Consumption has become the main driving force for the mainland's economic growth, and there is still room for further exploration in all areas and links of consumption.
This article is a transcript of the speech delivered by Yang Sulan, Head of the Consumer Group and Managing Director of the Investment Banking Department of CICC, at the "2024 China Catering Industry Summit".
This year marks my twentieth year in the capital business. In 2004, after graduating from Peking University, I moved to Hong Kong and began to work in the capital market, which was also at the beginning of China's capital market reform and opening up. Therefore, in the past 20 years, I have seen the development and changes of China's economy and capital market, and I am also fortunate to have the opportunity to participate in the domestic and overseas listing, financing and M&A projects of many leading Chinese companies, and serve many well-known enterprises, such as Nongfu Spring, Anta, Helens, Guoquan, Zhenjiu Lidu, SF Express, J&T and so on.
In the past 20 years, China's economy has taken off, and the consumer industry has also undergone great changes. Especially in the past decade, with the advancement of science and technology in the fields of Internet, AI, media, logistics, etc., the rapid development and transformation of the consumer industry has been greatly promoted. There have been many changes in transaction methods, trading venues, logistics and transportation, and digital applications.
01. In the past decade, the consumer industry has ushered in rapid development and change
In terms of payment methods, the development of smart phones and communication technology has led to great changes in payment methods, and Chinese society has basically changed from the original cash payment to mobile phone payment, and electronic payment has become the mainstream. It's more convenient to pay, and that's a big change.
In terms of trading venues, many of them used to go to supermarkets and shopping malls to consume, but now most of them have changed to online consumption. Such changes have also prompted the entire transaction to change in terms of people, goods and places. The original traditional consumption form is "→ goods and → people", or "→ goods and → people", but today's new consumption form has become "people→ goods → field", and the core has become "people". The development of technology has shortened the distance between people and goods, making it easier for goods to reach consumers.
In terms of logistics and transportation, the development and improvement of logistics technology has provided an important infrastructure for the transformation of consumption and transactions. In the past decade, many express delivery companies have emerged in China, including SF Express, J&T, etc. They have made a great contribution to the development of Internet transactions, without the emergence of these efficient and low-cost logistics, e-commerce, online transactions would not have developed to this extent.
Here is also a very interesting phenomenon, in Europe, America, Japan and other technologically advanced countries, their online transactions or online shopping are not as popular as China. I think there are two reasons behind this: one is that the logistics cost of these countries, or the labor cost, is very high, and it is difficult for them to do logistics at a very low cost. In the context of the general environment, their online transaction costs will also be very high, so they will not develop as fast as China's logistics, which is the cost reason.
On the other hand, people in these countries have higher requirements for digital privacy. For example, if you want to go to a restaurant to eat in China, you will often see a store launch a "scan the code to join the membership with discounts" activity, and some personal information will be entered in the process of adding members. But this is very difficult to achieve overseas, because people will worry about whether the information is safe for you, which is the difference in culture or philosophy, which is also an important reason why online transactions in overseas countries have not developed as fast as China.
The development of technology has also made great changes to business operations, especially in terms of digital applications. Using the digital system, restaurants can achieve more refined management in various aspects such as personnel management, checking store revenue, product sales, etc. It is also based on the application of digitalization that has given birth to more 10,000-store chain catering brands.
In terms of products and packaging, the development of science and technology has also brought many changes, such as the emergence of self-heating hot pot and prefabricated products. There are also many products whose packaging is becoming more and more beautiful nowadays.
In the past decade, the proportion of consumption in GDP has been rising, and consumption has gradually become the main driving force of the mainland's economic growth. Last year in particular, consumption contributed 82.5 percent to overall economic growth. This year's two sessions have also made clear arrangements to promote the steady growth of consumption, and encouraging policies in various consumption-related fields such as cross-border e-commerce, offshore duty-free, new energy vehicles, and cultural tourism have been introduced one after another.
02. The demographic dividend has disappeared, competition has intensified, and the consumer industry has ushered in new challenges
The progress of science and technology has promoted the continuous growth of the consumer field, and the various subdivisions of consumption are now blooming. For example, there are many excellent enterprises in the field of catering, such as: Haidilao, Mixue Bingcheng, Guoquan Shihui, Juewei Food, etc.
Will technology continue to promote the development of the consumer industry in the next decade? What are the other development opportunities in the consumer sector? Before answering these questions, it is necessary to take a look at the challenges that China's consumer industry is facing after the rapid growth of the past decade.
From a macro perspective, the birth rate is declining, the structure of the Chinese population is gradually aging, and the growth rate of the total retail sales of consumer goods in the entire society is also slowing down, which is what we usually call "the demographic dividend is disappearing".
At the micro level, on the supply side, the competition of enterprises has become increasingly fierce, which is what everyone calls "becoming extraordinary". For example, in the coffee track, many new coffee brands have emerged in the past two years, and there is basically no shortage of milk tea shops in various cities, and some milk tea brands are also sprinting to the market. The fierce competition has brought more and more severe tests to the supply side, and enterprises can only survive and develop if they do well.
On the demand side, after 10 years of development, consumers' tastes have become higher and more demanding, and everyone's requirements for products will only get higher and higher in the future, and the current consumer preferences and behaviors have also changed and adjusted rapidly.
