliant record. This time, in addition to the sales list of traditional categories, Tmall has created 360 new categories “firsts” for new brands within 3 years. For capital, this tide of consumer entrepreneurship is a rare gold rush opportunity. In the first half of 2020, a total of 66 financing incidents occurred in China’s new consumer sector, with total financing of approximately RMB 9.7 billion. However, does the prosperity of consumer investment really mean that the replacement of consumer enterprises has come? Can new consumer companies really overcome difficulties and achieve tens of billions or hundreds of billions of scale?

[button color=”primary” size=”small” link=”https://firmknow.com/wp-content/uploads/2020/12/gcis-china-report-jul2020.pdf” icon=”” target=”false” nofollow=”false”]2020 Global Consumer Insights Survey China Report[/button]

The market is restructuring

The market size of a brand is determined by the needs of users and the willingness to pay. The boom in consumption is not because the market has expanded. For most consumer users, the essential needs have not changed, but are more refined. The number of new brands far exceeds the growth rate of consumer spending. From the national macro data statistics, the growth rate of per capita consumption expenditure of residents is about 5% per year. Taking Tmall as a standard, the average annual growth rate in the past two years is about 27.4%, especially the single-year growth rate in 2019 reached 33.3%, which far exceeds the proportion of residents’ willingness to pay. In the context of no significant increase in consumer spending, more and more consumer products have poured in, and the competition for users has become more intense.

The game between users, products and platforms

With the diversification of product supply and the segmentation of demand, the complexity of matching is getting higher. For consumer brands, occupying the minds of users can achieve lower marketing costs, higher repurchase rates, and user value. However, the difficulty of winning products is gradually increasing. On the one hand, the pace of changes in the supply chain cannot keep up with the demand for product breakthroughs. On the other hand, due to the high maturity of China’s supply chain, the window of opportunity brought by product innovation has become shorter. The trend of product homogeneity makes the channel especially important. The vast majority of emerging brands have adopted a multi-channel operation strategy. From platform launching to the product recommendation in some online communities, it is extremely difficult to achieve breakthrough results.

10 trends for China e-commerce 2020
10 trends for China e-commerce 2020

New Economy: Online VS Offline

Online is an infinite shelf of market-based competition. The essence of competition is equal rights, that is, all sellers have the right to sell goods online at low cost, and are qualified to compete for resource locations with concentrated traffic through a market-based mechanism. The core competitiveness can be established through private traffic. Offline is a high barrier to entry for limited shelves. It can be seen from a human perspective based on the physical radius, or the products and platforms around the offline experience value. In the past two years, consumer entrepreneurship has obtained a historic opportunity for rapid development with the help of capital. But just like many areas of the Internet that have been sought after by capital, after the severe competition, only a few companies that seize opportunities and create core values can survive for a long time.

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Jack Chan

Editor in chief of FirmKnow News.
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