Interface News Reporter | Lou Yibei
Interface News Editor | Ya Han Xiang
9.9 may be a sharp number in China's consumer goods industry in 2023.
Luckin and Cudi Coffee launched a price war of 9.9 yuan for a cup of coffee this year, which revealed not only the premium that may have been included in the unit price of 30 yuan coffee in the past, but also the reflection of the price sensitivity of mainstream consumers today.
In 2023, F&B, retail and food and beverage are all making price adjustments in response to changes in the consumption environment - NielsenIQ China's "2023 China Consumer Insights and 2024 Outlook" revealed that a survey by the agency in July this year showed that 43% of Chinese respondents said they would strictly control the overall amount of spending, and 37% said they would change their consumption patterns to seek the best price and lower price products.
You may have already felt the change in the consumption atmosphere around you.
The B1 floor of the shopping mall has become the existence of the largest flow of people, and most of the restaurants with long queues are fast food chains with low stomachs, such as spicy cocoa, Chef Fei and Xijiade; Micun bibimbap, which has an average price of 33 yuan per capita, is now stationed in Shanghai's mainstream shopping malls, and the number of stores nationwide is approaching 1,000; when people talk about Lao Xiang Chicken, they are mostly smiling bitterly, "I dare not order 3 meat dishes at Lao Xiang Chicken with a monthly salary of 20,000 yuan......
Looking forward five years, the market is not like this.
At that time, the sought-after brands were those new consumer representatives with their own tonality and ultimate experience, which met the needs of middle-class groups in first- and second-tier cities for consumption upgrades.
Unfortunately, the rapid changes in the economic cycle make consumers subconsciously clench their wallets. Consumer goods brands that are in the middle of the flood need to react faster to get through the cycle and survive.
"At present, what is in front of us is not only the question of how difficult it is to live, but also the question of whether we can live. Yang Yinfen, one of the founders of BESTORE and the company's chairman and general manager, issued an open letter on November 29, saying that it would launch a new round of reform, reducing the price of 300 products by an average of 22% and up to 45% - this is also the largest price reduction in BESTORE in 17 years.
There are many people who are so anxious.
One of the noticeable changes that has recently been noticed by the chairman of the consulting firm McKinsey & Company China is that when he meets with CEOs of different companies in China, he can clearly feel a sense of confusion, anxiety and crisis. "This was rare in the past. He said.
"Compared with the 'century-old stores' in mature markets, Chinese enterprises have not experienced real cyclical tests, and Chinese entrepreneurs generally do not form a sense of cycles. Ni Yili, chairman of consulting firm McKinsey & Company China, said in an article published in October 2023.
McKinsey has done a lot of in-depth research on how companies respond to cyclical changes, and after tracking more than 2,000 listed companies around the world, it found that after each economic downturn, about 10% of companies have significantly outperformed their peers, and McKinsey calls them "resilient companies". The study found that between 2020 and 2021, the total shareholder return of resilient companies was 50% higher than that of less resilient companies.
Many young Chinese consumer goods companies are also trying to show their resilience.
One of the ways to return to the mainstream price band and increase its own flexibility is to return to the mainstream price band.
Nai Xue's tea has launched a single cup of 9.9 yuan monthly card since August this year, chain restaurants such as Haidilao have launched a 65-70 yuan Hi Lao hot pot, known as Haidilao's "flat replacement", which is a significant decrease compared with the per capita price of 102.9 yuan in its financial report for the first half of 2023, and fresh retail brands such as Hema and ALDI have also lowered their prices.
Industries with stronger rigid demand, such as fast food chains, react more violently. According to Chenzhi Catering Big Data, as of the second quarter of 2023, the average customer unit price of many chain fast food brands has been reduced by 1-2 yuan. Specific to different categories, the "2023 Chinese Catering White Paper" shows that the unit price of rice fast food is 25 yuan, the unit price of spicy hot food has dropped from 27 yuan to 26 yuan, the noodle category has dropped from 24 yuan to 23 yuan, and the rice noodle category has dropped from 20 yuan to 19 yuan.
This is a pain in the arms for consumer goods companies.
A few years ago, they were burning money to meet the needs of consumption upgrades, and now the subject has quickly switched to finding ways to reduce prices.
One way to do this is to reduce costs. Consumer goods companies can also ensure a certain level of gross profit margin while reducing prices, so as to maintain the net profit margin of sales and breathe.
For example, Hefu Lao Mian and Meet Xiao Mian have strengthened their attractiveness through product portfolio adjustments or promotional activities this year. Li Xuelin, the founder of Hefu Lao Mian, said in August this year that the brand has made a lot of moves in 2023, including price stratification and increasing the proportion of products within 30 yuan.
The other is to increase the return on investment, make the brand model lighter, and trade less investment for higher turnover, so that the asset turnover rate is higher. For example, in the coffee and tea track, Heytea has recently launched a teahouse format with a smaller area and few product categories, Tims China has begun to expand stores by opening stalls in snack collection stores, and Haidilao has begun to explore the "flat" store type in chain restaurants.
Another pragmatic approach to cost reduction that extends from this is to open up to join.
Compared with the direct sales model, the franchise model will have lower costs such as taxes and personnel social security, which can help brands accelerate their expansion at a lower cost. We've also discussed that more fast-food chains are now starting a "franchise wave" and are committed to developing lighter, smaller and more flexible stores – which are more risk-resistant and flexible during periods of low growth.
But for retail brands, the challenge is even greater, as they need to swing their machetes at their suppliers.
Hema launched the "Moving Mountain Price" campaign in July, and the industry generally believes that Hema is aiming for Sam's Club. By October 13, Hema announced to the outside world that it had fully launched the "discount reform", but this ushered in a lot of dissatisfaction from suppliers. After the reform began, the various reactions of suppliers directly rushed to the hot search, and Hema faced public torture in terms of morality, fairness and so on.
But in the process, many Chinese consumer companies are beginning to realize their limitations.
Because these moves to reduce prices and return to mainstream price bands are only a matter of urgency, what they lack is the ability to systematically and "go through a real cyclical test".
In the past, during the prevalence of new consumption, these brands may not have thought about such a question.
"At present, the development ability of domestic own brands and the speed of new products, the whole system is imperfect, including our supply chain system and highly competitive procurement system. Hema CEO Hou Yi himself admitted that Hema does not have the ability to compete with Sam and Costco.
Although we are in the midst of change, we are far from being pessimistic.
In the process of consumer goods companies actively seeking change, the maturity of China's catering and retail industry is also further improving.
Before 2019, you had never heard of Wandian's milk tea brand, and before 2023, people would never have imagined that the first coffee brand to open Wandian in China would be Luckin. With 32,000 stores, Mixue Bingcheng is even the world's fifth-largest fast-food chain. At present, people have become Xi to think that there are often various aspects of coffee and milk tea shops, from production standards, store management, to the financial system behind it, supply chain construction, etc., which may not exist in the past.
These large-scale presentations can not only further dilute the costs of the consumer goods industry, but also force companies to strengthen their own management and operation capabilities, which is also a shortcoming that should be made up when the economic cycle changes.
As Ni Yili said, forging resilience and cultivating the ability to resist risks, self-heal and grow against the trend is the way for enterprises to survive the cycle and continue to grow in an environment full of uncertainties.
Although the world is in great uncertainty in 2023, it is also a rare experience for a group of Chinese consumer goods companies.