In the analysis of consumer behavior portraits, it is found that after surveys and statistics by professional institutions, consumers' choices have become more rational. Surveys conducted by Deloitte and McKinsey also show that consumers now prefer the most cost-effective products they really need.
When choosing a product, consumers will consider the quality and functionality of the product first, then the price, and then the emotional value and brand.
From the perspective of channels, consumers are receiving more and more information, and the channels for receiving information are becoming more and more diversified, and there are more than 10 common channels for obtaining information, including e-commerce, shopping malls, live broadcasts, etc. This also means that brands need to lay out more and more marketing channels, because it is difficult to gain public recognition and recognition through only one channel marketing.
In addition, consumers' preference for domestic brands is also increasing. Back ten years ago, or even earlier, Chinese consumers were very fond of overseas brands, and they would think that the quality of "foreign goods" was good. However, in the past decade, especially in the last five years, domestic brands have slowly risen and won the favor of more and more consumers.
To give a few typical examples, such as infant milk powder, we have made a statistic, comparing the situation of the milk powder market in 2013 and 2021, we will find that in 2013, overseas milk powder accounted for more than 50% of the entire Chinese market, but in 2021, the market share of domestic milk powder brands accounted for more than 50%, surpassing foreign brands; In the field of fast food, the rise of local Chinese brands in recent years has been very obvious, and the proportion of local fast food brands in the entire market is also increasing.
Finally, if we look at the capital level, the amount of social financing is also decreasing. In the communication with entrepreneurs, everyone also generally said that it is becoming more and more difficult to raise private equity financing, and it is becoming more and more difficult to get money at the capital level.
All of the above has brought new challenges to China's consumer industry.
03. In the next decade, three major trends in the consumer industry are worth paying attention to
Despite the challenges, technology will continue to impact consumption over the next decade. There are still opportunities in all areas and links of consumption. It is mainly manifested in three aspects:
1. Intelligent
Intelligence is a general direction for the development of the whole society in the future. Intelligence can reduce costs, improve efficiency, improve cost performance, and improve product functions, which are exactly what consumers need. As a consumer goods company, if you want to achieve good development, you must be recognized by consumers, and you must make more efforts in intelligence.
Specifically, intelligence will occur in many fields, including production, retail, catering, warehousing, etc.
In the field of production, for example, the production of products is further automated. Enterprises like Nongfu Spring have very few staff in their workshops, and they will use automated packaging and intelligent production, and many production links are realized by machines.
In the field of catering, scanning code ordering has become very common, which is also a manifestation of intelligence, and there may be automatic food delivery machines, vending machines, and automatic checkout machines in the future. Beverage shops will have automatic mixing machines, milk tea machines, and so on.
In the field of warehousing, autonomous driving may be more used in transportation in the future, and warehouses can also be made fully intelligent, and intelligent management of the storage volume and transportation of goods can be implemented.
In the field of smart home appliances, although the current development of real estate has encountered a little problem, there is still a demand for personalized and convenient home experience, so there is still room for development in the smart home market.
2. National tide
As mentioned earlier, domestic brands are winning the market, the quality of local brands is recognized, and the proportion of domestic products is also increasing, but I think this proportion is not high enough, and it can be higher in the future. Taking food and beverage as an example, Coca-Cola and Pepsi have a large market share, while the share of domestic brands is still low, so there is still a lot of room for exploration in the future.
In today's market economy environment, there are still many opportunities in the consumer industry, but this is a structural opportunity, such as the rearrangement between domestic products and overseas brands, which will bring structural opportunities.
With the development of social economy, the enhancement of China's national strength, and the progress of science and technology, the operating costs of enterprises will decrease, the quality of products will be higher, and consumers will naturally prefer domestic products. China is a unified market with a population of more than 1.4 billion, while Europe and the United States have only a few hundred million people. The market is large enough, and the adjustment of the ratio of "domestic products" to "foreign goods" will bring many new development opportunities.
3. Innovation
This year's two sessions once again emphasized the term "new quality productive forces," and what is "new quality productive forces"? It is the quality of advanced productive forces dominated by "innovation." To put it in layman's terms, it is necessary to use new things to make some new creations and achieve new development.
"New quality productivity" will be a major development direction in the future, taking catering as an example, whether it is in the front hall or the back kitchen, or in other business links, you can use some new tools to achieve innovation and intelligence, so as to meet the changing needs of consumers.
Therefore, if consumer enterprises can dig deep in the three directions of intelligence, domestic products and innovation in the future, they can find some new development opportunities.
Finally, you may also pay attention to how catering companies can gain the favor of investors in the current new situation, in my opinion, current investors will prefer companies with the following three characteristics:
First, it is a differentiated enterprise. Such enterprises can often find their own core positioning, clearly understand what kind of products they want to make, and distinguish themselves from other enterprises, with their own characteristics and differentiation, and do not follow the trend.
Second, it is a company that can achieve profit-making. Whether it can generate profits is an important criterion for investors to judge whether a company is good. If an enterprise has a high profit margin, it means that the enterprise has good profitability and will naturally attract the attention of the capital side.
Third, it is an enterprise with large-scale potential. Investors like the leading companies in the industry, and the leading companies often get good valuations. Therefore, if an enterprise has set a detailed and implementable large-scale development path at the beginning of its establishment, and has the potential to become an industry leader, then in the eyes of the capital, such an enterprise is also very promising.